Supply Chain Management Thinking

Sustainability

Sustainability

2.1 Definition

Sustainability today is a major term included in every agenda of almost every

country, similar to the fashion trend blindly being followed by one from other,

without understanding the concept beyond it. Many efforts have been made in

developed countries regarding sustainability at different levels but the word still

hasn’t received that importance in developing countries. In reality it isn’t that

complex term. The term was first used by a German forester and a scientist,

Hans Carl in 1713 in his book, Sylvicultura Oeconomica. But it was recognized

only after the Brundtland Report, 1987, from World Commission on

Environment and Development defined it as ‘

‘Sustainability is to meet the needs of the present without compromising

the ability of future generations to meet their own needs.’

Until today it is recognized as the standard definition of sustainability, which

clears the concept of providing best to humans and its environment now and

also in future.

The International Union of Conservation Scientists (IUCN), United Nations

Environment Programme (UNEP) and World Wide Fund for Nature

(WWF) define sustainable as,

‘Sustainability is improving the quality of human life while living within the

carrying capacity of the Earth’s supporting eco-systems.’

These days, there are thousands of definitions regarding sustainability but the

major understanding remains same, which are:

‘ Understanding the interconnection between economy, society and

environment.

‘ Knowing human limits regarding resources

For better understanding, Sustainability has been divided into 3 types, which is

stated by World commission on environment and development, 1987:

‘ Environmental sustainability

‘ Social sustainability

‘ Economic sustainability

2.1.1 Environmental Sustainability

Environmental sustainability can be understood, as ‘meeting human needs

without compromising the health of ecosystem’ (Morelli, 2011). It is the capacity

of environment to support and maintain its quality and resources. Today

environment depletion is a biggest issue especially in Developing Countries.

Figure 1 Principle of Sustainability (World commission on environment and development, 1987)

2.1.2 Social Sustainability

It is the ability of a system to function properly for social well-being at different

level, where the system may comprise of a family, an organization or a country

as a whole. A society is an acting force to drive a nation’s economy and

environment.

2.1.3 Economic Sustainability

The ability to support economic production at a defined level is understood as

economic sustainability.

The three pillars of sustainability are highly interconnected which ensures longterm

well-being of human and promotes a quality living. Sustainability is more

likely to be efficient when these components are combined rather than they

being compromised for the sake of construction. When the importance of each

pillars are clearly understood it significantly helps in decision-making process

for a healthy and enhanced standard of living.

2.2 Principles of Sustainability

Nowadays there are lots of articles, journals emerging in context with

sustainability and its underlying principles. The information obtained are vast

and vague, so the RIO Declaration on Environment and Development, 1992,

has published the principles of sustainability which helps to understand the

concept clearly, which are as follows-

‘ The present development should not dominate the development and

environmental needs of future.

‘ Every individual have equal right to a healthy and productive life.

‘ The nation has every right to use its resources but responsibly.

‘ Unsustainable pattern of growth should be avoided by nation by

balancing the production and consumption ratio.

‘ Demographic policies should be promoted along with reducing disparities

in standard of living.

‘ Public should be made aware of the ecological issues and encouraged

for their participation.

‘ Effective laws and authorities should be categorized for strong

implementation of the rules from administrative side.

‘ Public and private sector should also cooperate at a regional level.

2.3 Objective

The objective of sustainability can be listed as:

‘ Offer fundamental human needs

‘ Control climate change

‘ Overall economic growth of nation

Figure 2 Aspects of Sustainability (verify sustainability, 2006)

‘ Accommodating the urbanization

‘ Sustain biodiversity

Figure 3 Importance of Sustainability (Sustainability report 2010)

3. Construction industry

3.1 Introduction

Construction is a key factor for country’s economic growth. A country’s

development is directly proportional to its construction activity level. Wells, 1985

in his book, The Construction Industry in Development Context, defines

construction as:

‘The activity of the creation of physical infrastructure, superstructure and

related facilities. It therefore comprises all civil-engineering work and all types

of new building projects (including housing), as well as the maintenance and

repair of existing structures’.

The CIB Agenda 21 (Plessis, 2002a) explains construction as:

‘The broad process/mechanism for the realization of human settlements and

the creation of infrastructure that supports development. This includes the

extraction and beneficiation of raw materials, the manufacturing of

construction materials and components, the construction project cycle from

feasibility to deconstruction and the management and operation of the built

environment’.

The Construction Industry is therefore regarded as a vital prerequisite to socioeconomic

growth and development (J, 1986). (Ofori, 1990), defines

Construction Industry as:

‘That sector of the economy which plans, designs, construct, alters,

maintains, repairs and eventually demolishes buildings of all kinds, civil

engineering work, mechanical and electrical engineering structures and other

similar works’.

Another explanation, which conquered the idea on Construction Industry, was

suggested by (Moavenzadeh, 1978), as:

‘That sector of the economy which, through planning, design, construction,

maintenance and repair and operation, transforms various resources into

constructed facilities. The types of public and private facilities produced

range from residential and non-residential buildings to heavy construction’.

The outcome of the construction activity contributes a greater chunk of

economic support to its nation. These activities comprises of planning,

designing, structure, maintenance as well as its demolition. Today, the CI can

simply be referred to a service industry, which transforms the resources into

physical entity, thus shaping up the nation. The construction of the entire

physical infrastructure then stimulates the growth of the socio economic

development. The infrastructure also reflects the social values and culture of the

nation attracting foreign exchange.

The CI cannot run solely by an individual with a motive to support entire nation.

It needs various members from various sectors such as designers, contractors,

consultants, companies, firms, equipment and material suppliers, builders,

merchants as well as the end users who finally use them. For a CI to sustain in

its practice, a cordial relation between all its stakeholders is a must have. In

many countries, government acts as a client, financer, regulator as well as an

operator (Work, 2003). The figure below gives us an idea of disproportionate

growth of population, GDP and construction in developing countries.

Figure 4 comparisons on population, GDP and construction (Shaddad 1979)

3.2 Objectives of Construction Industry Development

CI is a complex and diverse area of workshop, which is influenced by various

aspects at various stages and levels as well. For CI to play its role safely in

supporting country’s economy, it has to have that capacity and ability to meet

the demand of its people. Therefore, the CI development is very necessary

especially in the emerging nation’s context. The development of CI should take

place in a deliberate manner in order to improve the effectiveness of the

industry to fulfil the economic need of the nation. It should mainly focuses on:

‘ Understanding the efficiency of domestic productivity and its competitive

market.

‘ Valuing the social, economic and environmental responsibility.

‘ Enhancing the role of stakeholders, institutions, and technological

enablers along with appropriate development of human resources (Work,

2003; Ofori, 2012).

Depending upon the national goals and limited availability of the raw materials,

the CI sometimes needs to be capital oriented, if not there are high chances for

the industry to sink (Work, 2003; Ofori, 2012). A model developed by Fox and

Skitmore (2006) show six important traditional and cultural factors that influence

the development of CI.

Figure 5 Generic model of factors influencing construction industry (Fox and

Skitmore, 2006)

3.3 Role of CI in national development

‘If Construction moves, everything moves’, this French saying is very famous

within the industry of the developed countries. No wonder, the CI there has

grown up to be the backbone of their economy.

CI is an integral and most probably the largest part of a nation’s economic

structure. According to different surveys and reports, construction contributes

anywhere around 5% to 10% of the GDP in all countries. In addition, it also

reduces unemployment by engaging 10% of its working population and thus

acts as a catalyst to generate employment within the community. Construction

alone is credited for half of the country’s gross fixed capital generation. (Lopes,

et al., 2000; Ofori, 2012)

As described earlier, CI is a function of various organization and sectors

bonding together at various levels. Thus, a movement in CI stimulates activities

in all the threaded sectors, contributing to its national economy (Ofori, 2012). It

generates income in formal as well as informal sectors and also provides

foreign exchange income through different trades.

When we look back into the history, nation like Germany was once in a terrible

state of destruction due to massive World War. But today it stands as a

powerful nation of the world with its magnificent housing and industrial

structures. The reason behind this huge transformation is their mature

construction industries that provided Germany a new identity and strength to re

stand and reshape its nation (Bakiy, 2013). Construction activities generate

infrastructure, which is crucial for achieving developmental targets like equitable

income, industrialization, urbanization and many more.

According to a survey from World Bank (2008), increase of a unit in expenditure

has a multiplier effect in CI as it efficiently generates income nearly as five times

the cost of unit increased. On the whole, CI by itself is a largest industry that

promotes investment, employment and GDP contribution on its own (Uher &

Lawson, 1998).

The CI functions as an engine for fulfilling wide perspectives of physical,

economical and social demands, and contributes enormously to achieve

national goals. The construction sector within no time has gained a significant

charm as an area for experimenting different cooperative works. It is all

because of the nature of its operation, its diverse prospects and position in

developmental activity (Moavenzadeh, 1978).

Duccio Turin in 1978 developed a set of indicators that relates the construction

output with economic performance. The indicators are listed below-

(International, 1978)

‘ Addition in GDP due to construction

‘ Additional value in Construction per capita

‘ Employment benefit due to construction

‘ Value added in Construction per person employed

‘ Ratio of value added per person employed in construction to value added

per person employed in manufacturing

Figure 6 Construction industry output in dollar from 1964 to 2012 (census 2012)

‘ Ratio of added value in construction to value added in built-up

‘ Wages in construction and manufacturing

‘ Efficiency in construction and manufacturing

3.4 CI in Developing Country

Although the construction industry has been recognized as the backbone of the

nation for national development, it faces thousands of problems and challenges

on daily basis. This situation occurs almost every day across the globe, may it

be developing country or the developed.

However, the challenges faced by the DC are more severe type being followed

by socio-economic stress, shortage of resources, inconvenient transportation,

political instability, weak institution etc. In general, it’s the inability to tackle with

the key issues and therefore the problems are getting bigger and bigger by

passing years (Ofori, 2012). With the rapid urbanization, the seriousness of

challenges are increasing significantly, disturbing the modes and methods of

planning, designing, building, maintenance etc. Even though these problems

have somehow resulted in invention of new technologies, it is not as effective as

it is supposed to be in solving the problems in DC because the issues are more

serious, complex and deeply rooted. There are some historical problems as

well, which needs time to get solved. Some major prevailing issues are

mentioned below:

3.4.1 Political Instability

Political instability is an acute issue in DC, and provides unfriendly environment

for foreign developers and investors. The chronic violence, riots,

demonstrations that occur frequently in such countries creates hurdles in the

path of construction. The destruction of existing infrastructure is the major

targets during such movements. Corruption is another factor that is related with

politics. It leads to favouritism, which eventually results in wrong decisionmaking

and inappropriate activities (Elkhalifa, 2011).

3.4.2 Scarce Resources

Almost all the countries are gifted with natural resources; it depends on the

user’s choice to make it beneficial or useless. Even though the DC are blessed

with such natural resources, it cannot effectively make use of them due to

shortage of trained or skilled labourers or experienced professional and

sometimes due to lack of the capital needed. Besides the fact that CI acts as a

major contributor in GDP of DC, at times finance remain as constraints without

which no industry can step further (elKhalifa, 2011).

3.4.3 Unskilled and Inexperienced workforce

The construction sector of DC widely depends upon the freelance unskilled

seasonal workforce. This working group perform their task as instructed by the

contractors and move from one construction site to another for employment.

These labourers most of the time turn out to be unreliable as they leave the

working place once they get a better deal. Since they are not educated and

legally committed, they don’t follow their ethics and can’t prove to be profitable

(elKhalifa, 2011).

3.4.4 Poor Infrastructure

It’s commonly known that infrastructure is directly proportional to productivity.

When the infrastructure is poor, it results in low productivity. The infrastructure

of DC is in pitiable condition without good accessibility, transportation,

communication, utilities etc thus being responsible for slowing down the

construction process (elKhalifa, 2011).

3.4.5 Bad Practice

In DCs, the construction sector suffers a lot from lack of motivation and

discipline. Due to low literacy rate, the ethical values are not remembered. Even

the institutional policy needs to be revised. Sometimes the lengthy legal

procedures slow down the progress of the industry. Also the unpredictable

fluctuations in the prices of materials leads to increased cost of the project

forcing the contractor to multiply the budget. The other bad practice boiling up is

the tendering process. This doesn’t allow the small contractors to participate or

win the contract because of unreliable, unskilled, inexperienced workers,

absence of ability to cover additional expense and ineffective technology to

carry bigger projects (elKhalifa, 2011).

3.4.6 Globalization

The raving trend of Globalization has prominent probability to give rise to social

and economic inequality. The interaction of information, technology, market and

economy within different countries are good ways to get expose d to foreign

markets and develop foreign lending’s. But this increases foreign participation

into the industry pushing away the indigenous contractor. But the interference of

the foreign contractors is good in certain manner. Edmons and Miles (1984) and

the World Bank (1984) have observed that some international projects that

happen in DC can be undertaken only under international supervision (Turin,

1973). These authors state that foreign collaboration is prominent with large

construction companies in DC.

Advantage Disadvantage

Involvement of international finance

makes possible the implementation of

several projects, such as those of

major infrastructure.

Local construction firms have no

funds or expertise to participate in the

sponsorship of privatised projects.

Direct foreign investment in projects

leads to increase in construction

demand, creating work opportunities

for local firms.

Local construction companies lack

the technical and managerial

capability to undertake most of the

foreign-funded projects

Competition among foreign firms

lowers the costs of projects to

It is possible that local firms will be

deprived of the opportunity to grow

developing countries.

Presence of large numbers of

international firms offers scope for

technology transfer and the

development of local firms and

upgrading of the industry. The large

number of such firms also means that

technology transfer can be a tool for

competition

Foreign construction firms may pay lip

service to technology transfer or take

measures to avoid it. Moreover, local

companies may not be in a position to

benefit from technology transfer, or to

subsequently utilise the acquired

expertise

Table 2 Advantages and disadvantages of globalization (G.Ofori, 2000)

The impact of globalization in CI of the Developing world should be studied

deeply to find out the ways of minimizing the adverse effect and maximize the

benefits. The local contractors should acquire knowledge on relevant subjects

from its foreign counterparts to upgrade its experience and skills (Elkhalifa,

2011).

Studies show that a major portion of construction activities in DC is performed

by informal sector (Moavenzadeh, 1978; Wells, 1985. In addition, the demand

for housing is steadily rising which is beyond the supply capacity of these

nations. In many DC, around 30-70% of its housing stock is unauthorized

(elKhalifa, 2011). So if the output of this informal sector is to be considered, the

outcome of the construction activity will increase considerably.

To sum up we can say that the CI of the DC lacks skills, technologies,

resources and funding. Moreover the problems get deeper when the

government ignores the condition and doesn’t warm up to address them. The

level of commitment and the legal execution is simply not adequate to improve

overall socio-economic condition of the nation (Elkhalifa, 2011).

The United Nations Centre for Human Settlements (UNCHS, 1996) encloses

the issues of CI in DC as:

Figure 7 place of CI in economy in developing and developed world (the

construction and building material industries for sustainable development in

developing countries, 2011)

‘Key building materials are scarce and expensive; access to finance is

limited; much needed equipment and machinery are not easily available;

skilled workforce is underdeveloped; and other supporting mechanisms,

such as regulatory systems and research efforts, have had little or no

impact on the development trends of the industry. A further problem is that

large amounts of capital are needed to pay for large-scale infrastructure

with the financial returns coming over a long period. Such projects are only

profitable when considered over a time period that is longer than most

commercial investments. Investors are reluctant to commit capital to long

term projects when other investment opportunities give a more rapid payback

and when there is uncertainty about the future demand for new

infrastructure’.

(Ofori, 1994b) summarizes the problems as:

‘Most developing countries have abundant human resources. However,

they face shortages of skilled construction personnel owing to inadequate

educational and training facilities and programmes. Construction

enterprises show little interest in human resource development; they adopt

casual employment practices. The level of technological development of

the industries is also low. This is due to inadequate R&D facilities and

programmes, poor linkage between research and practice and foreign

exchange difficulties which hinder the importation of equipment and

spares’.

Ofori during his research came up with a flowchart that fluctuates the CI of DCFigure

8 factors fluctuating CI of the DC (Ofori 1993a)

Different matrix was derived by Turin and Ofori, which categorized the CI of the

DCs and helped to understand the requirements of the industry and assess its

capacity for improvement.

The current study simplifies the categorization of the CI which can be described

as:

Residential Houses,

townhouses,

cottages

Condominiums,

single

unit

dwellings

Subdivisions,

apartments

Commercial Schools,

commercial

office

space

hospitals,

shopping

centers

Governmental building, renovating, maintenance,

repair, and demolition of government

buildings

Figure 9 categorization on CI in DC (Turin, 1973; Ofori 1993a)

Industrial Crematoriums,

primary

manufacturing,

chemical

plants,

medical

waste

disposal,

pulp

and

paper

mills,

golf

courses,

oil

and

gas

facilities

Infrastructure Bridges,

dams,

causeways,

pipelines

Wharfs,

roads,

power

facilities,

electrical

transmission

lines,

solid

waste

facilities,

sewage

treatment

plants

Table 3 latest categorization of CI ( source: Construction Industry Portal,

2013)

3.5 Impacts of construction industry

The CI plays an important role in developing socio economic status of the

nation. They are responsible in planning, designing, developing infrastructures

along with many other activities, which directly or indirectly has significant

impact on the built environment. In order to drive the economic growth and fulfil

the nation’s demand, the CI has been focusing on new inventions and

technologies regularly. In this pace they are forgetting that these activities can

have several consequences on the ecology. The impact of the construction

industry can be categorized as- (Plessis, 2002a)

‘ Environmental impact

‘ Social impact

‘ Economic impact

3.5.1 Environmental Impact

Today developing countries are undergoing enormous number of construction

process as compared to Developed countries. Also because the level of

industrialization is very low here thus making Construction sectors a biggest

positive contributor in economy. At the same time they are the biggest culprits in

polluting our environment through its activities. According to studies by World

watch Institute, 2012, 40% of the raw sand, gravel and stone is solely

consumed by building construction yearly. Each year building accounts for 40%

of energy consumption as well as 16% of water globally. This results in

ecological misbalance and resource depletion. Global warming, a major threat

of today is one of the severe and visible result (Baloi, 2003).

The prime offender of climate change is modern construction material like

concrete and steel. The massive GH emission takes place while processing

such materials resulting pollution. The other factor is waste generation from

manufacture and demolition process, which are dumped irresponsibly. The

construction site of DC generally occupies the entire area destroying the

greeneries. (Plessis, 2002). The table below explain the impact of construction

industry to the built environment.

What is used Where it is built How it is built What is built

Where raw

materials are

obtained

Location of

facility; nature of

terrain and

ground

conditions;

alternative uses

of the land

Methods of

construction on

site

Planning and

design of facility

(e.g. potential of

day lighting and

natural

ventilation)

How raw

materials are

extracted; how

land is restored

after extraction (if

necessary)

Immediate

physical

environment;

proximity to water

sources and

ecosystems

Construction

project

management

systems (e.g.

quality

management

systems)

Life-cycle

economic,

quality,

maintainability

considerations

How raw

materials are

Social disruption

(e.g.

Site control

measures

Extent of use of

energy and other

processed displacement of

site’s inhabitants)

(housekeeping) resources in

operation of

building

Whether, and

how renewable

raw materials are

regenerated

Economic

disruption (e.g.

loss of livelihoods

of previous

inhabitants)

Welfare of site

workers,

neighbours and

general public

Ease of

demolition of

building

(deconstruction)

How materials

are transported

to, and stored on,

site

Present

infrastructure,

need for

expansion to

serve new

building, its

impact

Resource

management

(including waste

minimisation)

Recycling and

reuse of

demolition waste

How materials

are moved on site

Impact on local

vehicular traffic

Table 4 Environmental impact and consideration of construction activities

(G.Ofori)

3.5.2 Social Impact

Construction has its strong social impacts on the DC. It mainly deals with

professional ethics, sound business practices and labour relationships. When it

comes to political connections, the impact may be positive as well as negative.

If corruption takes birth, then the society may not benefit because of

inappropriate decision making resulting in substandard construction, use of

materials without quality thus compromising with the life of the occupants.

Social responsibilities are often ignored. Major of our working population are

illiterate and are not aware of safety techniques, which may lead to severe

accidents and sometimes death. The CI also generates employment making the

society strong and self-dependent (Plessis, 2002a).

3.5.3 Economic Impact

The CI has the capability to encourage economic growth through its

performance. It provides employment opportunities, which add up to the

economic aspects. It is able to generate income through material production

and its distribution, along with financial marketing and sale of the property.

(M.M, 2006) came up with a framework that identified the barriers and drivers

of the construction sector of the DC. It addresses the importance of CI in

building sustainable infrastructure to achieve sustainable goals (elKhalifa,

2011).

Figure 10 Drivers and barriers of CI in DC (M.M,2006)

Sustainable Construction Practices In Developing Countries: custom essay help

Sustainable Construction Practices In Developing Countries

Master thesis

A focus in Nepalese context

List of Abbreviation

UNCHS United Nation Center for Human Settlements

USAID United State Agency for International Development

UNEP United Nation Environment Program

IETC International Environmental Technology Centre

BREEAM Building Research Establishment Environmental

Assessment Method

CI Construction Industry

UN United Nation

DC Developing Country

IUCN The Union of Conservation Scientist

WWF World Wide Fund

CIB International Council for research and Innovation in

Building

GDP Gross Domestic Product

WB World Bank

R and D Research and Development

UN-ESCAP United Nations Economic and Social Commission for

Asia and the Pacific

WHO World Health Organization

GHG Green House Gases

CO2 Carbon Dioxide

NGO Non Governmental Organization

CBO Community Based Organization

SBAT Sustainable Building Assessment Tool

LEED Leadership in Energy and Environmental Design

ODA Overseas Development Agencies

SCP Sustainable Construction Practice

VSBK Vertical Shaft Brick Kiln

DMAN Deutsche Management Akademie Niedersachsen

FNCSI Federation of Nepal Cottage and Small Industries

EU European Union

SPM Suspended Particulate Matter

SCA Supply Chain Actors

FDI Foreign Direct Investment

HDI Human Development Index

FY Fiscal Year

m. Meters

sq.km Square kilometer

Abstract

The alarming condition of our environment today has been probably one of the

most discussed and researched topics globally. Researchers and professionals

believe that construction is one of the important factors in socio economic

expansion of any nation and has horrendous effect on the biosphere as well.

The conditions are worst in developing countries and are escalated even more

because of various complex problems like poverty, social inequality, resource

scarcity, inappropriate working ethics, unorganized systems etc. Therefore,

there is an urgency to adopt new practices in developing countries to not only

foster its socio economic growth but also to make a positive impact on towards

global problems. Construction industry along with being a major contributor to

country’s economy is also a massive destructor of our biosphere. So its time to

think about change in construction pattern that brings out a new dimension in

social, economic and environmental perspective.

This paper addresses the construction scenario that prevails in the developing

countries, especially focusing on Nepal. It aims to explain the factors

responsible for present situation giving idea about different barriers,

opportunities and benefits regarding new approach in construction. It also talks

about the roles and responsibilities of the stakeholders and their area of action.

Overall the paper studies the scope of sustainable practices in Nepal with some

recommendations.

1. Introduction

1.1 Background

Our quest to address human comfort, demands and convenience has made us

very short sighted. To achieve our needs, we have stepped beyond our

boundaries set by our nature. We have absurdly utilized our raw materials as if

they were limitless, we have started construction almost anywhere we like to

build; we have plundered into our resources thinking they were endless. This

mindset of ours have threatened the ecosystem, which should be changed

before it’s too late. Our inhuman activities must come to an end and should start

incorporating sustainable practices. Sustainable practices mean initiatives taken

that lead to an ecological balance with human well being. These solutions must

focus on meeting the growing needs of the country along with ensuring long

term economic stability including social equity, which can be achieved thorough

sustainable construction. The ways of sustainable construction differs from

country to country. The glimpse of today’s global scenario clearly divides the

world into two distinct group- The Developed and the Developing countries.

1.1.1 The developing country

UN, 1971 defines developing countries as a country having low per capita GDP

resulting to low living standard, lower literacy rate and with a low level of

material well-being. The challenges faced by Developing countries in daily basis

are unsafe society, lack of education, uncertain economic environment, poverty

and disease, inadequate infrastructure, rapid urbanization etc.

Sustainable construction in developing country is plagued by complex problems

like energy crises, water scarcity, poverty, social inequity etc. therefore it’s

urgent to make sustainable intervention now rather than correcting the issues

later. In the developed countries, sustainability has already been in practices

but the intervention of the developed countries cannot be copied by the

developing world as it may not be feasible also the priorities are completely

different in two types of world. Realizing the concern of sustainability there are

different international agencies helping across the boarder. Some of which are

USAID, UNEP, IETC. ( Du Plessis, 2004).

List of developing countries as declared by the World Bank:

EUROPE

Albania Armenia Azerbaijan Belarus

Bosnia &

Herzegovina

Belarus Kosovo Macedonia

Serbia & Montenegro Moldova Turkey Ukraine

AFRICA NORTH OF SAHARA

Algeria Egypt Libya Morocco Tunisia

SOUTH OF SAHARA

Angola Benin Botswana Burkina

Faso

Burundi

Cameroon Central African Rep. Djibouti Guinea Kenya

Cape

Verde

Congo Rep. Ethiopia Guinea-

Bissau

Malawi

Chad Congo, Dem. Rep Gabon Lesotho Mali

Comoros Cote d’Ivoire Gambia Liberia Mauritania

Eritrea Equatorial Guinea Ghana Madagascar Mauritius

Namibia Mozambique Niger Senegal Seychelles

Nigeria Sao Tome &

Principe

St. Helena Somalia Uganda

Rwanda South Africa Sierra

Leone

Swaziland Zambia

Togo South Sudan Sudan Tanzania Zimbabwe

AMERICA NORTH and CENTRAL

Anguilla Antigua &

Barbuda

Belize Dominica El Salvador

Grenada Costa Rica Cuba Mexico Panama

Guatemala Dominican

Rep.

Haiti Montserrat St. Lucia

Honduras St. Kitts &

Nevis

Jamaica Nicaragua St.Vincent&Grenadines

SOUTH AMERICA

Argentina Brazil Colombia Guyana Peru Uruguay

Bolivia Chile Ecuador Paraguay Suriname Venezuela

ASIA

Afghanistan China, (excl. Hong

Kong)

India Maldives Nepal

Bangladesh East Timor Indonesia Mongolia Philippines

Bhutan Korea Dem. Rep Kazakhstan Pakistan Thailand

Burma Kyrgyz Rep Laos Sri Lanka Uzbekistan

Cambodia Turkmenistan Malaysia Tajikistan Vietnam

MIDDLE EAST

Iran Iraq Jordan Lebanon Syria West Bank and Gaza

Strip

Yemen

PACIFIC

Cook

Islands

Micronesia, Federated

States

Palau Islands Niue

Fiji Marshall Islands Samoa Tonga

Kiribati Papua New Guinea Tokelau Tuvalu

Nauru Wallis & Futuna Solomon Is Vanuatu

Table 1 List of Developing countries (Ministry of foreign affairs)

Keeping the timeframe on track, the developing countries can either choose to

follow the footsteps of the developed countries or opt for new sustainable model

development. Sustainable development issues are global and the rate of

developing countries towards addressing them is same as the developed

countries. To increase this rate, a developing country heavily depends upon

large-scale physical infrastructure and therefore is an urge for sustainable

construction practices.

1.2 Problems

Developing countries are competing within themselves in a rapid pace in order

to get a tag of a developed country. In this whole race they are ignorant about

the negative impact of their activities to the built environment. Today a massive

development is required in these DC in their environmental sector as well as

physical infrastructure.

As we all know ‘Prevention is better than cure’, it’s always good to be prepared

beforehand rather than try and change things later. The construction pattern in

most of the DC are horrifying, exposing human lives to a greater risk of disaster

such as health hazards, natural calamities etc. Such construction growth also

has an immense impact on limited natural resources. Energy consumption,

waste generation, pollution is nowadays an ongoing process on a daily basis as

consumer are unaware about the future conditions. Also such developmental

practices are directly or indirectly a result of the political scenario of the

respective country. One cannot stop the ever-growing scattered settlement until

a law is strict against it. When legal institutions are silent regarding the matter,

the change is next to impossible.

Apart from above scenario, other problem that hindrances sustainable

development in DC is infrastructure. In DC, there is a need of accessibility to

adequate productive resources, which is considered to be a key to

sustainability. A proper knowledge of sustainability is yet to be distributed to the

mass where sustainability is simply understood as addition to initial construction

cost because they are unaware of long-term advantages.

The problems of DC’s mentioned above are not permanent in nature though.

They can be resolved through considerable changes in people’s way of

thinking, legal policies and laws and majorly through the building and

construction industry. All that requires is an efficient and adoptable approach.

1.3 Objectives

The aim and objective of this research paper is to study the importance of

sustainability in today’s blooming world. It helps to understand the scenario and

challenges of sustainable construction in developing countries and figure out

the possibilities for feasible implementation of sustainable approach. It also

portrays the bonding between sustainability and construction industry,

considering it to be vital to promote country’s economic aspect and strengthen

country as a whole. It addresses the crucial pre-requisites for developing

sustainable construction to understand integration of sustainability with efficient

management of resources, infrastructure and shared responsibilities thus

improving capacity of construction sector.

1.4 Methodology

The relevant data was collected for the paper through different sources such as

articles, journals, books and reports. Many related case studies were studied to

get a clear vision of the prevailing scenario. The literature review helped to

concretize the rough idea of the paper. Further some case studies were carried

out to understand the matter deeply. It described the initiatives being taken to

adopt sustainability. The next level was the analysis part, which helped to

realize the various aspects to be considered such as social, economic,

environmental as we all political. The analysed data thus helped to reveal the

challenges, opportunities and strength of sustainability in developing countries.

Last was the result phase of the paper, which included certain suggestions and

recommendations regarding the topic. It was derived through a concept made

clear by going through literature review and data analysis.

2. Sustainability

2.1 Definition

Sustainability today is a major term included in every agenda of almost every

country, similar to the fashion trend blindly being followed by one from other,

without understanding the concept beyond it. Many efforts have been made in

developed countries regarding sustainability at different levels but the word still

hasn’t received that importance in developing countries. In reality it isn’t that

complex term. The term was first used by a German forester and a scientist,

Hans Carl in 1713 in his book, Sylvicultura Oeconomica. But it was recognized

only after the Brundtland Report, 1987, from World Commission on

Environment and Development defined it as ‘

‘Sustainability is to meet the needs of the present without compromising

the ability of future generations to meet their own needs.’

Until today it is recognized as the standard definition of sustainability, which

clears the concept of providing best to humans and its environment now and

also in future.

The International Union of Conservation Scientists (IUCN), United Nations

Environment Programme (UNEP) and World Wide Fund for Nature

(WWF) define sustainable as,

‘Sustainability is improving the quality of human life while living within the

carrying capacity of the Earth’s supporting eco-systems.’

These days, there are thousands of definitions regarding sustainability but the

major understanding remains same, which are:

‘ Understanding the interconnection between economy, society and

environment.

‘ Knowing human limits regarding resources

For better understanding, Sustainability has been divided into 3 types, which is

stated by World commission on environment and development, 1987:

‘ Environmental sustainability

‘ Social sustainability

‘ Economic sustainability

2.1.1 Environmental Sustainability

Environmental sustainability can be understood, as ‘meeting human needs

without compromising the health of ecosystem’ (Morelli, 2011). It is the capacity

of environment to support and maintain its quality and resources. Today

environment depletion is a biggest issue especially in Developing Countries.

Figure 1 Principle of Sustainability (World commission on environment and development, 1987)

2.1.2 Social Sustainability

It is the ability of a system to function properly for social well-being at different

level, where the system may comprise of a family, an organization or a country

as a whole. A society is an acting force to drive a nation’s economy and

environment.

2.1.3 Economic Sustainability

The ability to support economic production at a defined level is understood as

economic sustainability.

The three pillars of sustainability are highly interconnected which ensures longterm

well-being of human and promotes a quality living. Sustainability is more

likely to be efficient when these components are combined rather than they

being compromised for the sake of construction. When the importance of each

pillars are clearly understood it significantly helps in decision-making process

for a healthy and enhanced standard of living.

2.2 Principles of Sustainability

Nowadays there are lots of articles, journals emerging in context with

sustainability and its underlying principles. The information obtained are vast

and vague, so the RIO Declaration on Environment and Development, 1992,

has published the principles of sustainability which helps to understand the

concept clearly, which are as follows-

‘ The present development should not dominate the development and

environmental needs of future.

‘ Every individual have equal right to a healthy and productive life.

‘ The nation has every right to use its resources but responsibly.

‘ Unsustainable pattern of growth should be avoided by nation by

balancing the production and consumption ratio.

‘ Demographic policies should be promoted along with reducing disparities

in standard of living.

‘ Public should be made aware of the ecological issues and encouraged

for their participation.

‘ Effective laws and authorities should be categorized for strong

implementation of the rules from administrative side.

‘ Public and private sector should also cooperate at a regional level.

2.3 Objective

The objective of sustainability can be listed as:

‘ Offer fundamental human needs

‘ Control climate change

‘ Overall economic growth of nation

Figure 2 Aspects of Sustainability (verify sustainability, 2006)

‘ Accommodating the urbanization

‘ Sustain biodiversity

Figure 3 Importance of Sustainability (Sustainability report 2010)

3. Construction industry

3.1 Introduction

Construction is a key factor for country’s economic growth. A country’s

development is directly proportional to its construction activity level. Wells, 1985

in his book, The Construction Industry in Development Context, defines

construction as:

‘The activity of the creation of physical infrastructure, superstructure and

related facilities. It therefore comprises all civil-engineering work and all types

of new building projects (including housing), as well as the maintenance and

repair of existing structures’.

The CIB Agenda 21 (Plessis, 2002a) explains construction as:

‘The broad process/mechanism for the realization of human settlements and

the creation of infrastructure that supports development. This includes the

extraction and beneficiation of raw materials, the manufacturing of

construction materials and components, the construction project cycle from

feasibility to deconstruction and the management and operation of the built

environment’.

The Construction Industry is therefore regarded as a vital prerequisite to socioeconomic

growth and development (J, 1986). (Ofori, 1990), defines

Construction Industry as:

‘That sector of the economy which plans, designs, construct, alters,

maintains, repairs and eventually demolishes buildings of all kinds, civil

engineering work, mechanical and electrical engineering structures and other

similar works’.

Another explanation, which conquered the idea on Construction Industry, was

suggested by (Moavenzadeh, 1978), as:

‘That sector of the economy which, through planning, design, construction,

maintenance and repair and operation, transforms various resources into

constructed facilities. The types of public and private facilities produced

range from residential and non-residential buildings to heavy construction’.

The outcome of the construction activity contributes a greater chunk of

economic support to its nation. These activities comprises of planning,

designing, structure, maintenance as well as its demolition. Today, the CI can

simply be referred to a service industry, which transforms the resources into

physical entity, thus shaping up the nation. The construction of the entire

physical infrastructure then stimulates the growth of the socio economic

development. The infrastructure also reflects the social values and culture of the

nation attracting foreign exchange.

The CI cannot run solely by an individual with a motive to support entire nation.

It needs various members from various sectors such as designers, contractors,

consultants, companies, firms, equipment and material suppliers, builders,

merchants as well as the end users who finally use them. For a CI to sustain in

its practice, a cordial relation between all its stakeholders is a must have. In

many countries, government acts as a client, financer, regulator as well as an

operator (Work, 2003). The figure below gives us an idea of disproportionate

growth of population, GDP and construction in developing countries.

Figure 4 comparisons on population, GDP and construction (Shaddad 1979)

3.2 Objectives of Construction Industry Development

CI is a complex and diverse area of workshop, which is influenced by various

aspects at various stages and levels as well. For CI to play its role safely in

supporting country’s economy, it has to have that capacity and ability to meet

the demand of its people. Therefore, the CI development is very necessary

especially in the emerging nation’s context. The development of CI should take

place in a deliberate manner in order to improve the effectiveness of the

industry to fulfil the economic need of the nation. It should mainly focuses on:

‘ Understanding the efficiency of domestic productivity and its competitive

market.

‘ Valuing the social, economic and environmental responsibility.

‘ Enhancing the role of stakeholders, institutions, and technological

enablers along with appropriate development of human resources (Work,

2003; Ofori, 2012).

Depending upon the national goals and limited availability of the raw materials,

the CI sometimes needs to be capital oriented, if not there are high chances for

the industry to sink (Work, 2003; Ofori, 2012). A model developed by Fox and

Skitmore (2006) show six important traditional and cultural factors that influence

the development of CI.

Figure 5 Generic model of factors influencing construction industry (Fox and

Skitmore, 2006)

3.3 Role of CI in national development

‘If Construction moves, everything moves’, this French saying is very famous

within the industry of the developed countries. No wonder, the CI there has

grown up to be the backbone of their economy.

CI is an integral and most probably the largest part of a nation’s economic

structure. According to different surveys and reports, construction contributes

anywhere around 5% to 10% of the GDP in all countries. In addition, it also

reduces unemployment by engaging 10% of its working population and thus

acts as a catalyst to generate employment within the community. Construction

alone is credited for half of the country’s gross fixed capital generation. (Lopes,

et al., 2000; Ofori, 2012)

As described earlier, CI is a function of various organization and sectors

bonding together at various levels. Thus, a movement in CI stimulates activities

in all the threaded sectors, contributing to its national economy (Ofori, 2012). It

generates income in formal as well as informal sectors and also provides

foreign exchange income through different trades.

When we look back into the history, nation like Germany was once in a terrible

state of destruction due to massive World War. But today it stands as a

powerful nation of the world with its magnificent housing and industrial

structures. The reason behind this huge transformation is their mature

construction industries that provided Germany a new identity and strength to re

stand and reshape its nation (Bakiy, 2013). Construction activities generate

infrastructure, which is crucial for achieving developmental targets like equitable

income, industrialization, urbanization and many more.

According to a survey from World Bank (2008), increase of a unit in expenditure

has a multiplier effect in CI as it efficiently generates income nearly as five times

the cost of unit increased. On the whole, CI by itself is a largest industry that

promotes investment, employment and GDP contribution on its own (Uher &

Lawson, 1998).

The CI functions as an engine for fulfilling wide perspectives of physical,

economical and social demands, and contributes enormously to achieve

national goals. The construction sector within no time has gained a significant

charm as an area for experimenting different cooperative works. It is all

because of the nature of its operation, its diverse prospects and position in

developmental activity (Moavenzadeh, 1978).

Duccio Turin in 1978 developed a set of indicators that relates the construction

output with economic performance. The indicators are listed below-

(International, 1978)

‘ Addition in GDP due to construction

‘ Additional value in Construction per capita

‘ Employment benefit due to construction

‘ Value added in Construction per person employed

‘ Ratio of value added per person employed in construction to value added

per person employed in manufacturing

Figure 6 Construction industry output in dollar from 1964 to 2012 (census 2012)

‘ Ratio of added value in construction to value added in built-up

‘ Wages in construction and manufacturing

‘ Efficiency in construction and manufacturing

3.4 CI in Developing Country

Although the construction industry has been recognized as the backbone of the

nation for national development, it faces thousands of problems and challenges

on daily basis. This situation occurs almost every day across the globe, may it

be developing country or the developed.

However, the challenges faced by the DC are more severe type being followed

by socio-economic stress, shortage of resources, inconvenient transportation,

political instability, weak institution etc. In general, it’s the inability to tackle with

the key issues and therefore the problems are getting bigger and bigger by

passing years (Ofori, 2012). With the rapid urbanization, the seriousness of

challenges are increasing significantly, disturbing the modes and methods of

planning, designing, building, maintenance etc. Even though these problems

have somehow resulted in invention of new technologies, it is not as effective as

it is supposed to be in solving the problems in DC because the issues are more

serious, complex and deeply rooted. There are some historical problems as

well, which needs time to get solved. Some major prevailing issues are

mentioned below:

3.4.1 Political Instability

Political instability is an acute issue in DC, and provides unfriendly environment

for foreign developers and investors. The chronic violence, riots,

demonstrations that occur frequently in such countries creates hurdles in the

path of construction. The destruction of existing infrastructure is the major

targets during such movements. Corruption is another factor that is related with

politics. It leads to favouritism, which eventually results in wrong decisionmaking

and inappropriate activities (Elkhalifa, 2011).

3.4.2 Scarce Resources

Almost all the countries are gifted with natural resources; it depends on the

user’s choice to make it beneficial or useless. Even though the DC are blessed

with such natural resources, it cannot effectively make use of them due to

shortage of trained or skilled labourers or experienced professional and

sometimes due to lack of the capital needed. Besides the fact that CI acts as a

major contributor in GDP of DC, at times finance remain as constraints without

which no industry can step further (elKhalifa, 2011).

3.4.3 Unskilled and Inexperienced workforce

The construction sector of DC widely depends upon the freelance unskilled

seasonal workforce. This working group perform their task as instructed by the

contractors and move from one construction site to another for employment.

These labourers most of the time turn out to be unreliable as they leave the

working place once they get a better deal. Since they are not educated and

legally committed, they don’t follow their ethics and can’t prove to be profitable

(elKhalifa, 2011).

3.4.4 Poor Infrastructure

It’s commonly known that infrastructure is directly proportional to productivity.

When the infrastructure is poor, it results in low productivity. The infrastructure

of DC is in pitiable condition without good accessibility, transportation,

communication, utilities etc thus being responsible for slowing down the

construction process (elKhalifa, 2011).

3.4.5 Bad Practice

In DCs, the construction sector suffers a lot from lack of motivation and

discipline. Due to low literacy rate, the ethical values are not remembered. Even

the institutional policy needs to be revised. Sometimes the lengthy legal

procedures slow down the progress of the industry. Also the unpredictable

fluctuations in the prices of materials leads to increased cost of the project

forcing the contractor to multiply the budget. The other bad practice boiling up is

the tendering process. This doesn’t allow the small contractors to participate or

win the contract because of unreliable, unskilled, inexperienced workers,

absence of ability to cover additional expense and ineffective technology to

carry bigger projects (elKhalifa, 2011).

3.4.6 Globalization

The raving trend of Globalization has prominent probability to give rise to social

and economic inequality. The interaction of information, technology, market and

economy within different countries are good ways to get expose d to foreign

markets and develop foreign lending’s. But this increases foreign participation

into the industry pushing away the indigenous contractor. But the interference of

the foreign contractors is good in certain manner. Edmons and Miles (1984) and

the World Bank (1984) have observed that some international projects that

happen in DC can be undertaken only under international supervision (Turin,

1973). These authors state that foreign collaboration is prominent with large

construction companies in DC.

Advantage Disadvantage

Involvement of international finance

makes possible the implementation of

several projects, such as those of

major infrastructure.

Local construction firms have no

funds or expertise to participate in the

sponsorship of privatised projects.

Direct foreign investment in projects

leads to increase in construction

demand, creating work opportunities

for local firms.

Local construction companies lack

the technical and managerial

capability to undertake most of the

foreign-funded projects

Competition among foreign firms

lowers the costs of projects to

It is possible that local firms will be

deprived of the opportunity to grow

developing countries.

Presence of large numbers of

international firms offers scope for

technology transfer and the

development of local firms and

upgrading of the industry. The large

number of such firms also means that

technology transfer can be a tool for

competition

Foreign construction firms may pay lip

service to technology transfer or take

measures to avoid it. Moreover, local

companies may not be in a position to

benefit from technology transfer, or to

subsequently utilise the acquired

expertise

Table 2 Advantages and disadvantages of globalization (G.Ofori, 2000)

The impact of globalization in CI of the Developing world should be studied

deeply to find out the ways of minimizing the adverse effect and maximize the

benefits. The local contractors should acquire knowledge on relevant subjects

from its foreign counterparts to upgrade its experience and skills (Elkhalifa,

2011).

Studies show that a major portion of construction activities in DC is performed

by informal sector (Moavenzadeh, 1978; Wells, 1985. In addition, the demand

for housing is steadily rising which is beyond the supply capacity of these

nations. In many DC, around 30-70% of its housing stock is unauthorized

(elKhalifa, 2011). So if the output of this informal sector is to be considered, the

outcome of the construction activity will increase considerably.

To sum up we can say that the CI of the DC lacks skills, technologies,

resources and funding. Moreover the problems get deeper when the

government ignores the condition and doesn’t warm up to address them. The

level of commitment and the legal execution is simply not adequate to improve

overall socio-economic condition of the nation (Elkhalifa, 2011).

The United Nations Centre for Human Settlements (UNCHS, 1996) encloses

the issues of CI in DC as:

Figure 7 place of CI in economy in developing and developed world (the

construction and building material industries for sustainable development in

developing countries, 2011)

‘Key building materials are scarce and expensive; access to finance is

limited; much needed equipment and machinery are not easily available;

skilled workforce is underdeveloped; and other supporting mechanisms,

such as regulatory systems and research efforts, have had little or no

impact on the development trends of the industry. A further problem is that

large amounts of capital are needed to pay for large-scale infrastructure

with the financial returns coming over a long period. Such projects are only

profitable when considered over a time period that is longer than most

commercial investments. Investors are reluctant to commit capital to long

term projects when other investment opportunities give a more rapid payback

and when there is uncertainty about the future demand for new

infrastructure’.

(Ofori, 1994b) summarizes the problems as:

‘Most developing countries have abundant human resources. However,

they face shortages of skilled construction personnel owing to inadequate

educational and training facilities and programmes. Construction

enterprises show little interest in human resource development; they adopt

casual employment practices. The level of technological development of

the industries is also low. This is due to inadequate R&D facilities and

programmes, poor linkage between research and practice and foreign

exchange difficulties which hinder the importation of equipment and

spares’.

Ofori during his research came up with a flowchart that fluctuates the CI of DCFigure

8 factors fluctuating CI of the DC (Ofori 1993a)

Different matrix was derived by Turin and Ofori, which categorized the CI of the

DCs and helped to understand the requirements of the industry and assess its

capacity for improvement.

The current study simplifies the categorization of the CI which can be described

as:

Residential Houses,

townhouses,

cottages

Condominiums,

single

unit

dwellings

Subdivisions,

apartments

Commercial Schools,

commercial

office

space

hospitals,

shopping

centers

Governmental building, renovating, maintenance,

repair, and demolition of government

buildings

Figure 9 categorization on CI in DC (Turin, 1973; Ofori 1993a)

Industrial Crematoriums,

primary

manufacturing,

chemical

plants,

medical

waste

disposal,

pulp

and

paper

mills,

golf

courses,

oil

and

gas

facilities

Infrastructure Bridges,

dams,

causeways,

pipelines

Wharfs,

roads,

power

facilities,

electrical

transmission

lines,

solid

waste

facilities,

sewage

treatment

plants

Table 3 latest categorization of CI ( source: Construction Industry Portal,

2013)

3.5 Impacts of construction industry

The CI plays an important role in developing socio economic status of the

nation. They are responsible in planning, designing, developing infrastructures

along with many other activities, which directly or indirectly has significant

impact on the built environment. In order to drive the economic growth and fulfil

the nation’s demand, the CI has been focusing on new inventions and

technologies regularly. In this pace they are forgetting that these activities can

have several consequences on the ecology. The impact of the construction

industry can be categorized as- (Plessis, 2002a)

‘ Environmental impact

‘ Social impact

‘ Economic impact

3.5.1 Environmental Impact

Today developing countries are undergoing enormous number of construction

process as compared to Developed countries. Also because the level of

industrialization is very low here thus making Construction sectors a biggest

positive contributor in economy. At the same time they are the biggest culprits in

polluting our environment through its activities. According to studies by World

watch Institute, 2012, 40% of the raw sand, gravel and stone is solely

consumed by building construction yearly. Each year building accounts for 40%

of energy consumption as well as 16% of water globally. This results in

ecological misbalance and resource depletion. Global warming, a major threat

of today is one of the severe and visible result (Baloi, 2003).

The prime offender of climate change is modern construction material like

concrete and steel. The massive GH emission takes place while processing

such materials resulting pollution. The other factor is waste generation from

manufacture and demolition process, which are dumped irresponsibly. The

construction site of DC generally occupies the entire area destroying the

greeneries. (Plessis, 2002). The table below explain the impact of construction

industry to the built environment.

What is used Where it is built How it is built What is built

Where raw

materials are

obtained

Location of

facility; nature of

terrain and

ground

conditions;

alternative uses

of the land

Methods of

construction on

site

Planning and

design of facility

(e.g. potential of

day lighting and

natural

ventilation)

How raw

materials are

extracted; how

land is restored

after extraction (if

necessary)

Immediate

physical

environment;

proximity to water

sources and

ecosystems

Construction

project

management

systems (e.g.

quality

management

systems)

Life-cycle

economic,

quality,

maintainability

considerations

How raw

materials are

Social disruption

(e.g.

Site control

measures

Extent of use of

energy and other

processed displacement of

site’s inhabitants)

(housekeeping) resources in

operation of

building

Whether, and

how renewable

raw materials are

regenerated

Economic

disruption (e.g.

loss of livelihoods

of previous

inhabitants)

Welfare of site

workers,

neighbours and

general public

Ease of

demolition of

building

(deconstruction)

How materials

are transported

to, and stored on,

site

Present

infrastructure,

need for

expansion to

serve new

building, its

impact

Resource

management

(including waste

minimisation)

Recycling and

reuse of

demolition waste

How materials

are moved on site

Impact on local

vehicular traffic

Table 4 Environmental impact and consideration of construction activities

(G.Ofori)

3.5.2 Social Impact

Construction has its strong social impacts on the DC. It mainly deals with

professional ethics, sound business practices and labour relationships. When it

comes to political connections, the impact may be positive as well as negative.

If corruption takes birth, then the society may not benefit because of

inappropriate decision making resulting in substandard construction, use of

materials without quality thus compromising with the life of the occupants.

Social responsibilities are often ignored. Major of our working population are

illiterate and are not aware of safety techniques, which may lead to severe

accidents and sometimes death. The CI also generates employment making the

society strong and self-dependent (Plessis, 2002a).

3.5.3 Economic Impact

The CI has the capability to encourage economic growth through its

performance. It provides employment opportunities, which add up to the

economic aspects. It is able to generate income through material production

and its distribution, along with financial marketing and sale of the property.

(M.M, 2006) came up with a framework that identified the barriers and drivers

of the construction sector of the DC. It addresses the importance of CI in

building sustainable infrastructure to achieve sustainable goals (elKhalifa,

2011).

Figure 10 Drivers and barriers of CI in DC (M.M,2006)

4. Construction industry for sustainable development

4.1 The construction industry and sustainable construction

The CI apart from being one of the most considerable industries to aid up the

socio economic growth of the nation (especially in the DC) is also a greater

exploiter of the natural resources. The nature of the industry is complex and

unique in itself, which most of the time faces severe issues like crossing

deadline (70% of the project), cost overrun (14% of contract cost), waste

generation approximately 10% of the material cost etc (Memon, 2013; UNCHS,

1996).

Therefore CI should start being responsible towards the biosphere by following

sustainable measures. We all know that building, infrastructure and

environment are compactly interconnected. The CI provides us with physical

structures, which very soon becomes part of our living atmosphere hence

affecting our social well being and quality of living. It should therefore be given

due importance to promote environmentally friendly and economically sound

development techniques that are sustainable. In simple words, ‘Sustainable

Construction’ should be the new agenda (UNEP, 2004).

Sustainable construction can be perceived as a subset of sustainable

development applied to CI (Baloi, 2003)

In 1994, Charles Kibert during the first International Conference on

Sustainability (Kibert, 1994) described sustainable construction as:

‘The creation and responsible management of a healthy built environment

based on resource efficient and ecological principles’

The international Council for Research and Innovation in Building and

Construction (CIB, 1999) explained sustainable construction as:

‘The sustainable production, use, maintenance, demolition and reuse of

buildings and constructions or their components’

Another definition of sustainable construction is given by (Plessis, 2002a) as:

‘A holistic process aiming to restore and maintain harmony between the

natural and built environments to create settlements that affirm human

dignity and encourage economic equity’.

Sustainable construction can be implied not only to new designs but also to the

old structure. The concept of sustainable construction is to promote

environmental sustainability, which embraces economic and social aspects to

enhance occupant’s quality of life (Alsubeh, 2013).

4.2 Principle of sustainable construction

Sustainability is a self-motivating concept that requires flexibility and support

from decision makers and should prepare themselves to adopt a new approach

towards construction. The figure below shows the whole concept of sustainable

construction.

Sustainable construction must obey the principles of sustainable development

throughout the full construction cycle, known as ‘Cradle-to-grave’ (Uher &

Lawson, 1998). Sustainable construction can greatly be linked with the triple

bottom line (TBL) of sustainable development –

Figure 11 A relation model of sustainable development (Du Plessis, 2002)

4.2.1 Environmental Sustainability

The environmental sustainability in sustainable construction can be achieved

through following aspects:

‘ By reducing the use of non-renewable resources and increasing

efficiency of alternative material

‘ Promoting material recyclability

‘ Controlling the use of toxic materials

‘ Reducing the energy consumption while manufacturing and

supplying goods and services

‘ Using the available resources sparingly

‘ Thinking responsibly towards our ecosystem (Plessis, 2002a).

a)

b)

c)

d)

e)

f)

g)

h)

Figure 12 Annual Greenhouse Gas emission (The sustainable

development issues and built environment)

4.2.2 Economic Aspect

The economic dimension of sustainable construction is as follows:

‘ Taking life cycle cost in account

‘ Reducing external cost

‘ Reducing material waste

‘ Develop best possible ways of economic mechanism to

encourage sustainability (Plessis, 2002).

4.2.3 Social Aspect

The sustainable approach in social dimensions are-

‘ Active participation of stakeholders

‘ Encourage public participation

‘ Enhance the growth of appropriate institutions

‘ Impose strict rules and regulations regarding sustainability

‘ Assuring the quality of life by realising the impact of construction

on human health (Plessis, 2002a).

This includes process from extraction of raw materials to demolition of structure

Figure 13 The concept of sustainable construction (CIB 1999)

and reuse of its disposal. Along with the TBL of sustainable development,

sustainable construction encompasses aspects of technical and organizational

sustainability. The characteristics of Sustainable Construction are context

oriented which is why it has different approaches and priorities in different part

of the world. These approaches differ due to nature of problem and its severity,

capability of indigenous industry, available resources, technological inventions,

skills and experience of the workforce and cultural disparity (ElKhalifa, 2011).

4.3 Sustainable Construction in DCs

The concept of sustainability is new in the DC. It has not yet gained prominent

consideration and people still don’t take sustainability as a priority (Elkhalifa,

2011). The impact of CI to sustainability is a global concern. However, the

concern of DC is different than the developed country. The DC has more

complex problems to deal with. It is high time now for the developing countries

Figure 14 Cradle to grave concept (Green Construction)

to seriously address and adopt the sustainable construction practises and help

towards global and regional problems like resources depletion, environmental

pollution, social and economic equity etc (Conte, 2002; Elkhalifa, 2011). The

efforts of the DC in incorporating sustainable construction are often blocked

because they perceive sustainability as a luxury addition, which only leads to

increase initial costing. In such countries sustainability is only about new

expensive technologies. They are ignorant about the fact that sustainability is

rather about promoting local and traditional practices but in updated ways (Du

Plessis, 2002). To simplify the study of Sustainable Construction of the DCs, it

is sub divided into following:

a) Barriers

b) Requirements

c) Opportunities

4.3.1 Barriers

The barriers of Sustainable Construction of the DCs can be listed as:

4.3.1.1 Lack of capacity of the construction sector

One of the major barriers towards implementing sustainable construction is

inability of the construction industry to meet the demand of its clients. This lack

of capacity addresses problems like inadequate workforce as well as their skill

levels. DCs are deprived of professionals, skilled labourers who are capable of

supporting sustainable construction. As a result the CI of DC fail to meet the

need of the construction routine. The majority of the construction companies

consist of small contractors who depend upon seasonal workforce. This makes

the firm unreliable as these workers keep on moving in and out of the industry

as per their profit. This ultimately leads to ineffective construction failing to

encounter the requirement of Sustainable construction (Reffat, R. M., 2004b).

4.3.1.2 An uncertain economic development

In DC, the formal construction sector fully depends upon the government

whereas the private sector has limited market base. Here the orders from

government frequently fluctuate with financial assistance that delays the

projects. The CI of the DC supports and relies on import of construction

materials and components. When the import prices are raised, the projects cost

are also sky raised (Reffat, R. M., 2004).

4.3.1.3 Poverty and low urban investment

Studies show that there is a disproportionate graph between demographic

growth and urban investment in DC. The rate of population growth is much

higher than the rate of urban development. This action has resulted in

substandard living (Reffat, R. M., 2004).

This degradation not only harms the urban poor and their respective

environment but also the complete cityscape. Although there are some efforts

Figure 15 Urbanization in central Asia (UN-ESCAP, 2013)

being made to enhance the quality of living from governmental side as well as

private sector, the outcome are not satisfactory. Shortage of resources due to

increasing demographic projection have resulted the helping hands to struggle

to find a way to establish mainstream technologies (Reffat, R. M., 2004).

4.3.1.4 Lack of accurate data

Accurate information is essential to achieve effective sustainable construction.

Data are required regarding available sustainable materials and their complete

life cycle analysis. Before using them blindly almost everywhere, the industry

should know every details about it. It is also important to have knowledge on the

technical mode of operation and the area in which they operate (Reffat, R. M.,

2004).

4.3.1.5 Lack of interest in the issue of sustainability

The DC has been following traditional methods of construction and building

materials since ages. These methods of construction are deeply rooted with

historical values. Therefore it is very difficult to change the modes of operation

within limited time frame. Moreover the CI is dominated by the companies, who

are reluctant and hesitant towards technology change, which engage extra

capital and risk factor. Private sector loses interest to promote sustainability due

to lack of financial mechanism to encourage the change. On the whole the CI of

DC doesn’t recognize sustainable practice as a competitive mean in indigenous

or global market (Reffat, R. M., 2004).

4.3.2 Requirement

The requirements of DC to attain sustainable construction lies on following

understanding-

‘ Sustainability as necessity

‘ Effective management of resources

‘ Shared responsibility from

o Politicians,

o Manufacturers,

o Local authorities,

o Professionals

‘ Improvement in construction activity and products by

o Reducing waste

o Maximizing the use of recyclable materials

o Energy efficiency in structures

o Durability and maintenance

o Incorporating innovative ideas in construction

‘ Enhancing construction sector capacity

‘ Encouraging need for integrated approach

4.3.3 Opportunities

Along with barriers of Sustainable construction, there are opportunities for DC to

achieve sustainable construction as well (Plessis, 2002).

4.3.3.1 Innovation in materials and technologies

In DC, despite of improved productivity, the conventional construction materials

will fall into shortage in long run. So we need to be careful while using it and opt

for some cost effective and environmental friendly material production through

appropriate technology. Some kind of such technological inventions are being

made by India, however they are still in demonstration stage (Plessis, 2002).

4.3.3.2 Re-evaluating the traditional

Historically, the civilization of the past seemed to be aware of the importance of

their ecosystem, which is why the concept of sustainability was seen in early

tradition. Those traditional communities used available indigenous materials for

construction, which were well adapted to changing environment. Traditional

materials use benefits in terms of accessibility and are inexpensive (Plessis,

2002).

4.3.3.3 Improving construction process

The construction process in DC needs to be improved considerably. Stable and

durable construction products should be encouraged for better quality of life.

Material wastage is another vital activity, which needs to be reduced

significantly (Plessis, 2002).

4.3.3.4 Innovation in building material

The CI of the DC continuously uses natural resources that are already in limited

stage, thus depleting the resources. So, its now responsibility of the CI to focus

clearly on sustainable construction. The sustainable construction needs to use

the materials that don’t hamper our ecosystem as well as human health.

Researches on these types of materials and encouraging such possible

changes allow the CI to make a huge difference on global sustainability

(Plessis, 2002).

4.3.3.5 Environment health and safety

During the processing of the raw materials, a large amount of toxic gases are

released into the air causing environmental pollution. Also the toxic waste

generated in such processes are left untreated or dumped in river sites, which

further degrade our biosphere. Strategies for handling harmful materials like

asbestos needs to be prepared. Strict laws should be imposed regarding health

threat due to construction activities (Plessis, 2002).

4.3.4 Benefits of Sustainable Construction

Economic Social Environmental

Site Reduced cost for

site preparation

Improved aesthetics,

more transportation

option for employees

Land

preservation,

reduced resource

use, reduced

energy use,

Water

Efficiency

Reduced annual

waste and water

cost

Preservation of

water re- sources for

future generations

and for agricultural

and recreational

uses, fewer wastewater

treatment

plants

Lower potable

water use and

reduced

discharge to

water- ways, less

strain on aquatic

ecosystems in

water-short

areas,

preservation of

water resources

for wildlife and

agriculture

Energy

Efficiency

Lower initial

costs, lower fuel

and electricity

costs, reduced

peak power

demand,

reduced demand

for new energy

infrastructure

Improved comfort

conditions for

occupants, fewer

new power plants

and transmission

lines

Lower electricity

and fossil fuel

use, less air

pollution and

fewer carbon

dioxide

emissions,

lowered impacts

from fossil fuel

production and

distribution

Materials and

Resources

Decreased initial

costs for reused

and recycled

materials, lower

waste disposal

costs, reduced

Fewer landfills,

greater markets for

environmentally

preferable products,

de- creased traffic

due to the use of

Reduced strain

on landfills,

reduced use of

virgin re- sources,

better-managed

forests, lower

replacement

costs for durable

materials,

reduced need for

new land- fills

local/regional

materials

transportation,

energy and

pollution, increase

in

recycling markets

Indoor

environmental

quality

Higher

productivity,

lower incidence

of absenteeism,

reduced staff

turnover, lower

insurance costs,

reduced litigation

Reduced adverse

health impacts,

improved occupant

comfort and

satisfaction, better

individual

productivity

Better indoor air

quality, including

reduced

emissions of

volatile organic

com- pounds,

carbon dioxide

and carbon

monoxide

Operation and

maintenance

Lower energy

costs, reduced

occupant/owner

complaints,

longer building

and equipment

lifetimes

Improved occupant

productivity,

satisfaction, health

and safety

Lower energy

consumption,

reduced air

pollution and

other emissions

Table 5 Benefits of sustainable construction (Osec, 2010)

5. Sustainable construction- a focus on Nepalese context

5.1 Country Overview

Nepal is a landlocked country situated between India and China. It is a

mountainous country with 77% of its area lying in hilly and mountain region. It

occupies an area of 147,181 squares km. Nepal has a great altitude variations

ranging from 60 meters to 8848 meters. We can find great diversity in Nepal in

terms of climate, vegetation, culture and religion. Nepal has a population of 30

million with a population density of 189 inhabitants per sq.km. About 17.3%

population is urban while rest is rural. Nepal has a literacy rate of 66% and

ranks 147 out of 187 countries based on HDI. The capital city Kathmandu is the

largest city of Nepal with maximum population and area of 899 sq.kms. Nepal’s

GDP has increased by 3.6% (FY 2013) with per capita income of $750 ((Mulmi,

2009).

Table 6 Map of Nepal (UN-Habitat, 2010)

5.2 The Economy

Nepal is one the least developed country in the world. It ranks 147 out of 187

countries based on HDI. About 75% of its population depend on agriculture, but

sadly it contributes only 30% to the GDP (Wadhhwa, 2012). In case of food,

Nepal was always self-sufficient and also exported rice, wheat, grain and

sugarcane until 1980s. However, in recent time, it has become an importer of

food due to high demographic projection and low productivity. There are several

factors that contribute to Nepal’s underdevelopment, some of which are its

landlocked geography, rugged terrain, poor infrastructure and lack of natural

resources. Today the economy of Nepal is characterized by narrow export

range like carpets, pashmina, garments and leather goods, which contribute

around only 12% to the GDP. The table here shows the annual GDP growth in

percentage.

Table 7 GDP growth rate per year (Central bureau of statistics, Nepal, 2014)

Other major source of income of Nepal is Tourism. It is a leading industry acting

as a source of foreign exchange earning, Nepal is second richest in water

sources and acquires a massive potential of hydropower. But it taps only 1%

due to lack of capital financing. Another economic strength in which Nepal lives

by is remittance. The United states, European union, China Japan have been

actively supporting Nepal’s economy by making large investments since 1952.

Today only the foreign aid accounts for half of the country’s development

budget. According to World Bank article on Migration and Development Brief,

2013, the remittance adds to country’s GDP by 25% and it is the highest among

South Asian countries. Despite of such huge economic inflow, only 2.9% is

being used for capital formation. Rest is being consumed daily, followed by

repayments of loans (Habitat, 2010)

Table 8 Remittance inflows (Asian Development Bank, 2009)

5.3 Urbanization and urban growth

Although Nepal is a large rural country with only 17% of urban population, it is

urbanizing rapidly with the rate of 4.9% (world urbanization prospects, 2011).

Table 9 Distribution of Urban and rural population (UN-Habitat, 2012)

The urban population contribute 65% of the total GDP. The capital city

Kathmandu is among the fastest growing metropolitan area of South Asia.

Kathmandu valley population is increasing at the rate of 4.76% per year (Bank,

2013). Also, the civil wars in rural parts of Nepal resulted population shift to the

capital in search of better life and opportunity. Although Nepal is the fastest

urbanizing country in South Asia, it is also the eighth least urbanized country in

the world . Kathmandu alone accounts for one third of Nepal’s urban population

and acts as the urban hub, which can be made clear from the table below.

Table 10 Largest urban centers (census, 2011)

The major causes of urbanization are population growth, migration and security.

This unplanned urbanization taking place in Nepal has put tremendous pressure

on the limited resources. It also leads to inappropriate health and sanitation,

waste mismanagement, electricity shortage along with inadequate

infrastructures. According to the survey from National Living Standards, 2008-

09, 25.16% of Nepalese population live below poverty line. But above all is the

sky rocketing demand for housing (Sharma, 2014). Land prices have also risen

by 300% since 2003. Such high prices of land with increasing rents have made

housing unaffordable particularly for the poor. More than 75% of the urban

population of Nepal do not earn enough to afford 50sq.m house on the city

outskirts. These prohibitively high prices of urban houses have resulted in sun

standard housings. As per the study of poverty mapping exercise carried out in

2010, there were 12,000 squatters residing in Kathmandu valley alone. Also

additional 40% squatters were living illegally in public buildings, resulting a total

of approximately 20,000 squatter populations (Kurkarni, 2012).

Table 11 trend of urbanization in Nepal (CBS, 2011)

5.4 Housing scenario in Nepal

Housing basically refers to a dwelling. It is one of the key indicator of urban

growth as well as economy of that particular place. The housing condition of

Nepal is below standard; the urban area being better than rural. The

geographical variations and climatic conditions are identified as the major

culprits. The settlement pattern is generally linear, scattered or in small isolated

clusters. 23% of the urban population is poor and live in substandard houses.

Recently, housing has been realized as a national problem urging the nation to

find sustainable solutions. The housing trend in Nepal is something like:

PEOPLE ‘ LAND ‘ BUILDING ‘ INFRASTRUCTURE

Whereas in developed countries the trend is:

LAND ‘ INFRASTRUCTURE ‘ BUILDING – PEOPLE

Table 12 Urbanization in Nepal (kathmandu post, 2014)

5.5 Housing stock

According to UNCHS, 1992, housing stock is understood as ‘the quantity of

existing units in a house market that are regardless of conditions or compliance

with standards and regulations’. The national housing stock is categorized in

five types described in the table below (Habitat, 2010).

Stock by housing

type

National Urban Rural

Squatter 07.81% 09.09% 07.64%

Traditional (urban) 00.53% 04.28% 0%

Kuchcha

(Temporary)

42.18% 08.25% 46.94%

Semi-Pucca (semi

permanent)

41.18% 37.09% 41.76%

Pucca

(permanent)

8.30% 41.27% 3.67%

Table 13 stock by housing type (shelter and human settlement development,

1996)

The urban areas have more than three-fourth of semi-permanent and

permanent housing. In Nepal, owner built housing dominates the urban as well

as rural areas. The condition of houses are average or below in most of the

areas, although it has been improving over the years.

5.6 Demand and supply

Nepal is undergoing urban explosion rather than urban growth. The urban

population projection of Nepal in 2011 was 5.6 million while for the year 2021 is

9 million. This shows that in 2011 there was a rise of 1.1 million households in

urban centres and would reach to 1.8 million by 2021.

Table 14 Population projection in Nepal (CBS, 2003)

As per census, 2011, there are 5,427,302 numbers of households, which

consists of 5,423,297 individual households and 4,005 institutional households

(Nepal census, 2011). In such alarming condition it is obvious for the demand to

exceed the supply rate. One of the major constraints to supply of house is lack

of organized housing finance. The existing houses are in dilapidated state and

needs severe maintenance. In national scenario, 85.26% reside in their own

house and 12.81% in rented.

5.7 Efforts made

The table below gives a clear idea of major organization, which are actively

involved in housing and urban development in Nepal.

PLAYER ROLE URBAN HOUSING

PRODUCTION

Central Government

National planning

commission (NPC)

National level policy

formulation

Ministry of local

development

Monitor the role of the

municipalities under the

Local Self Governance

Act 1999

Ministry of Physical

Planning and Works

(MPPW)

Responsible for carrying

out 1996 housing policy

Set up of Urban

Development Committee

and Town Development

Committees.

Responsible for

infrastructures including

urban infrastructures

Department of Urban

Development and

Building Construction

(DUDBC)

Supporting municipalities

in preparing periodic

plans and digital base

maps

Janata Awas

Programme, 3,000 units

in 3 Terai districts (rural

housing for Terai

Preparing building code

and its regular updating

Partnering with NGOs in

addressing slum and

squatter issues

disadvantaged groups)

Town Development

Committees (TDC’s)

Formulate and

implement the town

development plans

Implement land

development activities:

guided land

development, land

pooling and sites and

services programs

Enforce construction

rules and building codes

Estimated supply of

more than 11,000

serviced plots in urban

areas in last four

decades (in recent years

an increasing number

are joint projects of

TDCs and municipalities)

Nepal Housing

Development Finance

Company (NHDFC)

Provision of housing loan

facilities at reduced rates

Local Government

Municipalities Formulate and

implement the town

development plans

Implement land

development and

housing programs

Enforce construction

rules and building codes

since recent years

involved in provision of

serviced plots, no firm

estimation known

NGO/INGOs

Lumanti Improve quality of life for

urban poor

Secure shelter for the

poor

Solidarity for the poor

Squatter upgrading

projects

Habitat for Humanity Assist other partners

(NGO’s) to build

affordable housing using

local construction

technologies

Started 5,000 unit slum

upgrading project

primarily rural housing.

UN Agencies

UN-HABITAT/UNDP Facilitate the

government in urban

development issues

including housing

Support in housing

disaster affected

population in partnership

with local governments,

and NGOs

235 houses under

completion for Koshi

Flood disaster affected

landless people in

Sunsari District

Private Sector

Real Estate Developers Development of houses

and apartments

Estimated 750 houses

and 7,000 apartments

Land Brokers Provision of serviced

land for construction

Estimated supply of

50,000 serviced plots in

urban areas in last four

decades

Table 15 key players in housing (UN-Habitat, 2010)

These problems and challenges of Nepal regarding housing is a complex

subject that needs to be addressed fast. The responsible authorities must

supply sufficient houses to its population, which means a rapid construction

process will take place soon. If this amount of heavy construction activity will

continue to use the same current technique then Nepal will suffer from

irreparable losses. As it is Nepal is already vulnerable to natural calamities like

floods, landslide, earthquakes, the chances will be more prominent. It will have

hard time finding solutions for prevailing issues like poverty, conflicts, social

disparity, water scarcity, and power cut offs. These matters can be solved

effectively by incorporating sustainable approach in construction. Sustainable

housing can be an effective solution as it is capable to deal with mentioned

problem.

5.8 Approach to sustainable housing

Sustainable housing has much to offer to the DC because of disproportionate

level of demands rising due to native weakness. Until today the CI of the DC

uses inappropriate method of construction that is not sustainable and will

continue to use until addressed. The severe shortage in housing has given rise

to substandard housing stock in many developing world, which is a result of

massive population growth in such countries. According to UNCHS, the DC

shows 95% of the world’s total population increment, in last decade.

Studies show that within 2007-2025, the urban population increase per annum

in the DC is expected to be 53 million, whereas the developed countries will

have an increment of 3 million (Habitat, 2012)

This increase has already started showing its adverse effect in Nepal causing

scarcity in housing supply and giving birth to slums and squatters. Around 50%

of the total population of the DCs reside in such slums and squatters. Also the

natural disasters and conflict makes millions of people homeless affecting their

health, economy and social ties (Habitat, 2012). To overcome this shortage of

housing, all that requires are appropriate and affordable sustainable approach

(Habitat, 2012).

Sustainable housing is a practice of constructing houses by following processes

that are environment friendly, resource efficient and socially adoptable

throughout its life cycle. It all depends upon choices of materials and methods

of construction to reduce the risk of environmental imbalances. Sustainable

housing adds up to the economic development, enhancing quality of life, social

equality, while mitigating issues related to urbanization, poverty, climate

change, energy crises, economic uncertainty etc (Habitat, 2012). The table

below describes the characteristics and benefits of sustainable housing based

on TBL.

Teamwork

Teamwork

Teamwork

Team efforts have always been crucial to the completion of major tasks. Take for example the construction of a building. A team of workers would naturally be able to do the task much faster and with better results than a single person. In a similar way, an organization is built up with teamwork and cooperation amongst employees and their managers.

A team has been defined by Katzenbach and Smith (1993, p. 45, cited in Moorhead & Griffin, 2004, p. 314) as “a small number of people with complementary skills who are committed to a common purpose, common performance goals and an approach for which they hold themselves mutually accountable.” Therefore a number of teams working within an organization, by virtue of their having goals that are similar to the organizations’, can help it to reach the pinnacle of success. Naturally then, management these days is looking more and more towards teams to get work done in the organisation as this is believed to deliver more than the individual effort. (Fincham & Rhodes, 2005).

Since teams consist of a small number of persons, the question that comes to mind is ‘what really causes these individuals to come together?’

This essay attempts to examine the advantages and disadvantages of working in teams by first briefly describing teams, the reasons for their formation, their structures and norms. Since team efforts can also be detrimental to the success of the organisation, the essay will also try to analyse ways in which the disadvantages may be mitigated or avoided.

Teams are formed for Functional purposes, in order to get a certain organisational task finished. Some teams are formed by organisations simply for improving on aspects such as quality or productivity. (Moorhead & Griffin, 2004). They may also be formed for Psychological purposes which involve the employee satisfying certain needs. (Moorhead & Griffin, 2004). The psychological aspect has a particularly profound impact on the individual as it helps the person find out how he or she relates to others (Hogg & Abrams, 1988).

Organisations rely heavily on teams in order to solve different problems. Hence, different types of teams can be said to exist in the organisation (Moorhead & Griffin, 2004). The first type is Quality Circles, which are small groups and meet regularly in order to discuss certain workplace problems such as quality issues. The second type is Work Teams, which actually perform the daily work unlike the Quality Circles, which are merely advisory in nature. The third type is Problem Solving Teams, which exist on a temporary basis in order to attack certain problems within the organisation. The fourth type of team is known as the Management Team which is relatively permanent and consists of managers. Its main task is to coach other teams into becoming self-managing and coordinating work amongst interdependent work teams. Finally, there are the Product Development Teams, which are a combination of work and problem solving teams. These are in order to design new products and/or services for customers. They are also temporary in nature, since once the task is completed, they are disbanded.

The team has a structure amongst its members which reflects the team identity. (Fincham & Rhodes, 2005). This includes, first and foremost, a team leader, often seen as the most competent member with regard to the task to be accomplished and as someone who is able to take command of the group. At the next level are the team members themselves who have agreed to come together in order to achieve group goals. Deviates comprise the third level of the team structure and are members who have personal goals that do not coincide with the overall team goals. The last level is that of isolates who are deviates, isolated from the team (perhaps psychologically and even physically) because of their failure to adhere towards the common group goals (Fincham & Rhodes, 2005).

Since teams are a rather close knit group, certain norms dictate the member’s behaviour whilst he or she works within a group. A norm can be defined as “a standard against which the appropriateness of behaviour is judged.” (Moorhead & Griffin, 2004, p. 294). Norms indicate the expected behaviour from the different constituent members and serve to regulate the behaviour amongst group members and make their behaviour more predictable.

Despite their complexity vis-�-vis their structure and behaviour, it is possible for us to list out some of the advantages of using teams (Moorhead & Griffin, 2004). The first of these advantages is enhanced performance which can be displayed in a variety of forms ranging from productivity and quality (Scholtes, 1988) to customer service. This simply means that working in teams will help to reduce wastage of effort, errors and will also help to increase output as a ratio of employee input. For example, General Electric’s North Carolina plant was able to achieve a twenty percent increase in productivity after a team system was implemented there (Orsburn, Moran, Musselwhite & Zenger, [n.d], cited in Moorhead & Griffin, 2004, p. 318).

The second advantage of teamwork relates to employee benefits (Moorhead & Griffin, 2004). Employees often look for ways to develop on the job, manage and make their own decisions and acquire a feeling of self worth and self fulfillment in an organisation. Teams are especially good at helping employees to achieve these since it does away with the reliance on the traditional hierarchical system and provides the employees with the freedom needed for self growth. For example Milwaukee Mutual was able to reduce the number of employees who required assistance by 40% owing to the application of a team system (Manz & Sims, 1993, cited in Moorhead & Griffin, 2004, p. 319).

Thirdly, firms may benefit (by using teams) from reduced costs owing to reduction in errors, absenteeism and even employee turnover. This is because team members are actively engaged in their teams and are willing to make their contributions shown. For example, Wilson Sporting Company reported saving ten million dollars by switching to a team based system (Moorhead & Griffin, 2004).

A fourth advantage (and one of the characteristics) of a team is Group Cohesiveness which is defined as “the resultant of all forces acting on the members to remain in the group” (Festinger, 1950, p 274, cited in Social Identifications, 1988, p. 95). Cohesiveness has a positive impact on groups. For example it has been known to enhance productivity (Schacter, Ellertson, Mcbride & Gregory, 1951, cited in Social Identifications, 1988, pg ).

Another advantage of teams is the synergy that characterises them i.e. the phenomenon wherein groups repeatedly discuss the task at hand in order to come up with different, perhaps even better alternatives. Decision making within a team has been seen to have overwhelming advantage in terms of the experience of all the members and the different, fresh viewpoints team members bring to the discussion table. (Fincham & Rhodes, 2005)

Lastly, teams benefit organisations by helping to reduce redundant layers of bureaucracy in the organisation and allowing the employees to be in closer contact with top management. For example, a team in Motorola was able to convince top management to change a policy regarding supplier inspection and thus helped to reduce cycle times and improve deliveries (Moorhead & Griffin, 2004).

The flipside of the coin however is that teams also have disadvantages for the organisations (Moorhead & Griffin, 2004). First and foremost, the fundamental problem that an organisation choosing to adopt a team structure faces is in implementing it. Forming teams means that managers in the organisation tend to become more like ‘coaches or facilitators’ rather than managers (or leaders of the employees) in the true sense of the word (Moorhead & Griffin, 2004, p. 321). Often, managers feel as though they are working themselves out of a job since more and more of their duties are handed out to teams (Manz & Simz, 1993, cited in Moorhead and Griffin, 2004, p. 321).

Secondly, it takes a lot of time (often two to five years) for a team to fully develop and grow into an efficient and effective body. Thus impatient managers may not wait for this to happen and scrap the entire team structure, which will result in significant losses in time and money to the organisation. Employees may also end up losing trust with top management decision making which can be disastrous for the company.

Thirdly, Groupthink is a situation when decisions are taken unanimously without considering their correctness. (Janis, 1972). It occurs in highly cohesive groups on account of ingroup pressures which blur group members’ judgments and forces them to make incorrect decisions. Clearly then, taking a unanimous stand on an issue without debate on any other alternatives is a disadvantage of teams. The Bay of Pigs fiasco is a clear example of this, since, the decision taken by President Kennedy and his advisors was unanimous without considering possibilities such as the fact that their army was outnumbered 140 to 1 (Janis, 1972, cited in Principles Of Organisational Behaviour, 2005, pg. 293).

Lastly, due to the number of teams present in an organisation conflict between groups, is inevitable (Fincham & Rhodes, 2005). This conflict could arise from functional reasons when, one team within the organisation considers another team within the same organisation as a threat to achieving its goals. The second reason for conflict amongst teams in an organisation is Social Identity Theory. This theory assumes that groups have a shared social identity (Tajfel 1978,cited in Principles Of Organisational Behaviour, 2005, pg. 298). In other words, a ‘need for self esteem’ (Fincham and Rhodes, 2005, p. 299) is what drives certain cognitive processes and allows us to assess and compare our self esteem in groups that we belong to, with those in other groups (Fincham & Rhodes, 2005).

This conflict may lead to teams seeing each other as hindrances to their achieving their goals leading to unhealthy competition between them. It may lead to factionalism and obstructions by the creation of distinct group identities (Fincham & Rhodes, 2005, pg. 305).

Theorists have suggested ways for mitigating the disadvantages that characterize team work within the organisation. One of these is the shift a team based structure that can be accomplished through five basic steps or phases (Moorhead & Griffin, 2004). The Phase one is referred to as Start Up and is simply that stage at which team members are chosen and trained to work with each other. Phase two is Reality and Unrest wherein the team and their managers are frustrated regarding possible ambiguities with their new responsibilities. Phase three is Leader Centered Teams and is when team members become more comfortable with the idea of working in teams and refocus on team goals. Phase four is known as Tightly Formed teams, when teams become close knit and focused on their goals. Intergroup rivalries often begin at this stage. The fifth and last phase of implementation is Self Managing Teams and is when the team works as an effective and efficient body. These five phases also provide an indicator of what stage a team is at and thus managers need not lose patience as they will be able to effectively gauge at what stage a team is and therefore how long it will take the team to fully develop.

Groupthink can be easily avoided too. It is suggested that group members actively search out information whether or not it’s contrary to the group’s opinion. Also, the group may assign one member with the role of ‘devil’s advocate’ to ensure that other alternatives are discussed (Janis, 1972, cited in Principles Of Organisational Behaviour, 2005, p. 293). Thus mitigating groupthink could yield better solutions and hence better results.

Intergroup Conflict may be mitigated by, firstly, emphasising super ordinate goals, that is, putting organisational goals before group goals. Secondly, there must be increased communication between different groups and perhaps groups can also consist of members from different backgrounds such as sales or finance. Thirdly, the organisation can implement a rotation system whereby members of each team are rotated between different teams. Lastly, organisations should work as hard as possible to provide teams with adequate resources so that they don’t have to compete for these (Fincham & Rhodes, 2005).

In conclusion, we may state that teams are a complex system of interactions amongst its members. These interactions are governed by certain norms, structures and team processes. Despite having certain major disadvantages such as intergroup conflict or groupthink, teams continue to enjoy overwhelming popularity amongst managers today for some of their positive aspects, principally, enhanced performance, reduced costs and employee development. Thus, the phrase, ‘the sum is greater than the parts’, holds true for teams and teamwork.

Reference List:

Fincham, R. and Rhodes, P. (2005). Principles Of Organisational Behaviour. Fourth Edition. New York: Oxford University Press Inc.

Hogg, M.A. and Dominic, A. (1988). Social Identifications. London: Routledge

Moorhead, G. and Griffin, R W. (2004). Organisational Behaviour-Managing People and Organisations. Seventh Edition. Boston: Houghton Mifflin Company

Scholtes, P. (1988). The Team Handbook: How To Use Teams To Improve Quality. Madison WI: Joiner Associates

Temporary staffing: essay help free

Temporary staffing

Temporary Staffing in Uncertain Times Makes Perfect Sense

An excellent way of tackling recession or uncertainty in business is by hiring Temporary Help or Temporary Staff. Popular with businesses, both big and small, Temporary Help agencies allow you to hire workers of different skill levels, and with limited liability. The responsibility of recruitment, payroll and on boarding lies with the agency. You only need to provide minimum functional training for effective work performance.

Advantages of hiring Temporary Staff:

Temporary staffing provides a great way of testing the skills and abilities of new employees. At the same time, you are able to get valuable business work done. If the staff members meet your job requirements, they can be hired as permanent workers. Additionally, you can hire temporary staff as contingency workers until you find full-time permanent staff for the available job positions. Temporary staff can also be hired to work flexible shifts.

The hiring, training and payroll requirements of Temporary staff are handled by the Temporary staffing agency, thus reducing your staffing liabilities. Further, you do not have to provide benefits and bonuses to the Temporary staff members. Thus, you can concentrate all your energy on more important business issues and increase your productivity.

Functional Areas of Temporary Staff:

Temporary staff is available in a number of functional areas and at all skill levels. Some of them are listed below.

Accounting and Finance: Accounts manager, Clerical or administrative officer, Business Analyst, Cashiers.

Computer Programming and IT: Computer programmers, data processors, word processors, IT Analyst and Engineers.

Management: HR managers and Project managers.

Clerical Jobs: Filing clerks, Data entry clerks, Shipping clerks, Receiving clerks and General office clerks.

Secretary, Typist, Receptionist, and call centre operators.

Sales and Marketing

Service and Maintenance staff

Law

Important Hiring Considerations

Geography:You can hire temporary staff from a local firm or a national agency. Local firms have better knowledge and understanding of local community and workers, in comparison to larger national companies.

Specialization: Temporary staffing is available for different skill levels. Depending on your requirements, you can hire unskilled, semi-skilled or skilled workers. Help agencies generally specialize in providing workers of a particular skill level. Therefore, if you are looking for unskilled labor, hire an agency that specializes in placing unskilled staff.

Guarantee: Occasionally, the temp hire does not perform as expected. Reputed temp agencies will cover that possibility with a satisfaction guarantee. It would waive the fees for such workers.

Experience: It is always advisable to hire an agency with experience and a favorable reputation. Such agencies will be able to better understand your business requirements and provide you desired quality service. If possible, contact previous customers and ask them how satisfied they were with the temporary staff and the problems faced.

Size: Select a Temporary staffing agency that is similar to the size of your company for the most effective business relationship.Fees: Fees is determined by the skill level of the temporary staff. The greater the required skill level, the higher will be the fee charged.

Turnover Rate: One important aspect to keep in mind before hiring Temporary staffing agency is that temporary workers have higher turnover rates than permanent workers. Ask the agency about the turnover rate of its placements.

Additionally, finding highly skilled workers for critical job positions can be quite difficult. Thoroughly analyze your skill, and budget requirements before selecting a Temporary staffing agency. Develop a job requirement and list out the required skill set and education. Next, compare price quotes from multiple Temporary Help Services companies to find the right agency for your business.

The area of leadership: college essay help near me

The area of leadership

Introduction

The area of leadership has been under intense academic research during the last century by both academics and practitioners’. It appears that leadership can play a central role in the success or failure of organisations (Andrzej, Huczynski, Bucahnan, 2007).

The purpose of this essay is to review, appraise and apply current leadership theories to the business case of retail magnet Arthur Ryan. Throughout this essay we will examine and evaluate the leadership style of Mr Ryan. For feasibility purpose the analysis will be limited to three central leadership theories, the Trait theory, Transactional and Transformation leadership. This essay will be presented in three main parts, short background review of the company and Mr Ryan, in-depth literature review of the mentioned leadership theory and finally critical analysis of the case study in respect to the Theory discussed. We will conclude by drawing lessons that can be applied within the current organisation.

Company and leader background

Arthur Ryan was born in Dublin on 1936; he started his career working for a London based fashion wholesaler and later on moved to work for Dunne’s stores where he acquired buying and merchandising skills. In 1969 he was poached by the Weston’s family to launch a budget clothing store in Dublin under the name of penny’s, in 1974, he took the model to the UK and open the first shop, rebranding the stores Primark to avoid legal challenge by the American retail store JC Penny’s.

In the following two decades Ryan expanded the business gradually and in 1995 the company was turning over just above 140m. Ryan, admirably Identified, that the growth in the clothing retail market will be in the budget clothing for the under 35’s. His competitive strategy can be described as cost leadership which is gain through optimising supply chain, bulk purchasing and running a very lean operation. He is known to be a shrewd negotiator who posse’s exceptional trading skills, as one of his former employees put it “Ryan has retailing flowing through his blood.” (Guardian, 2009).

Since the beginning of the decade Primark has seen enormous growth by bringing the concept of “Cheap Chic” and “Pradmak” to the UK high street, with 196 outlet and sales exceeding 2bn Primark has set its mark on the UK fashion industry. Some will argue that the phenomenal success of Primark in the last decade can be accredited to factors such as economic rescission or unethical behaviour (Drapers, 2008), never the less there is a wide consensus that Primark has the distinctive ability to bring the latest fashion trends at pocket friendly prices.

Mr Ryan has acted as the Chief Executive of the company for nearly 40 years, he does not own any shares in the company. He is known to be risk averse and was once quoted "I just like sliced ham and bread and butter, that’s where I am. No risk."( www.moneyweek-profile-of-arthur-ryan-of-primark-45340.aspx). He is intensely private men and does not allow his picture to be taken, his schedule is kept secret apart from his closet colleagues and he surround himself by bodyguards from the fear of kidnapping. Most of his employees have never seen him and he has been described as a cross between the Invisible Man and television detective Colombo. He frequently makes unannounced visits to his shops leaving before his arrival has been announced. (http://archives.tcm.ie).

It appears that the organisation is run in an old fashion manner where senior management is still referred to as Mr or Mrs, marketing budget is set at the ludicrous amount of 15K, where most of it is used for traditional newspaper advertising. Mr Ryan have seems to adopt a very strong top down approach, where most of the decision are being made at the board level triumphed by Mr Ryan and his 3 closet directors dubbed the “gang of four”.

Literature review

Despite extensive interest in the area of leadership there has yet to be a clear definition of the term, the ambiguity is derived from the intuitive nature of the term, as the meaning can vary from one person to another. (Northouse, 2004).

This ambiguity can be partly addressed by the various leadership theories. In the early days in the study of leadership, the main emphasis was on the personal attributes of the leader, with theories such as the great men, trait and Behaviourist Theories , while later research suggest a more wholesome approach, taking into account the followers and context, such as situational, contingency and transformational theories.

It would be sensible to mention that leadership theories are not replacing one another, but rather complimentary to the understanding of the multi faceted aspect of leadership. The latest school of thought suggest the idea of “dispersed” leadership, thus shifting the emphasis from developing a leader to developing a leadrful organisation (Bolden, R., Gosling, J., Marturano, A, 2003).

Trait approach

The trait approach was one of the first attempts to understand the study of leadership; this approach arose from the “great men” theory. In the centre of the theory lies the assumption that people are born with certain traits (Northouse, 2004), this assumption in itself has been challenged by many scholars. The research concentrated on identifying and isolating the key characteristics of successful leaders. It was believed that by doing so potential leaders who posses those traits and skills can be identified and recruited.

The below table 1 provides a summery of the traits and skills identified throughout the past century.

(1948)

(1959)

(1974)

(1986)

(1991)

Responsibility
Insight
Persistence
Self-confidence
Sociability
Intelligence
Alertness
Initiative

Masculinity
Extraversion
Adjustment
Dominance
Intelligence
Conservatism

Responsibility
Cooperativeness
Achievement
Sociability
Tolerance
Influence
Persistence
Insight
Initiative
Self-confidence

Dominance
Masculinity
Intelligence

Cognitive Ability
Motivation
Integrity
Task Knowledge
Drive
Confidence

Source (Northouse, 2004).

Despite the trait theory being research for nearly half a century, researcher where unable to identify a consist set of leadership treats. Instead we got an extended list of subjective traits that would be managers should aspire to. (Andrzej, Huczynski, Bucahnan, 2007).

The theory main strengths lie in its simplicity, extensive research foundation and it can be used as an evolution and development tool for managers. While it’s main weakness lies in its central assumption that have yet to be proven.

Furthermore in taking into account just the leader, the theory neglects two of the other components, situation and followers (Northouse, 2004). As organisation change overtime there is not one set of traits that can be applied to all circumstances. Perhaps the most famous example would be Winston Churchill, the renowned second war world British prime minister, which was considered a great leader at time of war and a poor one at the time of peace.

Transactional and transformational leadership

The concept of transactional and transformational leadership theory was developed from the work of James McGregor Burns’ (1978) who studies political leaders. Burns distinguished between two contrasting types of leadership styles transactional and transformational.

Transactional leadership

is based on exchange relationship between leaders and followers, the idea is that followers are rewarded in exchange to their performance; rewards can vary from tangible assets to recognition and status. Transactional leadership is often compared to management as it seeks to maintain stability rather than to promote change (Lussier & Achua, 2004, p. 358). Transactional leadership is based on three main components as set in the below table:

Contingent rewards

Management by exception (active)

Management by exception (passive)

exchange of rewards for effort contracted.

rewards for achieving goals promised.

accomplishments recognized.

clear goals and recognition once they are reached is held to result in individuals and groups achieving expected levels of performance.

standards specified by leader

deviations from rules and standards looked out for

corrective action taken quickly if necessary. May involve follower punishment.

leader awaits emergence of problems before acting.

Source: (Hay, 2007)

In effectiveness terms transactional leadership is considered to be less successful than transformational one (Hay, 2005). Firstly, transactional leadership is considered to be short term as there is no basis for the relationship once the transaction has been completed. Moreover, the relationship lasts as long as the benefits outweigh the costs (Sanders, Geroy, 2003) Secondly, followers are not motivated to out perform their pre defined or expected outcome (Bryant, 2003).

In contrast to transactional leadership,

transformational leadership

tends to be linked with a more enduring leader-follower relationship. It is based on respect, trust and commitment rather than contractual agreements (Jung & Avolio, 1999). Transformational leaders inspire followers to set aside personal interests, to some extent, in favour of the collective or team purpose. Furthermore Transformational leaders motivate and empower followers to achieve performance beyond expectations by transforming there attitudes, beliefs and values (Bass, 1985).

Transformational leaders are admired and trusted by followers, they, in some respect, role models to there followers (Bass, Jung, 2003). The focus is on the leader as a person, rather than her/his contextual authority. Bass (2003) has identified four interdependent components of transformational leadership, which, when combined, should yields performance beyond expectations (Gellis, 2001).These include idealized influence (Chrisma), inspirational motivation, intellectual stimulation, and individualized consideration.

There is sizeable evidence to back up the effectiveness of transformational leadership. Research has found that Subordinate satisfaction, motivation, and performance can all be positively correlated to transformational leadership (Bass, 1998). The transformational leaders attempts to optimize development, not just performance, through the development of their associates, they optimize the development of the organization as well, as high performing associates results in high performing organizations (Bolden, Gosling, Marturano, 2003).

Despite the popularity of the transformational theory there are number of concerns that have been raised. Firstly, situational variables are not accounted for and may increase or moderate the effect on followers (Pawar, Eastman, 1997). Secondly, D’Intino and Victor (1995) suggests that like other theories that emphasize the role of leadership in increasing motivation and performance, transformational leadership is favouring management, customers and owners at the expense of other stakeholders. Thirdly, followers might be transformed to such a high level of emotional involvement that they become demotivated by the stress level (Harrison 1987). Finally, transformational leadership might cause some negative effect in the form of excessive competition. (Porter, Bigley 1997).

In 1985 Bernard Bass extended Burns theory further, his main contribution derives from the view that transformational leadership enhances or augments the effects of transactional leadership and that all leaders display both leadership styles though to different degrees (Bryant, 2003). Furthermore transactional leaders use contingent reward behaviour which includes providing recognition to subordinates, this type of behaviour is usually a more personal and may involve transformational leadership as well as transactional one. (Yukl, 1998).

Critical analysis

The success of Primark has been predominately attributed to Mr Ryan, as described by AB Foods’ chief executive, George Weston, “Ryan is the creator, driving force and inspiration behind the business". (moneyweek-profile-of-arthur-ryan-of-primark). Although it is difficult to characterize Mr Ryan leadership style as in compliance to one particular theory, an attempt is made to assess his style by using the trait, transactional and transformational theories.

Arthur Ryan traits approach

One of the major shortcomings of the traits theory lies in its wide scope. For feasibility and focus purposes it would be constructive to limit the traits scope to intelligence, confidence, determination, integrity, and sociability, all of which have been identified by Northouse (2004) as primary to those in his composite table 1.

Perhaps the most visible positive trait of Mr Ryan lies in his determination, proven by 40 years of persistent development of the company from a single high street shop to a 2bn turnover company. As one of his employees put it ““He works incredibly hard and he demands a lot,” ( http://business.timesonline.co.uk/tol/business)

It also appears to be that Mr Ryan is intelligent and confident; this can be implied by his rigours negotiating and unconventional vision of “cheap-chic” (Guardian, 2009), on the other hand, when Primark was experiencing securitisation from the press, due to unethical behaviour, he took a back role and let ABF executive handles the crises, conceivably avoiding leadership responsibility.

There are no explicit indication of lack of integrity in Mr. Ryan behaviour, however, in 2007 following a BBC Panorama investigation into child labour, Primark had to change its ethical stance and review its supply chain, this left the impression that Ryan and Primark management where turning a blind eye to in-humane working condition among its suppliers, leading to Primark scoring the lowest of all leading clothing chains in the UK ethical index. (business.timesonline.co.uk, 2007). It is hard to determine if Mr Ryan had known about the poor working condition, or if he is lacking the integrity implied by the poor results in the UK ethical index. Furthermore, aligned with the overall criticism presented in the literature review integrity is hard to define as it’s intuitive in nature.

One of the major contradictions in Mr Ryan personality lies in his sociability; on the one hand he is known to be intensively private, his daily schedule is kept secret, and he frequently changes it at the last moment to avoid complacency. It seems that My Ryan is happiest in the shadows; in fact most of his employees have never seen him. However, Ryan may be obsessive about his privacy, but he is not a recluse. He is described by friends as gregarious and great company – http://archives.tcm.ie/businesspost. It appears that Mr Ryan does possess high social skills however he chooses his associates very carefully and has a very clear distinction between social and working life.

Arthur Ryan transformation & transactional leader

As presented in the literature review transformational leaders based their relationship on an enduring leader-follower relationship. It appears that Mr Ryan has a very limited contact with his subordinates; in fact, most of them wouldn’t recognise him, despite, in some cases, working for him for over a decade (http://business.timesonline.co.uk), this indicates that a leader follower relationship is very unlikely.

Furthermore Ryan likes to be able to drop into stores unannounced to observe the business incognito – http://archives.tcm.ie, this give the impression that the trust element of the relationship is fragile as employees might feel as they are “being watched” and hence not trusted by management to perform their job.

Furthermore Mr Ryan seems to be controlling most of the aspect of the business as put by one of his former employees” He knows every inch of every store. He tries to visit each store every fortnight. He knows what everything costs, what is selling and where it is coming from. He knows all this because he makes those decisions himself”( http://archives.tcm.ie ). It is apparent that Mr Ryan does not delegate or empower any of his employees, apart from the “gang of four”, he expect his subordinates to execute his decision rather than to make there own.

Never the less based on the four components of transformational leadership offered by Bass (2003). Mr Ryan does posses, to some extent, idealized influence (Chrisma), predominately derived from his professional competences, as suggested by one of his associate “He’s a one-off. You could never plan to replace him; he used to amaze us with his eye for detail. He would walk into a meeting and look at new products and say, ‘what about those cuffs on those new shirts at Oasis, maybe we should look at doing that” ( http://archives.tcm.ie ).

He is also consider, by some, as an inspirational figure as put by one of his former employees” The company is led with such passion that it is hard not to be inspired by Ryan.” (http://business.timesonline.co.uk), Furthermore, he might be described by some as a role model as described by one of his subordinates. “He would never ask you to do anything that he wouldn’t be prepared to do himself, but he wouldn’t pull any punches if you didn’t perform.”

Despite Mr Ryan possessing a few elements associated with transformational leadership he is short on many of the aspect that play a central role in the theory, primarily mentoring and coaching. Furthermore the inspiration of employees mentioned can be attributed to Mr Ryan passion for the company rather than a clear visionary goal to the entire company, this is a critical element in transformational leadership.

As argued above it appears that Mr Ryan leadership style is based on exchange hence transactional, a good example would be his bonus scheme which include given valued employees flowers at Christmas, books or short breaks to reward good performance (business.timesonline.co.uk). Furthermore it appears that Mr Ryan is in favour of stability rather then promoting change, this can be displayed by maintaining the original “gang of four” management team for the past 40 years, another good example would be the reluctance of Mr Ryan to utilise online platforms as communication channel, which he was eventually forced to by ABF, in respond to the ethical behaviour crises. As put by the telegraph “Observers believes that stability at the top is one of the reasons that Primark has been so successful”.

Conclusion

There is no doubt that Mr Ryan is a shrewd business men that understood the market and have lead Primark to a great success, however there are strong reservations of the sustainability and further growth of the company success.

Firstly, there is no evident succession plan in place as Mr Ryan was involved in every aspect of the business, when he is gone he will be very hard to replace. Furthermore, in the view of expansion, the company will need to bring in a new management team with a wider set of skills, it is also unlikely that one person will be able to make all the decisions once the company grows, in fact, it is astonishing Mr Ryan have managed to grow the company to such a size with holding so much managerial power.

Secondly the external environment has changed; economic recovery is on the way, which means that customers will be able to afford better quality products that are offered by Primark, in addition ethical behaviour is high on the consumer agenda, which means that Primark will have to increase production cost in order to comply.

To sum up Mr Ryan does seem to posses some of the so called “harder” traits such as determnation and confidence however he is short of the more “soft” ones usually referred to as people skills. On the whole his leadership appears to be highly transactional, concentrating on the task at hand with no or little attention to the process and the person performing it. If we look at his leadership from stakeholders perspective, employees have been neglected and are viewed as a tool rather than a resources that needs to be developed, thus in the view of sustainability and expansion, Ryan and Primark has a lot of scope to improve its leadership style to unlock the potential of his human capital.

There are a number of limitations to the above analysis. Firstly as describe in the introduction Mr Ryan is a very secretive men and therefore the majority of the information is based on third party sources rather than directly from Mr Ryan. Secondly, for feasibility purpose a narrow analysis of the theories has been conducted, for example only five traits have been used to evaluate Mr Ryan.

The container store

The container store

1.0 Introduction
Brief overview of The Container Store

The chairman of the company said that the company has maintained it 20% annual growth since 1985 for two years. The company was established in 1978 by Tindell and Garrett Bonne. The structure of the company stores were split into different sections like kitchen, laundry, office with their individual showcase. The company has 37 stores across the US and it was awarded as ‘the best company to work for’ for seven consecutive years by Fortune magazine. (Case Study)

HRM philosophy and practice

Company has a fundamental philosophy that to satisfy customer, employees must be satisfied at the first place. Someone needs to play as role model to show them how to take care of each other specially their customers. It means company understand job satisfaction of their employees significantly. Company’s philosophy has also shown some effect on its Human Resource Management practice. Company spent 18% of its turnover on employee’s expenditure. The company has highly selective type of recruitment policy. Instead of advertising jobs outside company motivates their current worker to recommend jobs to their friend and families. Recruitment policy believes to hire only those who are fit for the job. Company also try to engage (recruit) their customers and their 62% of staff is female because Mr. Tindell believes that females are excellent team players. (Case study)

The main focus of Strategic Human Resource Management of the company is to link their employees with organisation itself. The main strategy that is used here it to integrate organisation’s main goal and with its worker.

The main aim of this report is to produce a critical analysis of the philosophies, policies and practices that relate to the management of human resources at the Container Company. The main focus is given on how these philosophies, practices and policy support company’s objectives and principles.

2.0 Literature on Strategic Human Resource Management:

In 2005 two specialist store of the same industry where Container Store was operating were closing down due to falling sales and heavy loss. But on the other hand Container Store was making profit. The company gives credit to its recruitment and training standard. The company is very confident on its strategic human resource management.

According to Budhwar P and Aryee S, 2007 Strategic Human Resource Management is about methodically connecting employee with the organisation. Especially, it is concerning the incorporation of Human Resource Management strategies into company strategies. The main functional duty of HR strategies is to plans and programmes problems and to solve fundamentalstrategicissues related to themanagement of human resources in an organisation. They concentrated on ‘alignment’ of the firm’s HR practices, policies and programmes with corporate and strategic business unit plans’. According to Gear T 2008 strategic human resource management, therefore, connect corporate strategy and human resource management. It focuses on the mixing of human resource with the organisation and its internal and external environment. Armstrong 2005 explained that mixing of Human Resource Management and organisational strategy makes human resource management effective and improve company’s performance and remarkably contribute in the ultimate victory of a particular business. Further he added that it can also help company to achieve ‘competitive advantage’ by producing exclusive Human Resource Management structure which cannot be copied by others companies.

Strategic Human Resource Management and organisational strategy

According to Richards J 2007, a strong organisational strategy is one which is expected to succeed can be understood by people factors. It means it can understand by the philosophy, practice and policy of Human Resource Management. Now a days, organisation of today’s generation considered there people as a biggest asset. Richards J 2007 notice that if the company wants to produce value it has to used and deploy the knowledge, skills and abilities to its optimum level. The invisible value of a company that lies inside its employees is acquiring credit by accountants and investors, and now it is normally accepted that this has implications for company’s performance in long run.

Hence, it is too easy to say that Strategic Human Resource Management secondary branch of the business strategy. The philosophy, practice and policy of Strategic Human Resource Management could be the different parameters that create relation with overall business strategy. The Strategic Human Resource Management and business strategy must be equally informative. The availability of employee’s skills and knowledge will shape up business strategy and the way in which employee are treated, deploy, managed, motivated. Such availability of employee’s skills and knowledge and be determine by philosophy and policy of Human Resource Management and the way in which employees are been treated, deploy, managed and motivated can be determined by Human Resource Management practice.

Business strategy then may form each human resource strategies. As a result if the organisational strategy is to provide better customer service then this may be converted into motivation plans, designing effective training and performance improvement plan.

3.0 Critical Analysis of Case Study:

The main organisational strategy that helped Container Store to maintain its profit level even in tough business environment was emphasised on effective customer service. The main goal of the business was to provide better customer service. As mention above in literature that the success of business can be lie in people factors as Container Store gained strong competitive advantage through its training and recruitment and this can be expressed through Human Resource Management philosophy, policy and practice. Now it is important to analyse how this support corporate objectives and founding principles. The main objectives is to gain competitive advantage through strong people training and recruitment with the founding principle of providing excellent customer service, below three main parameters of Human Resource Management are discussed individually how they support this objective and principle .

Philosophy:

It is Human Resource Management philosophy to satisfy their own employees at the first place to satisfy their customers. It is clear that Container Store strategy is strongly focused on employee’s needs. The reason for given high priority to satisfy their employee’s need is to motivate themselves to provide competitive customer service. The Barbara Anderson the director of community services and staff development of the company said that ‘if we expect our employees to astonish our customers, we have to first take care of them because they are going to treat customer they way we treat them. Someone needs to be a role model for them to show how to treat each other.’ The main advantage Container Store can gain is employee retention. As far as workers love their job they will not try to find another job and will stick to their present job. According to Jason R, 2009 job satisfaction play vital role in employees leaving organisation. He also explains that motivation tool cannot work efficiently until employees are satisfied and he add that if companies only focus on their worker job satisfaction they do not need to even think about their motivation, ‘companies can hit two targets with just one stone’. They satisfied their workers which leads their workers to get motivated to satisfy their customers. In this case Container Store has followed and believes same philosophy. The first competitive advantage they have got is employee retention which helps Container Store to reduce their training cost that could incurred every time they recruit new staff. In other words it helped them to reduce their staff turnover ratio and second if employee work for long time that gives him to get strong grip on its job which helps him to tackle difficult issues of job easily and long time period also create strong bonding with organisation where he can better understand and support organisation’s main objective and principle.

Policy and Practice:

HR policy and practice plays an important role in Strategic Human Resource Management. Such strong policy and practice made Strategic Human Resource Management effective towards organisational overall strategy. Container Store was spending 18% of its revenue on staff expenditure. The Container Store had highly selective recruitment policy. The main recruitment policy was ‘hire for fit’. Container Store was not compromising with it recruitment procedure. Container Store was keeping position vacant for two months until they won’t find someone suitable for job. The procedure involve couple of stages starts from telephonic screening, group interview and few more interview that last for about three hours. Container Store also preferred to recruit those referred by their employees. Every employee was motivated to refer job to their friends and family and they can get a sum of $200 as an incentive on every successful referred job. apart from the recruitment procedure, company has 62% of female staff because Container Store believes that female worker proves better as team player than male workers.

The company has extensive training programme. Company has appointed full time sales trainer who is dedicated for only training purpose. Further employees are also offered extra training on their promotion occasion or if they except new responsibility. Such training makes employees more invested and confident to carry out their job effectively. The products at Container Store are not easy to understand and according to Boone people cannot figure out their best selling products and therefore Container Store has this much of training importance. The company’s structure is comparatively flat and the reason for such practice is top level management can communicate with employees at lower level. This can help to understand and identified management problems and errors which can be solve quickly. Communication which is one of the organisational needs is taken very seriously in Container Store. As a practice, to maintain effective flow of communication company arrange meeting for their employee every day. Company also use bulletin board, e-mails and faxes to ensure that enough communication can be maintain among its employees. Operation manager believes that effective communication between management and employees creates strong bonding and faith and she add that ‘the more people know about organisation the more they will care’. Appreciation is one of the tools of motivation. In simple sense if someone work hard but if it is not appreciated or not rewarded the level of motivation for the next time will drop significantly because same as organisation workers are also working for their own interest. In Container Store Boone appreciate himself if someone has done well job. These appreciations give them a feeling of being respected and also add level in job satisfaction. Such appreciation and rewards are based on performance review. On the basis of review pay can be raise upto 50-75 percent. In store clerk have opportunity to earn more than their manager earns. It means company respect the hard work of any employees and reward him respectively.

4.0 Conclusion:

The key of Container Store success is strong and competitive customer service. This was gained by effective motivation of employee by satisfying their needs. To satisfy their needs company provided adequate training that makes them more confident about their job. Rewards and pay raise given according to performance review, effective communication was maintain to creates faith and bonding with company. Company also offer reward for job referral and it can motivate them to get best person for the company because company recruit only those who are best fitted for job. It to earn reward current employee recommend those to company who may have potential to clear recruitment procedure which helps company to get best person and this can further help in getting competitive advantage over its competitors. In short motivation and job satisfaction play vital role behind the success of strategy of Human Resource Management which leads business overall strategy to success and to implement such philosophy company can take help of effective training, recruitment, pay raise and communication.

The father of management: college admission essay help

The father of management

Management assignment

This essay would demonstrate the great work done by the man who is known as ‘’the father of management” and ‘’the world’s greatest management thinker”, Peter Drucker. In this piece of work his major achievements towards management theory and practise would be discussed. His views on the areas of marketing, performance management, knowledge economy, managing change and post-industrialisation will also be highlighted. According to the business week ‘’he was guru’s guru, a sage, kibitzer, doyen, and gadfly of business”. (site1). On another occasion Peter Drucker was compared by the business week to Maynard Keynes and W.Edwards Derming who hold a very important place in the world of economics and quality respectively. We would reflect and emphasize on his different ideas and theories which he introduced for the first time in the field of management. These theories and ideas are still looked upon and followed by the business world and will always remain the foundation of management practises. Organizational management is a complex discipline and therefore requires a formal ‘tool kit’ to work effectively and efficiently. This was unavailable before the early 1950s’. However in late 1950s’ Drucker introduced revolutionary ideas for the world of management.

When in 1940s Drucker started to work for the subject it was at the middle of nowhere. Professional institutions didn’t give any respect to business schools and no such management-consulting businesses existed. After the great study, books on management and new theories by Drucker the scenario completely changed.

In the era of 1940s the concept of de-centralization was initiated by Drucker which is now used by every organization in the world. In the 50s he claimed that the workers should not be treated as a burden that has to be made redundant in the end. They are the assets of the company not a profit making machine and hence should be given respect and honour. In his book ‘’the practice of management” which was published in 1954 he introduced the new organization management method ‘’management by objectives” which he later discouraged to be used as he said ‘’management by objectives works if you know the objectives, 90% of the time you don’t” (site12). It was him again in 1950s only who informed the organizations that there purpose is to create customers. Robert Poole and Drucker later came up with the term privatization. By rationalizing the concept of modern management theory, Drucker emphasized a value-based system. He firmly argued that the value of substance is more than the value of style on the business world. He also reinforced the importance of working as an institution rather than each individual working with their own charismatic characters. The notion of knowledge workers was also highlighted by the guru himself where he mentioned that knowledge would be the key to New Economy.

Peter Drucker introduced the 7 main management tasks that need to be performed by the managers in order to attain the objectives of the organization. The first one is management by objectives (MBO). According to the economist ‘’MBO is one of the rational school of management’s successful products”.(site 3). The main principle is that everyone in the organization is aware of the aims and goals to be achieved and they know their roles and duties which need to be performed in order to achieve these aims and goals. MBO system makes sure that managers and the staff implement on their plans to accomplish the targets of the organization.

The second task suggests that company should take more risks over a long period of time. This is due to the turbulent and fast changing nature of today’s environment. There is more competition in the market and hence it is more difficult to survive so the company needs to take risks in regard to offering new product range or just innovating the same product through research and development.

The third task implies that managers should make strategic decisions. These are long term plans which affect the whole organization. These improve the implementation of the plan and make it easier to achieve the final outcome. Next task proposes that managers should build an integrated team made up of people who can monitor and control their own performance.

According to Drucker proper communication is a vital element and that is what his next task is about. The information should be communicated vividly and quickly by using the correct language and body language so that no message is interpreted. The sixth task advocates seeing a business as a whole and incorporating its functions. Every organization has marketing. Finance, human resource and operations department and it should be known that all are inter-connected and linked together. In other words ‘’silos” should be avoided. Lastly the product should relate to the industry and the society as a whole keeping in mind the P.E.S.T.E.L. factors (political, economical, socio-cultural, technological, environmental and legal).

Drucker saw management as the most important source for human progress. He quoted that it is ‘’the organ that converts a mob into an organization and human effort into performance”.(site1a). He was the first to assert that for any industry to work effectively and efficiently it has to have clear objectives and correct measurements. He also argued that organizations should not be looked upon as a source for economic data rather it should be treated as human organizations. In his book ‘The Practice of Management’ which was published in 1954, he mentioned all these important issues regarding management subject covering up chapters such as ‘the role of management’, ‘what is a business?’, ‘objectives of a business’, ‘managers must manage’, ‘the manager of tomorrow’ and many others. He mentioned that management is a profession and not a science nor an art. It is about getting the best out of people. He himself said ‘’I wrote the Practice of Management because there was no book on management. I had been working for 10 years consulting and teaching, and there simply was nothing or very little. So I kind of sat down and wrote it, very conscious of the fact that I was laying the foundations of a discipline”. (site1).

In this book he says that the managers play a vital role in transforming resources into production. The survival of the business is dependent on the performance of the managers as it is the only advantage a company has over others in a competitive market. He mentioned a very important point which we do not notice in our daily lives that is the ‘responsibilities of capital’ has now been replaced by the ‘responsibilities of management’. He argues that fallacy of ‘profit maximization’ is not the main purpose of business as misunderstood by many. The business is to create customers, who decide what is important. He highlights the eight main areas in which goals need to be set to attract the target market. Those areas include marketing, innovation, productivity, physical and financial resources, profitability, manager’s performance and development, worker’s performance and attitude, and public responsibility.

The modern management thinker played a major role in the marketing area giving theories about the marketing concept, broadened role of marketing in society, contributions to marketing strategy and marketing -innovation interface. As mentioned before the purpose of the business according to Drucker is to create customers because they are the ones who pay for the product and decide what they want and to satisfy them is the most important mission of each organization. The customers define the market better than manufacturers. According to this the two main functions of the enterprise are marketing and innovation. These two functions give results the rest are considered to be costs. Innovation is obviously risky and all economic activities are referred to as ‘high risk’ but not innovating is far more risky. As Gaurav Bhalla points out that customer, market creation and innovation are inter linked and what better phrase than ‘customer driven innovation’ can describe this relationship.(site6)

Peter drucker in his book ‘Innovation and Entrepreneurship’ published in 1985, talks about the principles of innovation. He says that analysis of opportunities is necessary for effective innovation. The business has to keep in mind that innovation is both conceptual and perceptual. Thirdly for an innovation to be purposeful it has to be simple and focused and should begin small. The most important part is that is should aim at leadership. The marketing strategies which are mentioned to create customers are utility creation, pricing, adaptation to customer’s social and economic reality and delivering what represents true value to the customer.

The great wall of china to consultancy

The great wall of china to consultancy

From The Great Wall of China to Consultancy

1.Introduction

Kafka’s The Great Wall of China mainly revealed a story of building the great wall in ancient China, which used as a protection against the nomads in northern part of China. The whole text can be divided into two parts. Kafka first focused on the method that used in the construction of the wall, i.e. walls built in different sections then joint one another from the other sides, as well as its meaning of building the wall. Then he introduced the imperialism of ancient China, the role of leadership played in the construction of the wall, the relationship between common people and the emperor.

This essay first gives a general background of the whole story as to introduce the main idea and the focus of the author. Reflection is following to demonstrate thoughts that generated by the story, as well as the relations between consultancy and the great wall. In the third part of the essay, the definition and features of the consultant and their duties are given, as for the relationship between consultancy and client is put forward in the fourth part. The essay concludes that consultant is important to organizations to solve the problem. However, enough attention should be given on the relationships between them so as to reach a win-win situation.

2.Background of The Great Wall of China

The point of the first part is trying to explain and understand the piecemeal construction of the wall, the system which left many gaps unfilled even when the construction was completed. The text was delivered in a form of report through an academic’s view that had certain knowledge of architecture and acclaimed that he himself was also involved in the building of the wall. He argued that as a huge construction work like this, and aiming to against the nomads, the wall which was not continuously built not only could not protect the people from being invaded by the nomads, but also the wall itself was in danger. Even worse, these gaps made the wall easier to be destroyed. Yet, the process of construction was actually being considered seriously. Architecture and masonry were the most needed knowledge at that time, and people were trained to build a wall just after they learnt how to walk. What made the leadership choose piecemeal construction was that to keep the workers always motivated and energetic towards the boring and time-consuming work. Later in the text an odd conclusion was given that the piecemeal building was chosen on purpose by the leadership, and the relationship between common people and the emperor was also mentioned in the second part of the text. Though these people were the final support of the empire, the knowledge they had about their master been so little. No matter the emperor was died or not, they only worked to the orders that given by their supervisors.

The wall indicate the development of an empire, its aim was against the nomads, however the construction made the nomads easy to invaded from outside. While the message sending was right on the opposite, the herald wanted to make his way to the outside. These two things are the impossible things appeared in the text, the wall cannot be used as a protection, because of its inconsistency; the herald would not walk away from the crowd/palace, since the land of China was so huge.

2. Reflectionsto the text

The text developed from building the wall to the rise and fall of an empire, the particular construction of the wall was not the most important point that the writer wanted to convey, rather the inside factors which hide in it arose his interest. The nomads, the leadership, the workers who built the wall, are all have something to do with consultancy. Consultant is deemed as an external force to help an organization solve their problems or to make them aware the potential threats. Fincham and Clark (2002:10) asserted that, “Consultancy is an externalized form of management…” The nomads was an external force that made the empire realize they have to do something to prevent the potential threat, thus they thought to build the great wall. The external force urged organization to adjust to the change environment as to survive. Here, the nomads and the leadership can both seem as an outside force to each other. The nomads may change its way to get into the land inside the wall because of the changing shape of the wall, while the leadership may also change the way of construction due to the changing invading direction of the nomads. Both of them need the external factors to remind them the problem that existed.

As for those people who helped to build the wall, the writer argued that they have no choice but to obey the orders given by their supervisor to use a piecemeal construction. The whole empire at that time functioned just like an organization which with hierarchy inside, labour being at the bottom of this hierarchy having no right to say something against the upper level but can only to follow the leadership. While people at the middle manager level, in charge of recruit people to build the wall, figure out the problem and offer proper solutions, with the emperor at the top level has the power of final decision which allow the beginning of construction. An organization is regarded managed in a rational way. Rationality can also be found in this text when the construction was just about to begin. Berglund and Werr (2000: 640) declared that, “The managers’ decision-making is seen as rational and scientific, i.e. based on facts”. Before the construction of the wall, the leadership had realized the fact that masonry and architect were the most important people they needed to help built the wall, based on which they began to find those people needed rather than carried out the work randomly.

3. Indicationto consultancy

Consultancy according to Rassam (1998: 4) is hard to define, and it has three important elements: 1) identifying a problem, 2) recommending a solution, and 3) helping with implementation, because of these features consultants play different roles in reality. In this text, building the wall required the same process as consultancy. First, people at that time recognized the invading of nomads from north as a problem which needed to be solved. Then the leadership offered a solution which was to build the wall as a protection against the nomads, at the same time they chose the method of construction. Finally, in order to achieve the goal, some knowledgeable men or whoever had the knowledge related to architecture was chosen to help build the wall. Consultancy is a process of problem discovering and solving, and a consultant is defined as:

… is someone who by virtue of training and experience has knowledge which he can impart to or share with others who consult him with a problem. He may proffer advise or he may act more passively as a counsellor, providing an informed and experienced foil to a client sorting out his own problem.

(Moore 1994: 1)

People need consultant to help them make things clear, find solution and ended with a better result, for consultant recognizes the problem from the aspects which are different from theirs. Usually, People or an organization may bounded by the existing solutions to the problems, consultant while being an outsider can judge the problem externally without any bias, and can see the things which may ignored by them and urge the organization or the person to make effort to change it.

Nomads in this text can be seen as an outside force which considered as a problem that made the wall construction being undertaken. Rassam (1998: 4) point out that, “…consultant advises and encourages but never actually manages”. Consultant only gives advice, and the manager is the one who makes the decisions, and takes actions. Leadership in ancient times took the position of consultant who first found the problem and figured out the solution, then reported to the emperor. While the emperor was the one who had the real power to give orders which can be implied from Kafka’s words: “…leadership has exist since time immoral, along with the decision to construct the wall as well. Innocent northern people believed they were the cause; the admirable and innocent emperor believed he had given orders for it”.

As Fincham and Clark (2002: 4) defined that, “The consultant role is akin to that of medical practitioners, in that they diagnose organizational illness and prescribe appropriate remedies.” A medical practitioner must only give medicines which are just right for the kind of symptom that the patient have, but not other irrelevant ones which may lead more serious result. Same as consultants, they must always stick to the problem that rose by their client, give the right solution or otherwise the organization may expect to experience an even worse situation. Fincham (2002: 70) put forward that, “…the application of external best practice within organizations is seen as the consultant’s competitive edge…” In Kafka’s writing, consultancy is not seen as straightforward, it is more like someone give advice behind the person who has the real power, and make them think they have the responsibility when things go wrong.

3.1.Defining consultant

Consultant as Berglund and Werr (2000: 635) depicted that, “A consultant presenting something in order to convince the listeners that the presented activities will lead to a positive result and thus are something to put effort into”. In this text, there is no certain person that can be called as a consultant. Since one of the features of consultant is to offer views and advices from different aspects, which means they have to take one step back and jump out of the circle that let many managers bounded inside, and see things from the outside world. The nomads can also be counted as consultants, in which way they conceive the construction of the wall from a different perspective compare with the leadership. The writer considered they had better understanding of the way that used to construct the wall even than those who built it. As being an outsider, nomads gained the chance that they could judge things from its whole rather than separate parts.

The main responsibility of consultants is to find the problem, analyze it, and seek for the better solution for the organization, the knowledge they offer considered as the value of consultants. Fincham (2002: 69) put forwarded that, “The independent advice and problem-solving ability they [consultants] apparently offer frequently seen as core to the role, so that a notion of ‘knowledge transfer’ represents the main prescriptive definition of consultancy”. At the same time, Fincham (2002) also pointed out that the knowledge consultants provided from outside the industry is what the managers hardly have access to. Consultants thus must possess both the internal and external knowledge, to some point they should also acted both as an insider and an outsider, with deep insight to the particular case and overall view of the whole industry so as to share a different, yet relevant knowledge.

Being a consultant, should always tell the truth so as to let the manager see the real problem, Foucault regarded these kind of person as a “parrhesiastes”. In fact, consultant in many ways takes the characteristics of parrhesiastes. As to identify a parrhesiastes, Foucault (2001: 15) argued that, “The fact that a speaker says something dangerous-different from what the majority believes- is a strong indication that he is a parrhesiastes”. While refers to the work of consultant, things that he or she do is much enough to be called a parrhesiastes. The description of parrhesiastes introduced another feature of consultant which is being different. When manager realize that they need someone to help them solve the problem, they expecting a different opinion from others. Thus, if consultant believes in the same way or view things as most managers do, then they would lose their value for being a consultant. Only consultant truthfully reflect the might be result of the problem, and give a proper analysis, can an organization recognize the problems that existed. Besides always telling the truth, according to Foucault (2001), a parrhesiastes is always the one who in a lower position criticize the person in a higher position. Compare with consultant, who usually hired by managers have a lower position than that of managers, and their responsibility is always give advice, and judge the current situation based on their knowledge, they have no power of decision, only the manager make the decisions. Last, parrhesiastes consider telling truth as his or her duty. To point out one’s mistake or problem that he or she may not be well aware of, is a duty to help them have a better recognition of themselves. A consultant’s duty is to assist organization to realize its wrongdoing, and help them to understand the real problem and build a better organization in the aspects of structure, marketing, financial and so on.

4.Relationship between Consultant andClient

Client in the case of consultancy is often refers to organization, and rarely would be an individual. Consultant is needed when managers in the organization feel they cannot solve the problem by themselves. The nature and purpose between them can be inferred from Mulligan and Barber’s (1998:67) words that is, “The client needs help with something they are unable to do or choose not to do for themselves, and the consultant offers assistance and expertise in one form or another in response to this need”. The main responsibility of consultant is to identify, analyze, and figure out the problem that rose by the organization. Also, as Mulligan and Barber (1998) argued consultancy can be divided mainly into two categories based on their different approaches, either problem-centred or people-centred. The former one is focused on the question of what needs to be done, emphasis more on the problem itself, while the latter focused on how things are done, people and their relationship are given more attention. Consultant is expected to be an expert in both two fields, as in this text, the leadership as a role of consultant conceive and solve the problem combined these two approaches. First, they recognize the problem that was the nomads were invading from north of China, so the problem was realized and solution was found that to build a wall to prevent nomads. Second, towards the question of how things to be done, in this case was how the wall should be built, the leadership decided to choose piecemeal construction when consider the factors of long time construction and people’s emotion changed during the process.

In this relationship, although consultant is there to offer solution to the organization, it is not a one way communication, rather a two way communication between client and consultant. On the one hand, appropriate solutions are given by consultant for the organization; while on the other hand, the organization should also provide information concerning the problem, briefly state the situation to help consultant have a deep understanding of the issue that the organization now facing. The process of information exchange between two parties helps to boost trust for each part, Mulligan and Barber (1998: 74) considered that, “At this time, strategies both for the task and the relationship are considered and the way forward is planned”. Based on the inside knowledge which consultant gained from organization, with his or her outside knowledge about the industry, a specific and proper solution can be made to organization.

Consultant has many different roles, as Mulligan and Barber (1998) point out that they can be counsellor, expert, guide, mentor, etc. which are essential for consultant to be efficient and successful, while client can has many different roles as well, such as problem-bearer, contractor, manager, commissioner, etc. To have a benign relationship of consultant and client is important for a win-win result, for an organization find the most out of consultant, and the consultant get what they had paid for.

5. Conclusion

Consultancy is seen as one way to help organization work out the problems, and point out another possible direction. In this text, the leadership found the way to against nomads by building a wall; masonry help building the wall by giving out knowledge. In this sense, consultancy is considered as an assistant from who organization will gain advice. However, consultancy can have potential problems itself if the relationship between client and consultant is not proper established. Fincham (1996: 72) considered that, “…the client-consultant relationship can readily be seen as a type of agency relationship”. In which case, an agency problem can probably exist, as the agent may has a different goal with the principal. Consultant being has the advantage of knowing both inside and outside information, he or she may use their expertise to convince client what should to be done, in order to achieve his or her own goal but not consider the problem from the organization’s respective, thus lead to the failure of consultancy.

Besides, Fincham (1996: 69) argued that, “Views of the power role of management consultants inside organizations have veered between the extremes of consultants as puppets brought to legitimize managerial maneuvers, and as puppet masters who wield unaccountable power behind the scenes”. The leadership of ancient China had great power which can be inferred from the text, they had the power to make future plans, to decide building the wall and which people to recruit to help carry out the construction, and to decide which method to use to build the wall. As the person who has the real power-emperor, was directed by them while still thought he was the one who given the order to build the wall.

Consultant should be the person who transfers the knowledge that he or she has to the organization which in need, and standing outside the organization and offer different opinion is the value of being a consultant. To reach a successful consultancy, a good relationship between client and consultant is essential, as cooperation is important to identify the real issue within the organization.

The human resource management

The human resource management

Introduction:

The human resource management is a very broad concept. Each and every company should have HRM practices within their firms. Australian economy is fully depending on small businesses because 60% of the businesses are small firms. There are two types of small firms one is micro firms having less than 5 people and second one is other small firms having 4 to 20 people. As the firm increasing their employees the owner must learn and develop the HRM policies. These days valuing the human capital is essential to being successful in the business whether the business small or big or family firms or non family firms. This essay firstly defines the small and big firms in Australian context. Then it will demonstrate the HRM practices changes as the firm grows and discuss the growth cycle. Finally, this essay will explore the pros and cons of the HRM practices within small firms.

As per the Australian tax office the small organizations are those who having income lower than $ 10 million. However on the other side Australian Bureau of statistics states that an organization is small if it employs less than 20 employees and medium if it employs up to 199 employees. (Kotey & Sheridan, 2004).

The small firms of the Australia are very small if compare with Europe and the US. According to them small firm if it employs 200 to 500 employees. For that reason these concepts of formalizes and non formalized HRM function only applicable to Australian firms and Australian context only. (Barret & Mayson, 2007).

HRM practices in small and big firms:

According to Kotey and Slade (2005) they did survey on the small and medium firms they found that HRM practices increases as the firm growing from small to larger organization. ( Price, 2007).

Some studies in Australia found that in the small firms HRM functions like recruitment, selection and training are not done at a big scale. They are not very formal way. (Kotey, & Sheridan, 2004).

Recruitment means the finding the right staff for the organization. According to author, recruitment in a small firms generally very random. The small firms recruit family members, friends and employees whom they trust. They usually find people from their surroundings. (Marlow and Patton, 1993; Carroll et al., 1999). On the other side recruitment in larger organization is very formal. As the firm increases their size there is great need for the formalized recruitment sources like advertise in the news papers, private agencies and Government and other means of recruitment. (Kotey & Sheridan, 2004).

After the recruitment, selection is the process to decide whether the hired candidates for a short term or long term position. (Kotey & Sheridan, 2004). Effective selection procedure can improve the productivity of the organization. In the small firms selection is based on the personal decision or sometimes it is done through face to face or one to one interview.( Golhar and Deshpande,1997). In small firms owner give less focus on the previous qualification and past job experiences. ( carroll et al., 1999). This is called random selection because owners always choose candidates one level inferior to them so for this reason some times small organizations loose the best employees for the enhancement of the firm. (stanworth & Curran, 1989).

As the firms grows selection practices change in to lengthy procedure follow many steps like one to one interview, group discussion, panel interview lastly final interview panel interviews like that larger organization need to follow multiple steps for the selection. Documentations increases as the firm achieved growth. In the larger organization middle management manage the charge of HRM practices and they give more emphasis to candidate’s previous qualification and past experiences. So, selection procedure is very complex in larger organization compare to smaller firms.

In the smaller organization training method is very informal generally they held on the job training that is very brief training without any supervision. (Kotey & Sheridan, 2004). In the smaller organization the owner takes the responsibility of training and owner provides all the necessary training to the employees. (Timmons, 1999)

In the small firms an employee having only one or two day training that is informal way. As the firms grow there is a need of formal training methods like in house training, online training and external training for the managers. (Price, 2007).On the other side in the larger organization, the economies of scale can be achieved through training.

Difference between family firms and non family firms:

Family firms are the main asset of the Australia. 30% to 40% businesses in Australia are the family firms. The economy is depending on these family and non family businesses. ( Miller, 2003).

The research found that the 30% to 40% of small and medium firms are family firms. The common family firms are construction, printing and publishing firms. The textile, Clothing and footwear industry are in very small amount. (Kotey, 2003). According to author the family firms differ from non family firms in terms of their goals, management functions and performance. Daily and Dollinger (1993). According to Dyer and Handler (1994), in the family firms the HRM practices and the precise documentation are not found .The way is purely informal. The family firms are not growth oriented they maintain their business within the family members. Small family firms having flat structure, they having wider span of control and very few hierarchical levels. (Samson & Daft, 2003., Kotey, 2003)

As the firm increases their size and the span of control become wide middle managers are taking the responsibility for the day to day operations and manage the operational staff. (Collins and McLaughlin, 1998).

As the firms grow the owner of the firm cannot manage whole organization by their own. The owners of the firms need middle management for that. The owner of the small firms needs to give more responsibilities to middle management so they can manage well other employees. (Slade, Peter, 2005).

compare the large firms from the smaller firms, the HRM practices are very expensive in terms time, money and resources because the owners of the small firms are not very expertise in HRM fundamentals and to take advice from the HR professional can be very costly. (Barret & mayson, 2007). Sometimes the owners of the small firms are too busy so they cannot spend time to explain HRM functions to the employees. (Walker, et al, 2007).

According to the author each and every firm should grow whether it is small or medium or family or non family. For the survival point of and to remain competitive with other businesses in the market growth is required. Non family firms are more favor to the growth than family firms and they are goal oriented. Sometimes growth is become very essential to reduce the disadvantages of resource limitation. (Kotey, 2003).

Growth cycle in small and big firms:

Most of the business always remains small, and many are not very successful. During the late 1970s and early 1980s it was believed that the small business is the past and big is beautiful was the current view. In the Hongkong, Singapore, UK and USA, that small firms are the root of the successful economy if compare to the larger organization.

Growth process:

Flamholtz and Randle (2000) recognized the seven stages of growth of a successful business

1. New business enterprise

2. growth

3. Professionalization

4. Consolidation

5. Diversification

6. addition

7. Decline and revitalization

At the operational and managerial level, there is need for the educated managerial staff to connect the gaps or fulfill the requirement in the management as the firm growing. The increases use of the various selection techniques was greater between micro and small firms than between small and medium firms, indicating greater increases in the acceptance of formal practices during the early stages of growth than during the later stages. (Kotey & Sheridan, 2004).

Shifting responsibility for training operatives from owner manager to middle management is consistent with increasing delegation of operation to middle management as the firm grows. As the firm increases grows, there is an increased focus on external training of the manager, which emphasizes the concern for both their training and development to be provided in-order to enhance their HR abilities and strengths which contribute organizational success. Adoption of formal HRM practices increases at a more rapid rate during the early stages of growth than the latter stages of growth. (Mazzarol, 2003).

There is one example of one small firm AIRCON showing growth as firm increases their size. This firm starts expanding from 6 employees to 120 employees. During the early stages of growth firm enjoyed the close environment but as the gradually firm increases there is a need for the formal HRM practices. To achieve high quality product and services the owner of the firms need to motivate the staffs to achieve stated goal. (Mazzarol, 2003).

In the growth oriented firms formal HRM policies and practices are necessary to cope with the increase in complexity resulting from greater number of employees if growth is to be balanced. (Arthur, 1995). However, as small firm grows; managers should try to discontinue informal staffing contacts and need to develop more formal methods to recruiting employees to uphold the growth. There is a direct connection between the performance growth of the firm and its ability to motivate and retain its present employees. A number of successful companies like Sony and Honda began to grow in size and eventually joined the ranks of truly big business.

Author did survey on micro, small and medium firms in Australia on acceptance of growth in the small firms. As the number of employees increases and firm in the growing stage there is a great need to emphasis on division on labor, hierarchical structures, lengthy documentation other HRM practices. The taking up the formal HRM practices starts early in the growth process, initially at the fast rate and then at a slower rate. In the small business HRM practices are not very formal. As the firm growing the HRM practices like recruitment, selection, training, performance appraisal and documentation must done in the formalized manner. Kaman et al. (2001).

According to author, because of lack of resources like technology, people and lack of time and money small firms can not adopt formal HRM practices. As the firm increasing their size there is a greater need for the formal HRM practices and proper understanding of HRM practices for the owner manager of the firm. (Bartram, 2005).

Compare to the larger firms having HRM practices and apply these HRM practices to the small firms very costly in terms of time and money. Generally small firms do not have formal HR so for them to seek for a HR advice is very costly they cannot afford these kinds of practices because of lack of resources. To remain competitive with other firms formalization of HR is essential. (Barret & mayson, 2007).

Drawbacks having HRM in small firms:

Small firms are not having so many resources like time and money. They also have very small investment in the market for that reason they cannot afford HRM practices within their organization. (Bartram, 2005). The other barrier is that the owners of the small firms do not have greater understanding of HRM functions they only have practical knowledge of some HRM functions. The owners of the small of firms do not have time to participate in the HRM practices so this may be a reason for not adopting HRM functions efficiently.

HRM functions in small growing firms:

The importance of having formal HRM system within the growing firms leads to many advantages like reduce the complexity of firm as well as it concern to economic performance. Strategic HRM also helps the firms to sustain against the competitive environment by strengthen the HRM practices.

Many data shows that growing small firms should adopt the HRM practices if they increasing their size gradually. There is greater need of formal HRM functions in the growing firms. Many authors found that as the firms increasing their size HRM functions should be more precise and otherwise small firms cannot reach to the peak of the success. (Barret & mayson, 2007). Many authors believed that formalized HRM functions only for the medium or larger firms not for the smaller firms. Some small organization only having 20 employees in their firm so there is no requirement of formal HRM system. (Barret & mayson, 2007). All the other functions like training & Performance appraisal having different criteria than the smaller firms.

Conclusion:

In conclusion, the research finds that to remain competitive and become more successful small firm needs to adopt formal HRM practices within the organization. For that there is a great need for the advance understanding and appropriate knowledge of HRM functions. But, it is also evident that some small firms and family owned firms either do not want to expand or take up more advancement. These types of firms always remain at the same level and will not need formal human resource practices; as it will be just an additional cost. As the firm increase size HRM practices like recruitment, selection, performance appraisal must be done on a formal scale and must follow a complex yet important process. Lastly, to survive in this competitive business world it is a key essential to adopt human resource functions in a formal way.

References

Barret, R., & Mayson, S. (2007). Human resource management in growing small firms. Journal of Small Business and Enterprise Development, 2(14), 307-320.

Bartram, T. (2005). Small firms, big ideas: The adoption of human resource management in Australian small firms. Asia Pacific Journal of Human Resources,43(1), 137-154.

Kotey, B. (2003). Goals, management practices, and performance of family SMEs. International Journal of Entrepreneurial Behaviour & Research, 1(11), 3-24.

Lo’neill,G., & Kramar, R. (1999). Australian Human Resources management. Australia: Robert Coco

Mazzarol, T. (2003). A model of small business HR growth management. International journal of Entrepreneurial Behaviour & Research, 9(1), 27-49.

Miller, s. (2003). Real teams in small Australian firms. Journal of Managerial Development, 9(22), 809-823.

Peter, S., Formal human resource management practices in small growing firms, 2005. Retrieved January 1, 2005, from http://www.allbusiness.com/human-resources/workforce-management-hiring-recruitment/373051-1.html

Price, A. (2007).Human Resource Management. UK: Jennifer Pegg.

Samson, D., & Daft, R. L. (2003). Management. South bank, Victoria: Thomson

Walker, E., Remond, J., Webster, B., & Clus, M. (2007). Small business owners: too busy to train?. Journal of Small Business and Enterprise Development, 2(14), 294-306.

The icelander who wants saks: college admission essay help

The icelander who wants saks

BUSINESS ORGANIZATION & MANAGEMENT
Case Study 6: The Icelander Who Wants Saks

Summary

After Johannes Jonsson lost his job in 1998, he spotted an opportunity to intrude Iceland’s retail industrial. He and his son worked together and established Bonus. In 1999, Bonus merged with hypermarket, Hagkaup to form “Bauger”. Among all Johanesson’s plans, there was two mistake he made which will the taking over Bill’s Pollar Stores which went bankrupt after two years and another was making false account on Arcadia and gettingcharged by Icelandic authorities. After the fall, he do things more diligence and cautrous like he managed his business using the traffic light colour coding system and analyze before taking over Saks.

Questions for Discussion

Question 1: Are most decision Jon Asgeir Johannesson makes as CEO of Baugur Group programmed decisions or nonprogrammed decisions

Answer:

Programmed decision is means that routine, virtually automatic decision making that follows established rules or guidelines. For example, managers have made the same decision many times before and repeated. There are rules or guidelines to follow based on experience with past decision.

Nonprogrammed decision defines as nonroutine decision making thata occurs in response to unusual, unpredictable opportunities and threat. The decision of the person is instinctive and there are no rules to follow since the decision is new. Therefore we can say that nonprogrammed decisions are made based on information, and manager’s intuition, and judgment.

In this study case, we concluded that Johannesson has made nonprogrammed decision. Mostly of the decisions that he made are base on analyzing the report that he get. Based on his analysis, Johanneson tends to merge with Hagkaup Company to form a new company (Baugur) to make his company as an international player. Most of the decision that he made can bring profit to his company. Anyway, there are some decisions that he made cause his company some lost too. These are some unexpected incident happened in year 2001. Baugur has taken over a company which facing bankruptcy, Bill’s dollar Stores. Johannesson predicted that took over this company can make a big profit to his company. Unfortunately, this company was belly up after two years. Johannesson has took this lesson and promised himself that he will do more analysis before he make a decision. Thus we can notice that the decision that Johannesson made is nonprogrammed decision.

As a CEO, Johannesson always reminded himselt to make the decision that can bring benefit to his company. In year 2001, Baugur’s plans for a full-scale take over of arcadia were derailed when Icelandic authorities, acting on a tip from a disgruntled former business partner, hit Johannesson and this company’s former CEO with the charges of accounting irregularities. However, Johannesson had made decision quickly sold his arcadia shares, netting a tenfold return on its initial investment. He always made the best decision to protect his company through analysis. Therefore we can conclude again that most decisions made by Johanneson were nonprogrammed decisions.

2) What are some of the ways in which he recognizes the need for a decision?

Answer:

Since Johannesson does not like to do management about his companies. He has a remarkably hand-off approach. Therefore, Johannesson has used a system to decrease his burdens and make him to have a plenty of free time to have other plans. The system had used was “traffic light” system. The function of this system is to evaluating the brands by using dozens of performance indicator. He has divided each brand with a different color code. For those brand which running smoothly and brings profit will own green color code. Red color code is for those brands which may not bring profit and has some serious problems that needed more attention. Brands that have some potential problems will own yellow color code.

Johannesson are able to make efficient decision by analyzing the color code data. He will not bother the green color coded brands but he will pay more attention on those brands which are yellow and red color coded. Therefore, he does not need to present all over country and get himself has a plenty of time.

Johannesson has delegate of authority to all the companies’s management team to handle and make best decision for the companies. These are the style that Johannesson play on his business.

3) To what extent are the decisions he makes characterized by risk or uncertainty?

Answer:

Johannesson has a special personality. He always thinks about business even though he only has plenty of time. Therefore he tried to manage his business as simple as him can. Thus, the decision that he make are characteristic by risk and uncertainty. From the case study, we can conclude most of the decision he make are instinctive because he met many kinds of situation on his way to success.

Johannesson are used to make decision based on summary report which regular manager or CEO of organization is not allowed or able to do. The report that Johannesson refered was too summarizes and short. This is the risk that he needs to take when he made decision for his companies. This is because he did not clearly analyze the companies’ situation based on the short report. Since Johannesson was not able to present all over his companies. Thus, this is the easiest and most efficient way for him to take care of his companies. Anyway, this is not the most effective and it is risky. Sometimes, he might just make wrong decision due to the short winded explanation report. Therefore, he only can make decision based on his six sense and brief facts.

Johannesson met some difficult time on his business during year 2001. He has made uncertainty decision to take over Bill’s Dollar Stores. But, there was an unexpected incident happened after him takeover Bill’s Dollar Stores. The Bill’s Dollar Stores went belly up and cause some lost to his companies. Johannesson take this as a lesson to prevent the same case happened again. Finally, we can conclude that the decision he made are characterized by risk or uncertainty.

4) How has he learned from feedback?

Answer:

Johannesson has learned a lot of from past two decades experience. There were two bad incidents happened during Baugur’s conquests in year 2001. The first one was Johannesson took over Bill’s Dollar Store which emerging from bankruptcy across the Atlantic. Altough it was cheap to obtain it but the project ended when the Mississippi budget chain went belly-up just two year later.

The second one was Johannesson failed to carry out his plan for a full-scale takeover of Arcadia Group. Johannesson did not expect there was a disgruntled former business partner would gave information to Icelandic authorities of Baugur’s accounting irregularities.

Both incidents happened at the same year. Two years just after he personalize Baugur since year 1998. He might not have enough experience during that time. All decision he made was through instinct. So, he has learned to make analysis but not instinct. He needs to have discussion with his employee. No one is perfect. Thus, Johannesson may need someone information in order to win his game. Information is the key to success in his corporate conquest.

Johannesson need to know how to create a win-win situation at all business deal. The second incident clearly showed that Johannesson has neglected his business partner so he got betrayed. Relationship is another important asset in business world. A good relationship between partners will ensure the corporate to function properly. So, it is important for Johannesson to learn the art of communication to make good term relationship.

Bibliography

Gareth R.Jones/ Jennifer M. George. 2009. Contemporary Management 6th edition. Americas, NewYork: McGraw-Hill/Irwin.

Linda. 2009. Decision Making: Programmed vs Non-programmed decision. Viewed on 8 March 2010. Available from: <http://www.strategicmarketsegmentation.com/decision-making programmed-vs-non-programmed/>

Robert Harris. 2009. Introduction to decision making. Viewed on 8 March 2010. Available from: <http://www.virtualsalt.com/crebook5.htm>

Wikipedia. 2010. Decision theory. Viewed on 8 March 2010. Available from: <http://en.wikipedia.org/wiki/Decision_theory>

the importance of Enterprise risk management

the importance of Enterprise risk management

Abstract

The Paper is intended as a means to understand the importance of’ Enterprise risk management’ during the period of financial crunch and market liquidity. The current financial crisis has had a far-reaching effect and the lessons learned will be embedded in risk management for years to come. In this paper, we study how Enterprise risk management (ERM) requires managers to analyze the portfolio of all risks facing the enterprise during the most difficult financial market situation and to ensure that those risks are within stakeholders’ appetite for risk. It discusses the approaches adopted by firms in regards to managing risks, While firms practising ERM is on the rise, little academic research exists about their readiness to respond to circumstances that they have not anticipated in the near future like a financial market turmoil, and in particular about the consequences of ERM on firms performance during market unrest. This seems to be true even the Conference Board has found that a large number of companies are now starting to use ERM, as a strategic management tool (The Conference Board, July 2005).The purpose of this study is to examine the long-term performance of companies practising ERM. The research seeks to find out the level of top management commitment in risk management activities of the firm and to evaluate the effectiveness of risk management practices during the time of market turbulence. Finally, it concludes with a perspective on the future and importance of Enterprise risk management for a firm.

Analysing/Addressing the Importance of Enterprise Risk Management Practices in Times of Financial Market Turbulence

1. Introduction

1.1 Introduction and Background:

The Term Risk is an inevitable component of the dynamics of Business today. The Treasury Board has defined risk as “the uncertainty that surrounds future events and outcomes”. It is the expression of the likelihood and impact of an event with the potential to influence an organization’s achievement of objectives” (TBS 2001). It is though not possible to “create a business that doesn’t take risks” (Boulton et al. 2000). Risk, therefore, is the probability that an event in the future, either good or bad, will occur. As uncertainty abounds in today’s global economy every organization is to some extent, in the business of risk management, no matter what its products or services are. According to the treasury (2006), in recent years all sectors of economy have focused on management of risk as the key to making organisations successful in delivering their objectives whilst protecting the interests of their stakeholders. (Treasury, 2006)

In the Context of Banking and finance ‘Risk’ has always been at the heart of banking transactions and to a degree banking can be defined as the business of managing and transforming risks. For a company ‘Risk’ designates any uncertainty that might trigger losses in the short or long term therefore risk managers constantly attempt to measure and control the risks within their companies. It is not possible to “create a business that doesn’t take risks,” according to Richard Boulton. “If you try, you will create a business that doesn’t make money.” (Boulton et al. 2000) Nearly all operational tasks and processes are now viewed through the prism of risk (Hunt 2001). Although the enormous growth and development in financial and electronic technologies, however, have enriched the palette of risk management techniques available to managers, offering an important new opportunity for increasing shareholder value amidst the global liquidity crisis surrounding all the major multinational companies around the World.

In the Current Business scenario, risk has to be managed by and throughout very large organisations. The report published by KPMG titled ‘Risk Management in banking beyond the credit crisis’ mentions that ‘The collapse of several high profile banks, the emergency bailout of others, departures of CEOs and CFOs, the hundreds of billions of dollars of write-downs, efforts by banks to raise fresh capital were all signs that something had gone very badly wrong’. (KPMG Publication) By now there is a widespread agreement on the proximate and fundamental causes of the current downturn. In this global and dynamic business environment where we have witnessed extraordinary developments in the US financial markets with the collapse of Lehmann Brothers and merger of Merrill lynch and Bank of America, with AIG being rescued by the US treasury (BOE Publication) marks the evolution of a deep downturn for the financial industry which has not only limited itself to the United States of America but has also had a domino effect on all the other major global economies around the world. In Europe and the UK we have witnessed, ‘Northern Rock’ debacle which was among the first casualties in the UK banking sector, and then there was a significant consolidation within the UK banking sector, with Santander purchasing Alliance & Leicester, Nationwide absorbing two smaller building societies, and most recently the merger of HBOS and Lloyds TSB. (Bank of England Publication)

The fundamental issue here is the lack of capital in the banking system due to bad debts and asset write-downs and the consequent inability or un-willingness by banks to lend. This contraction in credit availability is impacting the ability of consumers to buy houses and costly items and restricts the ability of companies to invest and in some cases fund working capital.

The Quarter, Semi and Annual Profit forecasts are being reduced or revised as economies contract, and even the earnings per share figures are being diluted in by some companies because of the need to raise fresh equity and to replace the funding gap as banks cut back on lending. Almost all funding across the sector is frozen and has made it a very difficult task for the management of the firm to raise capital except from the company shareholders for any operational expenses in the business. Therefore, the immediate outlook for consumer spending, which supposedly is the main driver of any developed economy is weak and therefore the economic growth is not predicted to be sufficient or rather more impressive in terms of the results expected by the company shareholders.

It has been an exceptionally difficult period for stock markets around the world as well specially due to the rapidly deteriorating economic background and the forced selling of stocks taking place by mutual funds and hedge funds which have suffered redemptions. But after a watchful study of the broader impact of the crisis in the credit markets which began over a year ago with the downturn in the US subprime housing market the epicentre has remained in the US, and it has already had a major impact on the structure of the entire banking and financial sector in the global economy.

Although most of the companies which had to face liquidation because of the crisis in financial markets either due to Sub-prime mortgage crisis or uncertain market conditions entered the turmoil in fairly sound financial state and generally with capital well above the requirements asked for by the regulatory bodies, however these events led many firms to absorb significant losses, and the prolonged disruption in the market liquidity stressed most firms’ liquidity and crisis.

The turmoil has affected all the financial institutes from the setting of interest rates to the scale, structure and complexity of market operations. The entire economy has had to face the consequences the financial meltdown. Most developed countries are now in recession and previously strong emerging economies such as India and China are slowing sharply as well because their exports have hampered due to weak demand of their products overseas which is a result of reluctance of the importing countries to import and spend amid difficult financial times.

The issue of ‘The credit crisis and bank failures’ have highlighted risk issues with executive compensation arrangements that incentivize management to take significant risk in order to achieve financial targets which would entitle management to obtain certain incentive compensation(Section 111, EESA 2008) and therefore the Emergency Economic Stabilization Act of 2008 requires financial institutions participating in certain programs providedunder the Act to review executive compensation arrangements and to limit those arrangements that encourage management to take “unnecessary and excessive risk” that could threaten the value of the institutions. (Section 111, EESA 2008)

Also when Interpreting and evaluating the growth in terms of the volume and complexity of financial market instruments over the past few years, with added contribution of a handful of notorious financial disasters arising from globalisation of businesses and international transactions has increased concerns over the risks introduced into the global marketplace. Therefore Enterprise risk management (ERM) is an important discipline that is gaining recognition, both as a governance best practice and as “just good management”.

“Enterprise risk management” is the identification and assessment of the collective risks that affect firm value, and the implementation of a firm-wide strategy to manage those risks. (Meulbroek, 2002)

As a business continually changes with the globalised business environment, so do the risks. Stakeholders increasingly want companies to identify and manage their business risks. More specifically, stakeholders want management to meet their earnings goals. Risk management can help them do so. Therefore this action asks for a measure in place to prevent any further reactions of this sort and hence one of the fundamentally best approaches to flight losses in the Business during these uncertain times is to practise risk management at the enterprise level.

Although it has been into existence for a considerable period of time, lately Enterprise risk management (ERM) has emerged as a widespread practice in financial institutions. This is due to the unavoidable nature of the risks associated with the credit, mortgage and the financial markets. In undertaking such a research, ERM uses the firm’s risk appetite to determine which risks should be accepted and which should be mitigated or avoided in the best interest of the organisation, shareholders and the economy as a whole. According to Susan Stalnecker, Vice President and Treasurer of DuPont, “Risk management is a strategic tool that can increase profitability and smooth earnings volatility.” In addition, recent reports by the ‘Financial Stability Forum (FSF)’ and the ‘Institute for International Finance (IIF)’ are now calling for closer scrutiny of the risk management process. (IIF, 2008)

This study is based on the assertion that, although risk management and controls are an integral part of a well established firm and the industry as a whole, they are not a substitute for adequate capital requirements. And the Implementation of Strong and effective risk management within firms promotes stability throughout the entire financial system which helps by protecting the firm against Market, Credit, Liquidity, Operational and Legal Risks within an Enterprise, and to protect the firm from suffering adversely from reputational risk as well.

While there has been a considerable increase in practitioner attention on ERM in recent number of years especially in the past two years, a little academic research exists about ERM and its influence on or after the Financial Crisis and in particular about the Effectiveness of ERM on the organisations performance and its potential significance to the organisation during any kind of market turbulence. As a general practice a large number of companies are now opening up to use ERM as a strategic management tool (Pagach, Donald. P, June 2008). This is a Strategic level activity among the Management of the Firm. Indeed, the goal of enterprise risk management is to maximize value by shaping the firm’s risk profile, shedding some risks, while retaining those that are worth some value they can deliver to the company and thereby managers can analyze and control various risks as a part of a unified or integrated, risk management policy.

1.2 Research Aims and Objectives:

The main aim of this research is to study the Importance of Enterprise Risk Management in Managing Financial Risk in an Organisation. It seeks to Analyse and understand its Importance and to evaluate its Implications on the overall Business Performance during the times of Financial Crunch and Market liquidity.

Research objectives:

Reviewing a number of known risk management practices that may be associated with negative or positive performance to date with assessment of the key risk management practices that have affected a majority of the firm’s ability to weather the current market turbulence.

Evaluate the efforts of Individual firms to address weaknesses in risk management practices that emerged during the period of market turmoil.

Addressing deficiencies in senior management oversight in getting a better grip on the conditions that can expose a company (or the economy) to the risks associated with the current financial crisis.

To identify emerging patterns in risk management that could be useful to companies in times of market dis-order and developing an enterprise-wide risk management system.

1.3 Research question

Does the Management make visible commitment to the use of ERM?

Are the business leaders aware of the risk mitigation policy for an active discussion on Progressive Business risks?

Are the Risk Management practices adopted by the Senior Management in assessing the Enterprise Risks solid and dependable during the Period of Market turbulence and Whether Individual firms have an effective, formal risk assessment practice in place?

1.4 Significance of Study:

This Study is intended as a risk management primer for risk managers and the senior management. It highlights the importance of Enterprise Risk management practices in managing a company’s risk portfolio when the market is highly volatile. As Risk management is a rapidly developing discipline and there are many and varied views and descriptions of what risk management involves, how it should be conducted and what it is for. This paper provides a risk management framework for formulating and designing a risk management system for the firm. Talking about risks, the financial risk is an indisputable and inescapable element of any business venture in operation today. In addition to financial risk, a company is also susceptible to business risk or changes in the overall economic climate that can adversely affect the price of its stocks and securities. Hence, it is in the stakeholders’ best interest that risk be disclosed in a timely manner by the management who is responsible for such disclosures. The increased attention to risk management at the enterprise level can be linked to a number of policy decisions (Beasley, Clune and Hermanson, 2005). And therefore it has become a prerequisite for companies to prepare themselves from overcoming such eventualities.

The Very Importance of Enterprise risk management was made apparent with the deterioration in investor appetite during the summer of 2007 that led to broad and deep market distress in the financial markets, and because those and other innovative financially lucrative products were created during the prior period of more benign market conditions, banks and securities firms had not observed how such products would behave during a significant market downturn and therefore found their risk management practices tested to various degrees.

Presently, Enterprise risk management is a major concern not only for major financial institutions, which are usually subject to stricter regulations in terms of capital competence, but also for securities firms and broker-dealers, all in all it is the entire industry which is under close scrutiny of the financial regulators. ‘It is widely expected that rating agencies will assess Enterprise Risk Management as part of their rating process going forward’ (Standard & Poor’s, May 2008).

In the year 2003, the New York Stock Exchange amended its Corporate Governance Rules addressing risk management to require that audit committees discuss policies of risk management and assessment. In the commentary discussing the rule change it states that “The audit committee is not required to be the sole body responsible for risk assessment and management, but, as stated above, the committee must discuss guidelines and policies to govern the process by which risk assessment and management is undertaken” (NYSE, 2003).

In addition to that, ‘Standard and Poor’ has introduced Enterprise Risk Management analysis into its global corporate credit rating process beginning with the third quarter of 2008 (Standard and Poor’s, May 2008).

Also Studies suggest that risk management departments in financial institutions have been undergoing major transformations (Deloitte, 2007) and the Risk Management framework (2003) explicitly defines risk management as a high-level strategic activity, contributing to board-level decision making, planning, and performance management. Indeed, there is a growing perception that good risk management should be an integral part of running any type of business.

Steve Fowler, chief executive of the Institute of Risk Management said the local authorities were also looking more seriously at risk management after the Icelandic banking crisis, as some of them had substantial sums in now collapsed banks. He said: “The public sector is at- last beginning to discover this message and you’re starting to see much higher-level risk management positions being created” (Financial Times – Samantha Pearson)

A very obvious theme to highlight here is that all banking and financial institutions should seek ways to improve risk management practices, but that the methods to undertake risk management should depend on the size and sophistication of its core business values.

1.5 Brief Literature Review:

Risk�let’s get this straight up front�is good. The point of risk management isn’t to eliminate it; that would eliminate reward. The point is to manage it�that is, to choose where to place bets, and where to avoid betting altogether. (Thomas. A. Feb 7, 2000)

“Risk can be considered as a function of change, and Risk Management may thus be described as a technique for coping with the effect of change.” (Crockford 2005, P.5)

The Treasury Board has described risk management as “a systematic approach to setting the best course of action under uncertainty by identifying, understanding, acting on and communicating risk issues” (TBS 2001). The intent of risk management is to increase the benefits and decrease the costs for uncertain activities.

“Enterprise risk management is a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives”. (Committee of Sponsoring Organizations of the Treadway Commission, 2004)

As per the Literature Enterprise Risk Management includes, aligning the entity’s risk appetite and strategies, enhancing the rigor of the entity’s risk-response decisions, reducing the frequency and severity of operational surprises and losses, identifying and managing multiple and cross-enterprise risks, proactively seizing on the opportunities presented to the entity, and improving the effectiveness of the entity’s capital deployment . (Federal Reserve Publication)

The financial services industry continues to evolve to meet the challenges posed by emerging technologies and business processes, new financial instruments, along with the growing scale and scope of financial institutions, and changing regulatory frameworks.

While, we are still in the midst of the crisis and there may be other shoes still left to drop, some general views are already emerging. There are many reasons why we are in a crisis, but inadequate risk management practices feature high as a contributory factor. (Prakash Shimpi, 2008)

John Hurrell, Airmic chief executive, said companies “are reinvigorating their risk management programmes and making sure they’re robust enough to survive the recession and also eliminate surprises. (Financial Times – Samantha Pearson)

A successful ERM process can help an organization meet many of these challenges by providing a framework for managers to explicitly consider how risk exposures are changing, determine the amount of risk they are willing to accept, and ensure they have the appropriate risk mitigants and controls in place to limit risk to targeted levels.

But this role requires the senior risk officers to possess an understanding of key strategic uncertainties and that they communicate these to senior management and the business lines.

In a survey conducted by ‘Towers Perrin in 2008′ they state that, 72 percent of respondents expressed concern about their own companies’ risk management practices and ability to meet their strategic plans’. (British Insurance Broker’s Association)

Although several tools like Institution-wide position reports, market sensitivity analysis and credit exposure reports, and to complex money-at-risk calculations and simulations are widely available to monitor investments. The risk manager must choose one or more methodologies to combine this data to provide meaningful measures of the risk. This implies that the new regulatory requirements have raised the bar on compliance and expanded the remit of risk management significantly during the period of financial crisis within organisations.

Regulators and industry observers call for the continuing appointment of executives who are exclusively devoted to the role of enterprise-wide risk oversight, particularly since it emerged that the first victim of the subprime credit debacle, Merrill Lynch, lacked a chief risk officer, and the second company, Citigroup, was immediately blamed for its ineffective risk oversight (American Banker, 2008).

Hence, the purpose of this paper is to analyse the importance of ERM during the period of financial turbulence and to establish whether firms Practicing ERM actually manage to achieve observable results consistent with the claimed benefits of ERM. Put another way, it seeks to establish whether ERM works at the time of financial crisis and to what extent does it mitigate the possible firm losses, thereby increases the firms value and performance overall. Also the study tries to explore the fact that, do firms’ adopting ERM improve financial performance relative to past performance and after controlling for the industry performance. The research question provides evidence on the view that ERM has value creating ability during difficult times for companies and thereby; captured in the following statement i.e. “There is clearly a heightened awareness of the need to manage risks more strategically in order to achieve expected shareholder value” (The Conference Board, July 2005). And the function of chief risk officers has been prolonged dramatically in the recent times preceding the current liquidity and credit crunch, with risk functions aspiring to play the twofold role of the compliance champion and the trade partners.

ERM practitioners need to take a necessarily broad and long view. The ERM frameworks,

Processes and dedicated risk analysis and quantification must be dynamic, recognising that

risks may also sometimes emerge from ambiguous threats as “Most of us are too specialized or focused and so accustomed to our own environment that we cannot break out of our current thinking patterns to think broadly about our risks,” and “It is usually the risk that ‘no one ever thought of’ that causes the most harm”.

The business decisions made should involve risk quantification which should most suitably be taken in a long term view as the profit forecasts and revenues tend to decline or become stagnant in the times of financial crisis and the concept of managing the financial risk decisions can better help to affiliate the amount of losses to an acceptable minimum which would help firms to sail through difficult times.

The Flow of Risk Management Process

Key Insights into Risk Management: The traditional risk practices consist of setting risk limits while ensuring that business remains profitable. While modern best practices consist of setting risk limits based on economic measures of risk, while ensuring the best risk-adjusted performances. In both cases, the goal remains to enhance the risk-return profile of transactions. Nevertheless, new best practices are more ‘risk-sensitive’ through quantification of risks.

The only key difference is the implementation of risk measures. Risks are invisible and intangible uncertainties, which might materialize into future losses, while earnings are a standard output of reporting systems complying with established accounting standards.

Risk management protects and adds value to the organisation and its stakeholders through supporting the organisation’s objectives by:

Providing a systematic framework for an organisations future activity in a controlled and a consistent pattern.

Improving decision making, planning and prioritisation by comprehensive and structured understanding of business activity, volatility and project opportunities and threats.

Deriving a thorough plan for a more efficient use/allocation of capital and resources within the organisation.

Reducing volatility in the non essential areas of the business thereby protecting and enhancing the company assets and its image.

� Developing and supporting people and the organisation’s knowledge base and Optimising operational efficiency during boom or bust (Source – Risk Management Standard)

1.6 Overview of remaining topics:

This report is a compilation of important study areas and they are used individually as a separate tool in order to achieve the research aims and objectives. The introduction chapter presents a discussion of the background and causes for the financial crisis and an introduction to the primary research topic of enterprise risk management. This builds a strong foundation for the discussion of the main research study. Following introduction on the research area the report builds up a defined set of the literature based on the various elements the study adopts, it emphasizes on presenting the latest literature by academics and financial expert professionals with regards to their professional experience and exposures on the study topic and with references from governing body published articles, journals and press releases. With active discussion and compilation of the literature review the report marks the need for further research and the methodology that should be adopted in order to successfully achieve the research goals and objectives. The methodology i.e. the layout or a structure which presumably is a very important component of a research report or a study undertaken is discussed. The basic purpose of this chapter is to discuss the research idea, to expound the research strategy including the research methodologies adopted and to introduce the research instruments developed and used in order to achieve the research goals. The use of both primary and secondary sources of research is intended to be used in order to accomplish the research outcome. Primary research is planned to be carried over by using a research questionnaire designed to explore the opinions and experiences of respondents. The results will be analysed and used to answer the research question, any shortcomings found will be highlighted with suggestions and recommendations for exploring further study areas. The study concludes with the recognition of the importance of the research topic during difficult times.

1.7 Summary and Conclusion

The practice of Risk Management at enterprise level is a major concern for all financial institutions around the world and it has gained relatively a lot of attention from practitioners in finance and related industry experts. The scope and impact of the risks identified need careful policies, processes and procedures in place to mitigate the organisation risks. The role of regulators regarding risk management is to seek an assembly of rules and requirements that may, at the lowest possible cost, effectively contribute to prevent an isolated failure or a crisis of small proportions from becoming a systematic problem threatening the market as a whole. The conclusion here is that, at some level, every entity that handles risks should be assessing what would happen if they ended up owning the risk that they thought they would only have temporarily. The Risk management characteristics highlight the benefits that a firm ideally derives from adopting and practicing risk management within the organisation.

Therefore, the research aims to address the growing importance of risk management in the upcoming chapters of this report, namely literature review, research methodology, discussion, research analysis, findings and conclusion.

2.0 Literature Review:
2.1 Introduction to Enterprise Risk Management:

Risk management has evolved from a narrow, insurance-based view to a holistic; all risk encompassing view, commonly termed Enterprise Risk Management (ERM) (Tufano, 1996 et.al).

It is a concept of increasing popularity emerged in the name of Enterprise-Wide Risk Management (EWRM). Such a new concept appears to be a new approach, which ensures that risks are being managed on an enterprise-wide basis with total integration of all activities within the entire company or organization (Lam, 2003).

The term “risk” includes any event or action that “will adversely affect an organization’s ability to achieve its business objectives and execute its strategies successfully.” (Economist Intelligence Unit, 1995)

“Risk can be considered as a function of change, and Risk Management may thus be described as a technique for coping with the effect of change.” (Crockford 2005, P.5)

The COSO Enterprise Risk Management framework (2004) explicitly defines risk management as a high-level strategic activity, contributing to board-level decision making, planning and performance management.

In the current economic environment the businesses are not free from the operational and market surprises and the impact of risks and uncertainties. Number of Incidents in the recent past has resulted in major financial breakdown for the most well known companies and the economy as a whole has suffered the effects of it.

Wholly, Enterprise Risk Management (ERM) builds upon traditional risk management with a different approach (Steinberg et al. 2004) as it does not assume that risks exist in isolated departments of an enterprise (Hoyt and Hall 2003).

In general, ERM proposes a holistic approach of how an enterprise risk portfolio is created and managed. Understanding this can enable organizations to better plan and manage IT adoption and implicate the systems in place to deal with it. It is also pre-emptive in that risks are proactively handled: rather than reacting to problems, risks are anticipated and managed before the problems occur (O’Donnell 2005).

Failure to implement such a holistic risk management policy can lead to a dramatic underestimation of the true risk position. This has been evident in the current financial market crisis. For successful risk management, it is essential to identify concentration risks and a systemic risk for which diversification in the portfolio does not work. (Financial times Internationalisation – risk or opportunity? – Torsten Jeworrek) ‘Enterprise Risk Management’ Continues to Command a great deal of attention in the financial services industry. Clearly, ERM aims to bring holistic, organization-wide and standardized risk management processes to financial institutions and provide them with an integrated view of the range of risks they face. The goal is to have consistent reporting of information across the enterprise, perhaps throughout the organization based on standardized information. (Global risk management survey – fifth edition, Deloitte)

Although there are many variations in the definition of ERM, the basic theme is that ERM is primarily as a way of measuring understanding and controlling the risks facing the firm. In some cases ERM is also viewed as a management tool that can identify profitable opportunities to enhance shareholder wealth. (Don Pagach and Richard Warr, 2008)

2.2 Introduction to Credit Crisis

Amongst the Business Community there is a few that would argue that, the socio-economic environment is not becoming increasingly turbulent. As both Drucker (1980) and Peters (1994) note, there is a very definite need for a different style of management in an increasingly chaotic business world (McClements and Smallman, 1998).

The planet, which we live in at present has changed radically. An obvious feature is the global business environment, which is ever changing with increasing complexity in its international business operations leading to the financial meltdown. The background and evolution of the crisis has indeed exhibited a number of features well-known from previous bank crises worldwide (Honohan, 2000)

When we consider the economic condition that the market is in currently we can accept the fact that there is a desperate need to adopt a very new and a different but widely accepted style of managing risks. Only a few forward looking organizations consider this approach practical, but there is evidence that it can be a useful and rewarding shift in strategy (H�pfl, 1994).

In the financial year 2008, we have seen the most severe banking crisis since the Great Depression. In the United States and most European countries, governments reacted by the part-nationalization and recapitalization of the banking system, promising an overhaul of the regulatory practices and management incentive structures that govern banks. In this environment, regulators, risk professionals and politicians have started to ask questions about the internal risk management practices of banks (Treasury Committee, 2007).

Therefore, very recently the function of calculating risk has emerged as the newest “low latency” financial application on Wall Street. With good reason, in today’s volatile markets, measuring risk in near-time is simply not fast enough. The firms of tomorrow will need to invest vast sums in the technologies that help them manage ever-sophisticated risk management requirements. (Larry Tabb, 2007)

It is rather important to note that the underlying concept of EWRM is to enhance shareholders/stakeholders value and this relates to each type of organization whether profit, non profit, or government agency, provides value for its stakeholders (COSO, 2003). Despite the widespread adoption of enterprise risk management (ERM) in the financial services industry, over the 2007-2008 reporting years, banks suffered hundreds of billions of dollars of losses stemming from risks that few executives had understood (Treasury Committee, 2007a, 2007b).

As a professional group, risk managers need to accommodate the demands of various stakeholder groups: regulators, corporate executives, shareholders, debt holders and the general public. The Risk Management styles/approach can be either Reactive or Proactive depending upon the Market situational factors. (Hood, 1996, pp. 211-4)

Survey findings by Towers Perrin (2008) found that, when asked to lay blame for the current financial crisis, 62 percent of the cross-industry survey respondents pointed to poor or lax risk management at financial institutions as the single greatest contributor.

2.3 Importance of Risk Management to a Firm:

Under the shock of the first subprime-related loss disclosures, many industry observers debated the question: ‘where were the risk managers?’ (Bookstaber, 2007)

In the globalised business environment with competition at par most companies are trying to outperform each other for market supremacy and with the rise of risk management as a distinct discipline in banking and finance, studying its importance during market turmoil has recently become an area of study.

This area of study has its own significance to the organisation and its benefits and costs are subject to debate, (Beasley, Pagach and Warr, 2007) as it includes investment in training and development and incorporating it into the organisational culture of the company. Although adopting and practicing enterprise risk management into the organisation culture costs the company into its training and development efforts it should be viewed as an investment rather than an expense as in the long term view it is still beneficial as it adds value to the organisations efforts.

Proponents argue that ERM benefits firms by decreasing earnings and stock-price volatility, reducing external capital costs, increasing capital efficiency, and creating synergies between different risk management activities (Miccolis and Shah, 2000; Cumming and Hirtle, 2001; Lam, 2001; Meulbroek, 2002).

Although recent work by Nocco and Stultz (2006) argues, that ERM is beneficial to most firms because it allows them to manage risks in a manner that avoids costly left tale outcomes (Lin 2007). Stulz (1996, 2003), Nocco, and Stultz (2006) then present arguments under which risk management activities could be value increasing for shareholders when agency costs and market imperfections interfere with the operation of perfect capital markets.

To a business unit the scope of risk covers all activities, be that any internal or external, that may prevent itself from achieving its objectives. Adding the word management to integrated, business, or enterprise-wide risk implies a “structured and disciplined approach” that “aligns strategy, processes, people, technology and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value.” (James W. DeLoach, 2000) Hence, the goal of an enterprise-wide risk management initiative is to create, protect, and enhance shareholder value by managing the uncertainties that either could negatively or positively influence achievement of the organization’s objectives.

‘The borderless world had undoubtedly facilitated the innovative process of international networking and business ventures. But, such a breakthrough does come at a price. Risks are becoming more sophisticated than ever before and this calls for new approaches and methodologies including Risk Management tools and technologies in managing a global business world which is full of surprises (Hussin, 1996)’.

More than half of Britain’s top companies are looking to strengthen their risk management teams as deepening economic crisis forces directors to question ill fated investments and prepare for new uncertainties. (Financial Times Publication – Samantha Pearson)

‘Jay Keyworth, chairman of the Progress and Freedom Foundation and a member of Hewlett-Packard’s board’ has stated that the most important lesson of the last few years is that board members can no longer claim impunity from a lack of knowledge about business risk.

In the wake of a new regulatory era and recent market strains in financial services, senior risk officers are under pressure to demonstrate how they are realizing the risk oversight potential of their function.

Tower Group analyst Rodney Nelsestuen agrees. “Enterprise risk management has taken on new importance as stockholders, board of directors and regulators demand better, more timely analysis of risk and a deeper understanding of how the institution is impacted by the dynamic risk environment of a global financial community.”(Tower Group 2008)

As no professional realm can operate indefinitely if it clashes with the requirements of stakeholders (Gardner et al., 2001)

2.4 Effectiveness of risk management during credit crisis –

Enterprise risk management will have its greatest effect on earnings by reducing their variability through controls on the risk of cost centers and revenue sources. ERM provides the potential benefit of reducing the direct and indirect costs associated with financial distress. (Liebenberg and Hoyt, (2003)

Stulz (1996, 2003) argues that risk management can be value creating if it is able to reduce the likelihood of these negative earnings shocks and in turn, help the firm avoid the direct and indirect costs associated with financial distress.

In actuality, the fallout from unforeseen events tends to affect multiple business areas and the

Interrelationships between risks under the categories of operational, financial and technical risk have been overlooked, often with adverse outcomes.

Therefore, the ultimate goal of risk management is to facilitate a consistent implementation of both risks and business policies.

Page and Spira (2004a) highlighted the use of a “bottom up” approach to risk management, requiring preliminary assessments to be performed by junior “risk identification” teams with follow up “risk evaluation” by more senior teams.

Two groups have recently emphasized the importance of risk management at an organization’s highest levels. In October 1999, the National Association of Corporate Directors released its Report of the Blue Ribbon Commission on Audit Committees, which recommends that audit committees “define and use timely, focused information that is responsive to important performance measures and to the key risks they oversee.” (NACD) Pattie Dunn, vice chairman of Barclays Global Investors and a member of the board of Hewlett-Packard, says:

I think what Boards tend to miss and what management tends to overlook is the need to address risk holistically. They overlook the areas that connect the dots because risk is defined so “atomistically” and we don’t have the perspective and the instrument panel that allows us to see risk in a 360 degree way. (McCarthy and Flynn 2004)

Although risk is generally considered to be the possibility of outcomes that deviate from what was expected, it is primarily negative outcomes that are of most concern to firms.

Consistent with this view of ERM, Standard and Poor’s states that evaluations of firms’ enterprise risk management structures will focus on ensuring that firms are addressing all of their risks, setting proper expectations about which risks are and are not taken and setting methods that ensures that firms’ avoid losses outside tolerance levels. (Standard and Poor’s Ratings Direct, 2008)

With the current credit crisis triggering more than $400 billion (IIF July 2008) in asset write-downs among the financial services industry, enterprise risk management (ERM) programs and components are in high-demand now more than ever to help institutions aggregate risk and treat it holistically. The solution is for board members to learn of the potential for adverse events and be sufficiently aware of the sources of risk within the area of business that they are operating in, to be afforded the opportunity to take pre-emptive action (McCarthy and Flynn 2004).

Risk management industry commentators observe that risk functions are often set up or start a second life in the face of failures, scandals and disasters, when management says: ‘Never again’ (Risk Management, September 2007).

Improved risk management has come into greater focus as a result of the market turmoil. Many of the currently employed risk management measures such as value at risk (VaR) or stress testing is backward looking in nature and lack the ability to take in current data or views about the future. For example, in Asset Back Securities (ABS) and CDOs, one of the key shortcomings made in analyzing the risks in these products was that the underlying mortgage securities were more diversified than they turned out to be. We can now see that the mortgage securities were highly correlated and how sensitive they were to the decline in home prices. That information was not reflected in stress testing. (Report – KPMG)

Stulz (1996, 2003) argues that any potential value creation role for risk management is in the reduction or elimination of “costly lower-tail outcomes.” Lower tail outcomes are primarily negative earnings and cash flow shocks and can have both direct and indirect costs. Direct costs are incurred in events such as bankruptcy and financial distress when the firm must make outlays to creditors, lawyers and courts. Indirect costs of associated with negative earnings and cash flow shocks, include the loss of reputation that may affect customer and vendor relationships. Either ways it affects the overall end results of the company.

Federal Reserve Chairman Ben Bernanke recently said in a speech, “No model regardless of the sophistication can capture all the risk that an institution might face. Those institutions faring better during the recent market turmoil generally placed relatively more emphasis on validation, independent review, and other controls for models and similar quantitative techniques. They also continually refined their models and applied a healthy dose of scepticism to model output.”

‘Standard and Poor’s also states that ERM is not a process to ensure that a firm eliminates all risks or a guarantee that losses will be avoided or a replacement for internal controls’. ERM analysis by Standard and Poor’s will be incorporated into regular credit reviews and will be part of the analysis of risk management culture, which will also include governance, accounting policies, issues and derivatives.

According to a global survey of 316 financial services executives, over 70 percent of respondents believed that the losses stemming from the credit crisis were largely due to failures to address risk management issues. (Reuters, Sept 2008)

The Association of Insurance and Risk Managers (Airmic) said that in a private survey of its 450 corporate members, which included most FTSE 100 companies, 59 per cent had said that their level of interest in enterprise risk management had increased over the past two years. (Financial Times – Recession forces risk management rethink, Samantha Pearson)

Recruitment agencies are also expecting a huge rise in demand for risk managers. GRS, a consultancy, predicts that by the end of 2009, half of financial services companies will have a risk professional on the board compared with only 12 per cent last July. Overall, GRS estimates UK financial risk roles will increase by 1,000 to 4,000 over the next 18 months. (Financial Times – Samantha Pearson)

In a survey conducted by Towers Perrin ’42 percent of the respondents also predicted greater involvement in risk management policies on the part of boards of directors as well as increased employee-level involvement’. (Towers Perrin 2008)

Therefore, with the help of this paper, we can examine whether Practicing ERM on an Enterprise-wide basis has a material change on a range of observable financial measures. We fully recognize that ERM may be working very effectively, but observable financial measures are unaffected. This unobservability could be a result of ERM working properly and mitigating problems such that the firm’s performance is better than if it had not used ERM. We may not observe a direct reduction in risk, through smoother earnings; we might expect changes in capital structure, profitability and asset composition, consistent with the firm being more confident in its management of business risks.

Discussion
Risk Management Framework with varied business practices and techniques.

Learning’s from the Literature review and the recent market events that has eventually traumatized the whole financial sector we have learned that, In the recent past many firms were more vulnerable to a prolonged disruption in the market liquidity than they had expected when the crisis begun in the second half of 2007, but apparently now every business is staggered by the nature, length, scope and impact of the market disruption that has forced them to fund exposures that they had not anticipated into their contingency planning. Nevertheless all firms were able to measure and arrange adequate liquidity to fund their operations; in many cases they were bailed out by national authorities and in certain cases they had to bring in additional assets onto their balance sheets that were not likely to be funded and therefore firms saw facing higher funding costs. Firms were neither universally effective nor ineffective across all relevant dimensions of performing business and managing risks.

A set of actions and decisions taken can differentiate a firm’s performance during such periods of market inefficiency or turmoil that we have experienced for the financial year ending March 2008 and which is still going on for most of 2009. Every firm should make it clear that the senior management i.e. the CEO is responsible for Risk Management and also should establish the board’s essential oversight role in risk management. Notably some firms recognized the emerging additional risks and they took deliberate actions to limit or mitigate them in effect to escape from the crisis or to cover against large scale serious losses, while some others did recognize the risks but accepted them in anticipation that they had a strong Risk Management practice in place, and some did not fully recognize the risks in time to mitigate them adequately.

Therefore the approaches that were adopted were quite different across the business lines, and firms that dealt better with the ongoing market turmoil had a more comprehensive view of their exposures. They used the information developed across the firm to adjust their business strategy, risk management practices, and exposures promptly and proactively in response to changing market conditions. Thus with the background information of the market performance and the strategies adopted by firms to ensure their capital positions are stable, we look at a feature of highly effective risk management practices that would help firms to deal with the crisis more comprehensively in the future.

1. Effective identification and analysis of business exposures and risks

Effective risk management requires a perfect synchronization of the quantitative and qualitative information, so as to identify the potential risks that come ahead in the way and to draw a way out of it with captivating minimum losses or exposures to risks. And the way in which the companies share and communicate the quantitative information in terms of the financial reporting is considered to be very critical and it influences the way in which it delivers value to its shareholders. Therefore the implementation of sound quantitative risk models is always a vital concern for all financial institutions.

Fundamentally the positives for Banks who performed well as compared to others during the recent market turmoil are that they have a stronger internal risk culture. The better the culture of sharing risk information across departments and business line risk owners, the chief risk officers, the chief executive and other senior management, the better it is to recognise the scale and exposure of risk in order to draw business wide plans to deal with those risks and to execute those plans in good time.

There should be a robust risk culture that should be embedded in the way the firm operates across the board, with accountability for risk management being a priority and it is essential to ensure that risks are identified and evaluated in a timely manner in order to enable informed risk management actions to be taken or opportunities to be seized.

Thus after carefully analysing the drift that has accelerated in recent years with regards to financial turmoil and the regulatory bodies gearing with their reporting processes which asks for a continuous response and the need for reporting any financial or firm wide risk, the way or the method of sharing the quantitative information across the organisation is crucial in determining the extent to which they can mitigate or avoid the risks they face in business.

Risk Managers must conduct a quantitative risk analysis to access the profitability of achieving specific project objectives, and to prioritize the risks based on the significance of the overall project risk. The output of Quantitative Risk Management provides information for handling a project’s most threatening risks and promising opportunities.

So a probabilistic analysis assists the risk manager with estimating contingency reserves to ensure stakeholder comfort. Therefore a sensible implication of Quantitative Risk Management helps to assess the probability of meeting time and cost objectives. Prioritizing high-threat risks allows one to respond proactively before the iceberg has hit. Also monitoring trends enables the day to day management to adjust risk management activities over time.

With regards to the analysis of Qualitative risks, it assesses the impact and likelihood of identified risks in a quick and cost effective manner. When considering the priority of such risks, close attention must be paid towards its scope, schedule, quality and its impact on the balance sheet of the firm. Risk management functions and its pre set protocols pave a foundation for a more detailed and focused approach towards managing risk in the business. The firms that performed well during the much known and genuinely disastrous financial crunch shared their quantitative and qualitative information more effectively across all forms of their operations.

Thus in order to obtain high level of operational excellence it is necessary to identify the sources of risks so as to evaluate the magnitude of those risks and to implement plans to reduce exposures while it is still practical and not prohibitively expensive. It mandates that the top management should develop an aggressive plan to reduce those risks and not rely on the hope that business lines would make decisions individually that would benefit the firm’s exposures collectively.

On the other hand firms that experienced greater difficulties during the credit crisis had a more apparent picture of the management’s incapability in providing proactive and prompt discussions on the firms risk in the light of the continuously evolving market conditions with respect to stock price volatility and or industry and policy decisions towards the crisis. This would effectively lead firms to make important decisions like Business growth and expansion in complete isolation and thereby would increase rather than mitigate the exposure to risks. Therefore avoiding the aforesaid mistakes and enabling the smooth functioning of the risk identification practices within firms would bring a greater control and or shield the risks that the firm is exposed to, to a large extent.

2. A steady application of independent and rigorous valuation practices across the firm

The established way in which the business process functions should inculcate a set of rigorous valuation practices that would enhance the fair valuation of the firms’ assets as we have already witnessed potential weaknesses in valuation practices and disclosures, and, the difficulties associated with fair valuation in circumstances in which the markets become unavailable which has become more apparent from the recent turmoil. Therefore the management should establish a set of rigorous internal processes requiring critical judgement and discipline in the valuation of holdings of complex or potentially illiquid securities.

As a general practice they should develop an in-house expertise to conduct independent assessments of the credit quality of assets to enable them to value their exposures appropriately. Consequently they should use those values consistently across the firm, and subsequently they can also test their valuation estimates by selling a small percentage of their relevant assets to observe a price as this would effectively convey any disputes that might arise in valuation or accuracy of their valuations of the same or similar other portfolio assets. If the senior management does not actively encourage sufficient discipline over valuation process, they would tend to rely too passively on the external views of credit risks by the rating agencies and pricing services to determine the values for their exposures. Therefore there must be a steady application of strict valuation practices across the firm.

3. Effective Management of Funding, Liquidity, capital and the Balance sheet

The very significance of successful management of any business is to effectively manage all the functions of that business. The importance of maintaining a firm-wide perspective is also evident in differences in the enforcement of more dynamic controls over the consolidated organizations balance sheet, liquidity and capital positions.

In order for the firms to avoid more significant problems throughout the period of turmoil they should align their treasury functions more closely with the firms risk management processes and incorporate information from all the businesses in global liquidity planning, including actual and contingent liquidity risk.

There is a need to create internal pricing mechanisms that would enable individual business lines to control activities that might otherwise lead to significant balance sheet growth or unexpected reductions in capital. In particular they should charge business lines appropriately for building contingent liquidity exposures to reflect the cost of obtaining liquidity in a more difficult market environment. Better performing firms always better manage their contingent liquidity needs.

When implementing their business plans firms should exhibit greater discipline in adhering to limits in the face of changing market conditions. The firms that have experienced greater problems during the past one year tended to have weaker controls over their potential balance sheet growth and liquidity and a mismatch of alignment with the risk management process. Some firms base their funding on the basis of incomplete information and did not consider properly the risk of certain exposures thereby failing to create incentives for business lines to manage such potential scenarios prudently.

4. Instructive and reactive risk measurement and management reporting and practices

The firms should implement a thorough plan of action to measure and manage risk across all the channels of its operation.

Because firms are reluctant to exhibit the high levels of volatility in their profits which can be very unsettling for shareholders, and a sustained period of significant losses can threaten the commercial viability of the organisation. So there should be a defined set of practices that would enable a risk manager to measure the type of risk and its severity in order to comprehensively deal with it.

They must have their management information systems in place to assess their risk positions against any correlated risk that increases the exposures for the firm. The management must focus on undertaking a more adaptive risk measurement process that would enable them to rapidly alter the underlying assumptions in risk measures and hence reflect their strategy to suit the current market circumstances.

Subsequently they can take corrective actions and could customize forward-looking scenario analyses to incorporate management’s best sense of changing market conditions. Managers must be prepared to concentrate on a wide range of measures of risk in order to gather more information and different perspectives on the same exposures. The Integration of Quantitative and Qualitative analysis provides a high level of insight and consistent communication to the management about evolving conditions, enabling the firm to pursue opportunities as they emerge and, more importantly, to reduce exposures when risks outweigh expected rewards.

Conclusion: Failure to appreciate risk exposures at the firm wide level can be costly, for example during the recent episode; the senior managers of some firms did not fully appreciate the extent of their firms’ exposure to U.S. subprime mortgages. They did not realize that, in addition to the subprime mortgages on their books, they had exposures through the mortgage holdings of off-balance-sheet vehicles, through claims on counterparties exposed to subprime, and through certain complex securities. It was apparent that, at some firms, business lines did not share vital information relevant to risk positions and business tactics, with adverse implications for profitability.

It is emphasized that the Risk Management framework and policies is considered necessary for any company that is engaged in Risk Management activities. The framework would provide the necessary guidelines for the management to follow. Furthermore, the framework and guideline make it easier for the management to communicate all necessary risk management insights to other parties in the company. Therefore, it is important to continuously update and monitor the risk assessment framework.

3. Research Methodology
3.1 Research Foundation:

This Chapter demonstrates the Primary framework used for conducting this research. It is the overall approach to studying the topic and includes or highlights the issues that need a thought. It is a sketch of the research to be conducted which is conceived of, in terms of the research idea subscribed to, the research strategy employed and the research instruments utilised, in pursuit of achieving the research goal, the research objectives set and the quest for the solution of a problem i.e. the research question. The Research Question is outlined in chapter 1 of this study. The basic purpose of this chapter is to discuss the research idea, to expound the research strategy including the research methodologies adopted and to introduce the research instruments developed and used in order to achieve the research goals. It is just a philosophy or the general principle which will guide this entire research.

The research Idea is a belief about the way in which data about a particular phenomenon should be gathered, analysed and used for research purposes. It is essentially my motivation for conducting the research. The motivation behind this research is derived from my interest in this topic of risk management and the current issue of credit and global financial crisis; hence with my literature search skills, organisation skills and time management expertise it will help me adopt a methodology best suited for this research. This research encompasses the use of qualitative and quantitative techniques in order to collect data for the research. Although it has been observed (Benbasat et al. 1987) that no single research methodology is intrinsically better than any other methodology, many authors call for a combination of research methods in order to improve the quality of research (e.g. Kaplan and Duchon,1988). Academic researchers highly recommend that a methodology best suited to the problem under consideration as well as objectives of the researcher must be used for the research. The main and the only concern is that the research undertaken should be relevant to the research question under consideration.

This Research study seeks to explore and understand the conceptual and practical implications of the Enduring Importance of Enterprise Risk Management for companies during financial downturn. The research is not intended to deduce from the case studies a uniform framework for risk management. If anything, the research indicates that when it comes to risk management, one model does not fit all companies. This research aims to provide an insight into the way in which companies measure the Importance of Enterprise risk management and eventualities like Credit and market liquidity crunch, and are there any associations of the risk management practices on future firm performance. Research experiments, if conducted precisely can enable a better understanding of the relationship between a causal hypothesis and a particular phenomenon of theoretical or practical interest. One of the biggest challenges is deciding which research methodology to use. “Research that tests the adequacy of research methods does not prove which technique is better; it simply provides evidence relating to the potential strengths and limitations of each approach.” (Howard, 1985)

3.2 Research Strategies:

There are a number of ways in which a research methodology can be designed or structured to achieve the research goal, but the process of selecting the best suitable method seems to be the most important decision in a research undertaken. Instances where the research is undertaken for a particular segment like Liquidity risk management, or Credit Risk Management which involves measuring and assessing risks in targeted financial institutions and industries the VAR (Value at Risk) approach is most widely acknowledged and is used as a standard for measuring and quantifying risks. But all risk management implementations require a degree of compromise, regardless of the methodology adopted. These compromises range from convenient assumptions about return distributions, through coping with incomplete data, to approximations when modelling the return of an asset. But for this study we analyse which of the two i.e. quantitative or qualitative methods is best suited to our research needs.

3.2.1 Qualitative and Quantitative Methods

3.2.1(a) Qualitative research: is mostly explanatory in nature, involving small number of respondents (Rusli and Ali, 2003).This type of research is used when there is concern of understanding how things happen and how they are related rather than only measuring the relationship between variables. Consequently the qualitative methodology can provide the investigator with meaningful insights by delivering more deeply and examine the intangible aspects of complex issues of the process (Rusli and Noor Azman, 2003). It intends to explore the attitudes, behaviour and experiences of the respondents through the use of methods such as Interviews or focus groups, which supposedly is an attempt to get in-depth opinion from participants. With regards to the research topic which is Risk Management and the profile of the target respondents within financial sector companies or companies in other sector but the main focus being their financial unit because of the attitudes, behaviour and experiences that we are looking for and considering what the market has bought to their attention in the past one year, fewer people tend to participate or show interest in participating mainly because they are not allowed or restricted by the ‘ company policy’ or ‘No time’ to participate in any form of research and that makes it very difficult to find and persuade the respondents to be a part of the academic research.

3.2.1(b) Quantitative research: Data in quantitative research are obtained from samples and observation seeking for relationship and patterns than can be expressed in numbers than words (Johansson and sparredal, 2005). It generates information through the use of large scale survey research. Survey method that this research tends to see as a possibility is a structured questionnaire. The reason being it is at the respondents own convenience he/she can fill in the survey, it can be either e-mailed or send by post to his/her office or residence address and it helps us to reach many more people and thereby increase the chance to get to the target level of completes, hence the contact with respondents is much quicker and the concern of ‘strike rate’ i.e. the number of respondents actually participating and completing the research questionnaire is also taken care of as for this research the strike rate is estimated to be a ‘two completes out of ten invites sent’. Methods like surveys enable to obtain data about practices, situations or views at one point in time through questionnaires. Quantitative analytical techniques used to draw inferences from this data regarding existing relationships. The use of a Questionnaire form of a research permits the researcher to study more variables at one time than is typically possible in other forms and the data can be collected about real world environments or experiences. So depending upon the set research aims and objectives the research strategy be carefully selected and be accordingly adopted.

3.3 Research Design/Instrument:

The Research design is an invaluable part of the research methodology as it helps us guide the research process. This Research is a designed and a co-ordinated attempt to use resources from the Primary Data, which will be collected from a research questionnaire. It is designed to give a more focused understanding on the research topic. The use of secondary resources which was reviewed and studied was in the form of published research journals on risk management from credible reference journal sites like Emerald Insight, Financial Times Express (FT-Xpress), Basel Committee Reports, Business white papers like Senior Supervisors Group, and newspaper, magazines and Year end Published financial reports for data that was available to interpret in a desired form. The Credible Published Reports by KPMG Titled ‘ Beyond the Credit Crisis : Impact and Lessons Learnt for Investment Managers’ , and a report by Ernst & Young Titled ‘ Business Risk Report -The top 10 risks for Global Business’ were studied before doing the actual empirical research. As the primary objective of the study is to examine and analyse the changes in financial characteristics around the firm’s approach of practising Enterprise Risk Management during the period of Market Turbulence, firms usually do not publicly announce their Risk Management Practice that they usually follow. They tend to disclose only minimal details of their risk management programs, (Tufano, 1996). Here the secondary data or method has certain limitations in helping us find the outcome and survey reports can just help us guide towards the possible outcome, Hence, the Primary data which is very important for this study will be collected from a research questionnaire that is being designed in such a way that it explores the views of financial market professionals and provides an imperative view from them on the Risk Policy that they either practice or think is important or have in place for dealing with such market eventualities.

3.3.1 Questionnaire: The Questionnaire is the first step to obtain and gather information to analyze and compare different Risk management practices. The research instrument in the form of a structured questionnaire was sent to respondents either as an Email invite or by post for participation after taking their prior consent to participate in the research so that the responses are prompt and timely. Based on the literature and references from reports and observations of the current market condition, the research anticipates answering the most productive research question. The questionnaire was developed with reference taken prominent survey analytics like ‘SAS’ and ‘KPMG’

Prospective respondents for this research are classified, as financial experts working in as senior finance, fund accountants, strategy analyst’s, management accountants and risk management professionals (see Appendix 1 for a list of the interviews). The other source of data collection is a direct observation of the market and its behaviour to changing market conditions. As we can appreciate that the asset portfolio of the firms exposed to levels that they had never expected, hence this research observes the ways in which firms are prioritising their efforts to shield its portfolio of assets in order to minimise losses from the crisis. Within the boundaries of confidentiality, some companies did provide historical and other source documents, such as annual reports, presentations and internal reports, which constitute an additional supply of data for this research. The research results may display some biased answers because the research aims to explore the importance of Risk management practices during the period of financial turmoil and as, business managers and we academics have already witnessed the great deficiencies in the way firms weigh their risk management practices. The questionnaire designed to gain a broad perspective. Eventually during evaluation of responses, I intend to take greater care to not displaying biased responses, as it would defy the purpose of this research. What I expect to discover from this research is ‘The attribute that weighs heavy in terms of applied practices during difficult times and the most effective tool – An Effective Enterprise Risk Management Practice’.

Summary and Conclusion:

On the basis of the research question under consideration and the research objectives to be achieved the report makes an attempt to undertake the research in such a way that will most positively bring the desired results with the help of the techniques available to use and conduct this research. After identifying the survey method as the most beneficial method to carry out a primary research with the help of a questionnaire, we hereby follow the analysis of the data gathered from the research methodology used.

Analysis of Data
Introduction

The Increasing enthusiasm and density of the modern global economy has put Enterprise Risk Management on high agenda of many companies. For this research we used a Questionnaire form asking financial executives for their opinions on Risk Management in the current business environment. Following the Survey Questionnaire that was sent to respondents via Email and the responses received from them on the same, the report hereby makes an attempt to present the findings with the help of charts and Pie diagrams and active discussions on the findings. The research findings are based on the number of complete responses received which was 15 completes of the approximate 70 Email Invites sent for their participation. The strike rate/ success rate of this research strategy and the tool used in the form of a questionnaire is 21%. The Survey findings are summarised below along with a graphical representation of data gathered.

Section One

Section one includes a set of few profiling questions that would help us to classify the Survey respondents amongst a group of respondents. The Classification is based on the Industry type and the total annual turnover of the organisation sites across all the locations worldwide. Respondents are classified under their basic job functions which are risk management within further disciplines namely group risk, market risk, credit risk and operation risk. Respondents represented finance operations, fund management, audit job functions, change management and Technology strategist.

Section Two

Q.1. In your opinion, how much, if any, have recent events including the Collapse of Lehman Brothers, Merrill Lynch, Northern Rock and Madoff Scandal changed your company’s financial prospects over the next 12 months?

On their opinions on the most recent market turbulence, when asked how well did the recent events change their company’s financial prospects over the next 12 months? 50 %( 5/10*100) of the respondents replied with a extremely well reply and 20 % (2/10*100) replied with very well response. So if we add the responses that said either extremely well or very well it is 70 % of the respondents saying these recent events have had some impact on their financial prospects over the next 12 months. 30% replied with neither good nor bad, means that they perceive these events are not going to make any changes to their financial prospects over the next 12 months, with no response on very or extremely poor that is they are pretty sure that their company’s financial prospect is likely to be affected as a result of any of the above mentioned events.

Q.2. Have these recent events made you more or less concerned about which of the following issues at your company?

All the respondents expressed their concerns on these recent events depending upon their level of priority to those factors. When asked to highlight two most important issues the most common issue was the ability to access short and long term financing i.e. 70 % (7/10*100) and that was followed by risk management with 40 % (4/10*100). The third most important factor or concern was long term viability of firms operations or outsourcing strategy and employee layoff processes which means companies being compelled to lay off staff because of budgetary constraints. A number of respondents expressed their concerns about their own firm’s risk management practices and the ability to meet strategic plans. This suggests that business executives regardless of the industry perceive a need to invest in risk identification, measurement and management procedures.

3. Which of the following contributed to the current financial crisis in your opinion?

When asked for the major cause of the financial crisis, the response from finance executives was quite predictable as they themselves were also a part of the whole drama. The respondents rated highest for risk management practices at banks and other financial institutions with 40 % (4/10*100) and Complexity of financial instruments being rated at 30 % (3/10*100). The rest of the responses were even for financial market speculators and irresponsible homebuyers together contributing 30 % (3/10*100). Half of the total number of respondents state that they saw a more comprehensive involvement of the board of directors in implementing risk management practices in the recent past. Moreover, some rated good points on the employee level engagement to abide by the risk management practices in the firm. In addition, around 20% of the respondents expressed their concerns on access to short -term capital.

About half of the total responses received from the survey reveal that the finance executives account poor risk management as a major contributor to the Global financial crisis. Rest had common views on issues like complex financial instruments and financial market speculators.

Section Three

Q.1. Which of the Following Best Describes the Risk Management Strategy in your Organisation?

In this section when asked to respond on the risk management with in their organisation the following responses were received. Of all the responses received surprisingly no company answered that they do not have any form of risk management strategy. Of the responses 50 % (5/10*100) state that they have a well formulated and communicated strategy in place and 30 % (3/10*100) responses state that they have policies in place but they are not supported or is committed by the top management, whereas 20 % (3/15*100) of the responses state that they weren’t sure of the level of strategy in place.

Q.2. which of the following Regulatory authorities for Risk Management are you aware of?

With Regards to Compliance priorities the respondent’s awareness of the regulatory authorities for risk management was as follows, 70 % (7/10*100) respondents know well about Basel II and consider it as a number one priority, and 60 % respondents are aware about Sarbanes – Oxley (SOX) (6/10*100) and consider it as a number two priority for compliance purposes.

Q.3. Does your Organisation have written or otherwise formalized policies and procedures that set forth a system for the management of risks?

Firms with a formalized and written procedures and policies for the management of risks were rated as 40 % -Yes and 60 % as No. Among the number of respondents who replied as yes, the goals of the system include constant monitoring of various organisations risks that would enable smooth earnings for firms. Among the firms that do have formal policies, some of the stated goals are as follows:

Follow Conservative funding and cash management strategies, which ensure adequate liquidity under extreme adverse market conditions and maintain a highly liquid balance sheet and significant cash equivalents to ensure immediate funding availability.

Q.4. Is this system reviewed on a regular basis?

On asking whether the system is reviewed on a regular basis, respondents who answered yes, they review the system on a annual basis, with the Board of Directors making approvals on the policies and procedures review.

Q.5. Does your firm have a particular funding system or strategy in the event of a “liquidity crunch”?

Of the responses received on asking whether they have funding system in place during liquidity firms stated that their funding and liquidity policies and procedures are reviewed annually with the rating agencies. Firms indicated reliance on the parent entity without any further procedures in place or measures to be taken in the event of a “liquidity crunch”. Others limit their strategy to the maintenance of a certain liquidity cushion, which is deemed sufficient in the event of market stress. Another firm has a contingency financing plan in place in response to the financial crisis, and the CFO of the company reviews it on a semi annual basis.

Q.6. What according to you are the Benefits of Practising Risk Management at the Enterprise Level?

When asked to respond to the benefits of practising risk management at the enterprise level, the respondents rated reduction in losses as the most important benefit with 60% (6/10*100), with the second most benefit being greater levels of compliance with 50% (5/10*100).

Q.7. What are the important factors that drive the development of Enterprise Risk Management in times of financial difficulties?

The important factors that drive development of ERM in times of financial difficulties rated No.1 Increased shareholder pressure for better governance highest with 60% (6/10*100) and No. 2 Compliance with International and Domestic Regulations at 50% (5/10*100)

No.3 Concerns over increased levels of credit losses at 30% (3/10*100)

No.4 Internal and external best practices benchmarking exercise at 20% (2/10*100)

No.5 other factors at 10% (1/10*100)

Q.8. How well designed and developed is your current Risk Management system?

Most of the responses received in the survey revealed that they have fully up to date systems and they are satisfied with them, scoring 67% (10/15*100), while the rest 27% responses revealed that they have their own risk management systems in place for now but would expect to upgrade them in the future. Just the last 6% of the responses received state that they are looking for a new system with a more comprehensive impact on the company goals and objectives.

Section four

1. Finally the ratings on a likert scale revealed the following results.

Q.1. “Practising Enterprise Risk Management leads to positive performance in business during times of Market Liquidity”

Responses were 70% (7/10*100) respondents strongly agree with the statement, while 20% (2/10*100) rated with slightly agree to the above statement. Just 10% (1/10*100) rated the above statement with slightly disagree. So overall we can measure that very high responses were directly rated as either slightly or strongly agree i.e. a positive response to the question under consideration. Eventually all the firms have understood the importance of enterprise risk management during the recent market liquidity crisis.

Q.2. “There should be a strong and a dedicated support of the senior management for effective implementation and functioning of ERM”

Of the total number respondents 50% (5/10*100) agreed strongly with the statement and 40% (4/10*100) agreed slightly with the statement, whereas 10% (1/10*100) respondents replied with neither agree nor dis agree with the statement. So again the majority of the responses were strongly or slightly agree and a single response with neither agrees nor disagrees with the above statement. Highlight here is that there is no response received that states any level of dis-agreement to the statement.

Q.3. “The Risk Management strategy adopted by your company is Solid and Dependable even during financial crisis”

Responses received state that 40% (4/10*100) of the survey respondents replied with strongly agree to it, 30% (3/10*100) of the responses stated that they agree slightly to the statement. 20% (2/10*100) of the responses state that they slightly disagree and the rest i.e. 10% (1/10*100) were neutral with neither agree nor dis agree with the statement.

Findings from the study show the commitment and support from the top management to all parties concerned. The respondents involved in the survey strongly suggested that the management overall must be able to demonstrate their concerns on various Risk Management issues. Importantly, they have to develop and promote an environment of support and be more conscious about risks.

The respondents surveyed also suggested that all Risk management activities, which are being carried out by companies, should be structured and ought to assist them in minimizing future expected losses. Companies should be able to appreciate the justification of adopting and implementing the ERM Program as it undoubtedly adds value to the company and shareholders. They asserted that the practice and application of ERM should not be done just for compliance purposes only.

Answering the Research Question
Does the Management make visible commitment to the use of ERM?

On the basis of the Data gathered and the empirical findings reported in this research, the research question which is under consideration can be answered to an extent that particularly, when there was a credit bubble in the market and the banks and other financial institutes had sufficient capital within their reserves they initially did not treat the concept of practising enterprise risk management as an essential function to be practiced as a compulsion, but there after once there was a bust in the credit markets and when the credit markets tightened and with a heightened need to comply with the regulatory authorities and compliance bodies there was an immediate transformation of the importance of ERM within companies. The scandals – and other risk management deficiencies that have come out during the financial crisis – are prompting financial institutions to re-examine their risk management strategies and systems. As most of the respondents appreciate that these recent events have changed their companies financial prospects and there is a high concern amongst the management to access both long and short term capital from the market and also the risk management practices within the organisation. As the literature suggests that ERM should be bought from the boardroom which involves just following a common practice of ticking the boxes as per the set procedures to ensure relevant measures are taking place to fight with liquidity and financial meltdown, and to bring it back into the compliance function with every single person accountable to it. Respondents highly rated that they have a well formulated and communicated strategy with clear timetable for implementation from the board of directors and senior management. Our survey findings reveal that respondents who believe that the management in their company makes visible commitment to the use of ERM is at 50%, with just 30% reporting back of a loose concept in place. Overall we can conclude that as a result of the global financial market turbulence the visibility of the top management’s commitment and involvement towards practising enterprise risk management has increased significantly.

Are the business leaders aware of the risk mitigation systems and policies for an active discussion on Progressive Business risks?

To begin with answering this question firstly we look at the responses to the question of “which of the following regulatory authorities of risk management are you aware of?” and analysing the responses to this question reveal’s that almost 3/4th of the total number of respondents are fully aware of Basel II – which is the second of the Basel Accords, which are recommendations on Banking Laws and Regulations issued by ‘Basel Committee on Banking Supervision’. The purpose of it being to create an International standard that banking regulators can use when creating regulation about how much capital banks need to put aside to guard against the types of financial and operational risks banks and financial institutes face. Apart from the Basel II regulation the second most response received was awareness about Sarbanes-Oxley at 3/5th, which was introduced to guide major changes to the regulation of corporate governance and financial practice which sets a number of non negotiable deadlines for compliance. Apart from their full proof knowledge of the compliance bodies, only 3/5th of the respondents said that they do have a formalized procedure in place to deal with management of risks. They also mentioned that the system that they have in place is reviewed either every quarter or annually by the board of directors. One of the response received states that they are reviewed by the FSA for the management of risks they deal with in Business. In order to deal with the financial ordeal the companies have also set up a contingent funding policy to mitigate the unanticipated negative earnings. Therefore from the above discussion we can come to a conclusion that business leaders are aware of the risk regulatory authorities and policies in place and when and by whom is this system reviewed. Therefore for any further market disruption we can expect that the businesses would be better prepared to take immediate actions to evade their losses.

Are the Risk Management practices adopted by the Senior Management in assessing the Enterprise Risks solid and dependable during the Period of Market turbulence and Whether Individual firms have an effective, formal risk assessment practice in place?

While answering this question we look at the analysis for the question ‘How well designed and developed is your current risk management system?’ and the responses received suggest that 70% of the respondents believe that they have their risk management systems in place which are fully up to date and they are completely satisfied with it, agreed but the rest 30 % of the respondents would either expect to upgrade the system in the next 12 months or would adopt a new risk management system altogether. This 1/3rd piece of the whole pie needs to focus their risk management initiatives and align their goals within the system to achieve their ultimate objectives. When asked to rate the level of agreement on whether practicing risk management leads to a positive performance during times of market liquidity, responses revealed that number of respondents with a positive response to the statement who either strongly agree or slightly agree with the statement was 90% that means that the senior management views it as an important discipline, With regards to the dedication and support of the management for implementing and practicing ERM within companies again 50% respondents agree strongly while 40% respondents slightly agree with it, means that according to them practicing risk management leads to a positive performance in business and there should be a strong and dedicated support from the management. The level of agreement was again high with 40% responses strongly agreeing with ‘ The Risk management strategy adopted by their respective company is solid and dependable even during financial crisis, but the rest 30% slightly agree with the statement and 10% neither agree nor dis-agree with it and 20% disagree with the statement. This reveals that not all the companies have confidence in their risk management strategies to deal with the financial crisis. Although in recent months, many financial institutions have been focused simply on staying alive, Morgan Stanley is one that has initiated a plan to increase its risk management staff, viewing the turbulence as a historic opportunity to recruit professionals in the field.(Financial Times – Hal Weitzman)

Further recommendations

Following the study of the literature and findings from the primary research, this report hereby makes an attempt to present some recommendations to help enhance the risk management function more effectively in the future.

Based on the issues identified by the empirical findings, it is recommended to consider the following:

To begin with, a high priority action should be to bring risk management back from the compliance function into the boardroom. The acting board members and the management should primarily create a strong culture of reporting and practising effective risk management within all the employees irrespective of their job roles or responsibility.

The Management should assess the organization’s risk management capabilities with the chief executive’s participation in it and helping to bring together department heads and key functional staff to discuss an initial assessment of the enterprise risk management, its capabilities, functionalities and effectiveness to the organisation.

The team should be vigilant about where the risks can come from and conduct an annual risk assessment exercise that defines key risks and weighs probability and impact on business drivers.

The chief risk officers must evaluate the organisation’s ability to manage the risks that they identify and in particular ensure that the risk management process is always linked to the actual risks that the business faces at a given point in time. Whatever the form, an initial assessment should determine whether there is a need for, and how to proceed with, a broader, more in-depth evaluation of the problem and the way to deal with it.

They should enhance their capability to be proactive in identifying these risks with a rigorous and disciplined approach. The attempt of practicing ERM across all sections of the organisation and having risk culture embedded in the organisation’s internal culture are ultimately the driving factors in order to avoid the high value risks during financial downturn.

Limitations associated with research

The analysis of the answers to the questionnaire revealed some areas where further research is desirable, either because of incomplete answers or due to important topics not covered in the questionnaire, and because of its very nature the focus, being on risk management at firm level and there remains room for improvement. This study provides a valuable insight of ERM as an important concept of managing risks on an enterprise-wide basis among major corporations. Such a concept is a value added tool in enhancing the economic value of the business enterprises involved in the industry survey conducted as part of the research work.

Conclusion

As stated at the outset, the purpose of this paper is to promote awareness of the need of sound risk management and related internal controls at financial firms. It highlights particularly commendable practices and identifies areas for improvement for the firms.

To summarize, the almost unprecedented nature, depth, and duration of the current market turmoil have raised major challenges for nearly all major participants in the financial markets including major investment banks and mortgage bankers. Under such an environment, participants face increasing pressure to understand the risks they face, to measure and assess such risks appropriately, and to take the necessary steps to reduce, hedge, or otherwise manage such risk exposures.

The turmoil in credit markets underscores some important principles for risk management, including the value of proper risk identification and measurement, the need for robust and objective valuation methods, the importance of preparing for liquidity disruptions, and the critical role of strong oversight by senior managers. Recent events have also demonstrated the importance of generous capital cushions for protecting against adverse conditions in financial and credit markets.

Therefore, with renewed attention to these principles and the restoration of strong incentives for sound risk management, institutions should be able to overcome the difficulties we have seen in the recent application of the originate-to-distribute model and begin to use it successfully again. Equally important, improvements in banks’ risk management will provide a more-stable financial system by making firms more resilient to shocks. Supervisors must insist on effective risk management and provide as much support as possible for the implementation of needed changes.

The results from this research study are very encouraging and have demonstrated that firms have begun to devote time and resources to addressing the area of risk. The survey has resulted in conclusions that are applicable multinationally. From observing the practice of firms, it has been possible to derive a certain number of principles for sound management of firm risks. This paper has attempted to highlight commendable practices while drawing out areas where certain firms could benefit from devoting greater attention and care.

Given the current economic environment and credit crisis, as well as the far reaching and serious challenges it provides to the banking and financial services industry, it is clear that addressing issues that causedthe crisis require the establishment of processes to identify these risks before they create problems in the future. Although the problems that causedthe credit crisis are complex, they highlight the fact that senior management did not fully grasp the scale and complexity of risks. Without over simplifying these issues, it appears that the starting point for avoiding these issues going forward requires the implementation of enterprise risk systems that identify, monitor and address risk.

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The industrial revolution: college essay help online

The industrial revolution

The Industrial Revolution of the 18th century had profoundly altered the socioeconomic and cultural conditions of the world, thus increasing the need for a more effective and efficient method of managing resources (Robbins & Coulter 2005, p.27). As a result of this need, the principles of management have been subjected to constant evolution in order to cater to the changing times. This essay will explore the concept of ‘management’ by comparing and contrasting the various meanings of management, as well as the various interpretations of a manager’s role, from both the traditional and modern perspectives.

Popular academic opinion on the definition of ‘management’ has been varied throughout time. This is largely due to the economic transition from a manufacturing industry to a service industry; hence requiring different approaches for different management scenarios. A traditional approach would be that of Frederick Taylor’s definition that management is ‘…knowing exactly what you want [people] to do, and then seeing that they do it in the best and cheapest way.’ (Davidson, Simon, Woods & Griffin 2009, p.8). Similarly, Follet and McGregor (as cited in Rasberry & Lindsay 1994, p.13) assert that it is an activity carried out by a set of individuals, in which human relationships are central to an organisation’s success. However, some critics may argue that the definition of ‘management’ looks at the whole picture, not solely on employees as suggested by Taylor, Follet and McGregor (Shead 2007). For instance, Albanese (as cited in Robbins & Mukerji 1994, p.7) depicts management as a means to reaching the goals of an organisation through employing and influencing resources. The author further commented that scarce resources, both human and non-human, should be utilised collaboratively to accomplish more work. Thus, Davidson et al (2009, p.9) summarises that it is the process in which managers intend to achieve the organisation’s aim by using an efficient and effective contrivance.

Traditionally, a manager’s job scope was primarily defined in accordance to Fayol’s functions of management: planning, organising, leading and controlling (Schemerhorn 2005, p. 19). Although these management activities may seem simple, it is a multifaceted practice in reality (Schemerhorn 2005, p.34). Several critics, particularly Woodward, Burns and Stalker as well as Lawrence and Lorsch were amongst the first to identify variations in managerial roles which are indispensable in differing circumstances when implemented (Mumford). For instance, Stewart had commented that managerial activities mostly include interaction with others; which is contrary to Fayol’s principles wherein he concentrates more upon the planning process than any other functions. Although there are significant differences in opinion, Stewart and Mintzberg both agree with Fayol, stating that planning is crucial for an organisation’s success, though not the main crux of managerial functions.

Correspondingly, Mintzberg dismissed Fayol’s classical theory as “folklore” in his book, stating that the four principles proposed cannot be linked to specific activities. The author had then identified three categories in which a manager does on a daily basis: interpersonal, informational and decisional (Williams 2009, p.18). His successors, Carlson and Sayles also describe that there are no obvious indications of human behaviour within the classical school of thought, such as relationships and communicating with employees. Mintzberg further suggested that Fayol contradicts himself in relation to the unity of command and scalar chain principle, in which one person only takes orders from one superior. For example, a salesperson only receives commands by the store manager but not from the Chief Executive Officer of the outlet. This neglected the concept of interpersonal roles wherein a manager acts as the figurehead, leader, as well as a liaison between upper and lower management (Abdullah 2001, p. 40). As a result of these contradicting principles, Mintzberg advocates that Fayol’s principles do not reflect the reality of cross divisional communication. Hence, the essence of the critique against the classical management school of thought is that they are prescriptions about what managers ought to do, which bear no relationship to the reality of what managers actually do.

Furthermore, managers in an organisation do not only perform tasks such as planning, organising, commanding and leading; they also execute their responsibilities by building networks, establishing values and norms, as well as motivating and controlling subordinates (Kotter as cited in). According to Kotter, “the efficiency of seemingly inefficient behaviour” is evident in the results of his research, which involved observation, interview, questionnaires and a collection of documents in which most managers actually engage in conversations to react to the day’s needs rather than planning their days in advance. Managers often “… engage in attempts to influence others by asking, requesting, cajoling, persuading and even intimidating…” rather than through the delegation of tasks consistent with the employees’ positions and capabilities, as suggested by Fayol. Similarly, Isenberg found that senior managers constantly deal with a context of ambiguity, inconsistency and surprise. Therefore, it can be concluded that managers work on a network of interrelated problems, not on neatly identifiable and separate problems.

As a conclusive statement, this essay adopts the definition of ‘management’ as being an activity wherein a manager plans, leads, organises and commands through interpersonal, informational and decisional roles in order to achieve the organisation’s aspirations. The transformation of the world of business and work as we know it is apparent, as traditional methods were substituted by new practices and viewpoints. Classical theorists like Fayol have been criticised and misunderstood as ‘closed’ systems because they only concentrate on internal factors within an organisation; however, they still carry slight similarities with the ‘systems approach’ derived by theorists such as Mintzberg and Stewart in the 1980s. Therefore, it can be said that the very core of Fayol’s principles has withstood the test of time, and has served as the foundation of modern management theories. Contemporary theorists such as Mintzberg and Stewart have merely built their theories around Fayol’s; serving to improve or adapt his principles to modern-day requirements, and not to replace or overwrite his traditional principles. Academia would however have to ponder upon whether the current contemporary modern theories are time-resistant and stand at the zenith of management principles; or whether there is still room for further improvement or evolution.

The marketing plan: college essay help

The marketing plan

Coursework Question and Requirements

This topic area has two parts to the coursework assignment.

A written marketing plan report (80%)
Banking Simulation (20%)

a) The written marketing plan report (80%)

You are the business manager of a UK retail bank. You have convinced your CEO to launch an “online residential mortgage lending product” in UK market. Your CEO likes your idea and has asked you to compose a detailed marketing plan for this product.

The marketing plan should not be longer than 2500 words excluding appendices. This is an individual assignment, and must be submitted by the 22nd March 2010.

Possible format of the marketing plan:The students may use the following format for their marketing plan.

Executive Summary

Simplicity
Sufficient information to make decision
Maximum 1 page

Situational Analysis

UK Market analysis
Product & Technology Analysis

SWOT Analysis

Competitor analysis
How to exploit opportunities
How to handle weaknesses

Marketing Research

Required information
Research methodologies

Marketing Strategy

No. of Advertising strategies
Measurement of strategies

Implementation

Realistic implementation schedule
Approximate human resources
Critical paths
What if’s scenario

Financial Summary

Breakdown of marketing cost (Excluding software development)
No. of clients
Approximate Revenue estimate of next three years

Controls & Measurement

How would you control the product launch
Measurement metrics of your estimate

Assessment criteria for the marketing plan:

Assessment criteria

0-39

40-49

50-59

60-69

70-100

– Evidence of graduate level critical and analytical thinking

-Appropriate use of relevant theoretical frameworks/financial model

-Evidence of wider reading/research with citations

-Articulation of the concepts

– Style and presentation

Not applicable to the plan

Limited in Scope

Satisfactory

Good

Excellent

b) Banking Simulation (20%)

The team of five students will play banking simulationagainst each other every week in a seminar and make an executive presentation to defend their strategy, profit and operations management. The presentation will be conducted in late April 2010, (timings to be agreed) and each team will be given 15 minutes to present their performance of 5 years along with evidence of any analysis that they have conducted. Included in the presentation is a requirement to demonstrate that the team has critically analysed and evaluated the chosen banks mix of services and products, growth strategies and the team’s recommendation for improving the banks business performance.

Assessment Criteria: The teams will be assessed against other participating teams on the following criteria:

Profitability (Profit After Tax)
Their leadership strategy
Return on Capital and Assets
Appropriate Capital adequacy and Required reserve

BITE MBA BANKING & FINANCE Strategic Finance

This banking simulation provides participants with the opportunity to manage complete commercial bank operations; making decisions covering funding, marketing, business development, staffing, quality and productivity improvement. And, in doing so understand the issues associated withrunning a complete bank, develop business acumenand theirknowledge of finance.

The minds collective programming

The minds collective programming

INTRODUCTION:

Organisation’s culture is the organisation’s personality. Organisation’s culture is the mind’s collective programming that distinguishes an organisation’s members from other organization’s members. (Black, 2003 p.16)

Culture involves theorganisational members’ assumptions, tangible signs and behaviors. An organisation’s culturecan be equated with a system where the inputs may involve the feedback from professions,heroes, societies, stories, laws, values on service or competition, etc. the culture is based on ourvalues, norms and assumptions. For instance, how we value money, space, time, people, orfacilities (Parker, 2000).The effects or the outputs of our culture may include the technology,image, behaviors in the organisation, strategies, appearances, services, products etc. According to Schein (2004), culture is a dynamic phenomenon which surrounds us all the time and which is created and enacted through our interactions with others and which is shaped by the behaviors of our leaders, norms that guide and restrain behavior, a set of structures, routines and rules (McNamara 2010). When culture is brought to the organisation’s level and even to the organisation’s members, one is able to witness how it is evolved, embedded, manipulated and created also how culture stabilises, provides meaning, constrains, and provides structure to members of a group. These culture’s dynamic processes of management and creation are the essence of leadership (Schein, 2004).

Organisational culture involves shared basic assumptions that are learnt by a group as they solve their external adaptations as well as their internal integration problems and which have been working well and are considered valid for teaching of new members as the best way to think, perceive and feel in a relationship with those problems (Organisational change, 2005). As organisations evolve over time, they are faced with two basic challenges: individual integration into an effective whole; and effective adaptation to external environment for survival. As groups try to find solutions to problems over time, they get engaged in learning collectively which then creates the pattern of shared beliefs and assumptions normally called culture. According to Morgan (2006), culture is a phenomenon which is living and through which people create and recreate jointly the worlds in which they live in.

According to Morgan, cultural elements of an organisation are: values, unstated and stated; obvious and implicit expectations for behavior of the members; symbols and metaphors which may be unconscious but are found in other elements of culture; climate, this involves the feelings that are evoked as a result of members interaction with their environment, the outsiders and each other; myths and stories of the group’s history; shop talk, this is the normal language that the group uses in and about; and rituals and customs (Organisational change, 2005).

Each and every organisation has its own personality and for the organisation to ensure its success for a long time there is need for its culture to be effectively managed. The culture management processes are designed to facilitate firms in defining their culture and to help them understand its effects on organisational success and behavior (Black, 2003).

APPROACH TO MANAGEMENT OF CULTURE

An organisation’s culture management contributes highly to its long term success. Management of culture focuses on: identification of what culture is and what an organisation thinks or says it is; determination of what culture should be in order to promote the consistent of behavior with the goals of the company; plan development on how to take the organisation from its original position to a position where it needs to be in accordance with its culture. (Management Systems, 2004)

MANAGEMENT OF CULTURE IN AN ORGANISATION

An organisation’s culture contributes to its profitability and success on a long term basis. This is why it is very crucial to manage organisational culture. For effective culture management, an organisation needs to follow the following:

Collect data. This is information collection about a firm’s systems and culture, structures and the processes that support it. This information can be collected through conducting interviews on a one on one or sessions with a few selected employees who will help identify the nature of the firm’s culture. A culture survey can also be conducted on a large sample of employees. Surveys about an organisation’s development can also be conducted to help identify the degree of the problems experienced in a company with respect to its structure, systems and management of culture process.
Analysis of data and report. The data collected is analysed and synthesised. A report is then prepared which outlines the firm’s real current culture, the gaps between a firm’s current and the desired culture, the firm’s structures, processes and systems that are in support of the current culture and that may reinforce or obstruct the desired culture, recommendations that are designed to increase effectiveness of an organisation and improve the desired culture management.
Findings presentations and discussions. This entails a culture workshop designed to help participants to understand what culture is; to understand their firm’s current culture; to create a statement of the desired culture of their firm; to begin to develop steps with actions for effective management of their firm’s culture. (Management Systems 2004).

To keep the employees aligned with the goals and values of an organisation, the leaders

need to create a culture that will encourage employees to keep focus on their works higher purpose. The key is to create an environment where the employees value and enjoy their work. It is of importance to understand an organisation’s culture. To create a successful culture a positive environment needs to be created (Alvesson, 2002).

MANAGEMENT OF CHANGE IN AN ORGANISATION

Management of change entails a plan which is well thought of, implementation that is sensitive and above all involving and consulting the people whom these changes affect. When a change is forced on people it normally creates problems. The proposed change must be achievable, measurable and realistic (Burnes, 2004). Before an organisational change is initiated certain questions have to be evaluated by the people instigating it: what achievements will be realised by the change; the reasons and the means of knowing that the change has been attained; the people who will be affected by the change and their possible reactions towards it; the degree of the change that can be achieved and the part of the change where help may be needed (Chapman, 2009).

Selling change to people in order for a quick agreement or implementation is not a good

strategy for sustainable success. Instead, it is good for change to be understood and to be managed in such a way that the people involved will effectively cope with it. It is important to consult on the intended change so that the reasons for change can gain support (Durbrin, 2008). When other people are informed and consequently involved in the change enhancement, the burden of change is lightened as the organisational load is spread creating an ownership and familiarity sense and an opportunity for the people affected to get involved in the planning and implementation of the change. According to Chapman (2009), change is very unsettling and so it will be logical for the manager to be a settling influence. The manager should also check that those people to be affected by change are in agreement with it or can at least understand why the change is inevitable and have a chance in decision making in the management of change and to get involved in the change’ planning and implementation (Mehrabian, 2009).

When handling change management of organisational aspects that are deemed sensitive, it is advisable to use face to face mode of communication as notices that are written or emails are very weak at conveying or making people understand (Chapman, 2009). When a quick change is needed one has to consider whether the urgency is real, and whether the presiding effects due to limited time frame will be more disastrous than the change itself. Quick changes lack proper involvements and consultations which may lead to more difficulties that will take a long time to be resolved (Keyton, 2005).

For those organisation’s change that entails new actions, processes and objectives to involve a team or a group, Chapman recommends use of workshops in order to achieve goals that are measurable, achieve understanding among the involved people, their commitments, actions, plans, and involvement. These change principles are applicable even on those changes that are considered to be very tough like organisational closures, making people redundant, organisational mergers or acquisitions. When delivering bad news, careful management change is much needed than the routine change. Managers should not deliver the news via memos or through their assistants, it is good to consult and help the people involved understand, this does not make the managers weak rather it strengthens their position. Those leaders who do not consult or fail to involve people in bad news management are perceived to lack integrity and to being weak. When people are treated with respect and humanity they tend to reciprocate the same (Chapman, 2009). The change leaders should be mindful that most staff have the change as their chief insecurity. People react differently to change and this may put the organisation’s operations in jeopardy if not well managed. As a rule for the directors and the senior managers who are responsible for organisation’s change management, they should not fear the change, they should thrive on it. People do not delight in change, it is rather threatening and deeply disturbing, it is equivalent to one’s fear of failure (Chapman, 2009).

CHANGE MANAGEMENT RESPONSIBILITY

It is not the employee’s responsibility to manage change. They are however, charged with the responsibility of doing their best which varies depending on one’s experience, maturity, motivation, health, personality, stability etc. it is the organisation’s management and executives responsibility to manage change and to do it in such a way that the employees will be able to cope with it. Facilitation and change enabling is the manager’s responsibility and everything that entails change especially objectively understanding the situation i.e. not to be judgmental and to help the staff understand the aims, and reasons for change and ways to positively respond in accordance to staff’s capabilities and own situations. The role of the manager should be communicate, to interpret and to enable as opposed to imposing and instructing which nobody responds well to (Chapman, 2009).

CHANGE IMPOSED AND CHANGE INVOLVEMENT

When expressions such as mindset change or changing attitudes of people are used, they often indicate an intention to enforce or to impose change. It also strongly implies that it is the belief of the organisation that its staff members have the wrong mind set which is always not the case. If the staffs are not effectively approaching their tasks or the organisation, it is the organisation which has the wrong mind set. New systems and environments are created due to change such as new policies, disposals, structures, relocations, acquisitions and targets which people need to be explained to in the earliest possible time so that they can get involved, validate and refine them. There always result to difficulties when new things are imposed on people by an organisation (Change Management 2010).

It is very important when an organisation communicates openly in full and early on the impending changes and gives a chance to the staff to participate and get involved. When an organisation requires to develop a collective approach, method, idea, understanding or a system, organising workshops is the best way to achieve this (Workshops, 2009). It is also advisable that an organisation conducts an anonymous staff survey which should be published and the findings acted upon in order to repair damage and mistrust among the staff. Managers are very important to the process of change to not only implement and convey polices from above but also to facilitate and to enable the process. Change should not be imposed on any one, instead there should be empowerment of people to facilitate them find their own responses and solutions with their manager’s support and facilitation as well as the executives and leader’s compassion and tolerance (Khan, 2005) The clever policies and processes of an organisation are not as important as the behavior and style of leaders and managers. There is a dire need for the organisation to be able to be trusted by their employees. If these change ideas are not worked upon by the leaders, there is likelihood of a painful change and even of loss of the beat people in the organisation.

PRINCIPLES OF CHANGE MANAGEMENT

According to Chapman, there are five principles towards management of change. These are: involving and agreeing to be supported by people within the system. The system may consist of the environment, culture, processes, behaviors, relationships etc; understanding where the organisation is at the moment; understanding where the organisation wants to be, the reasons for being there, when, and the measures to be taken once got there; planning development in the proper achievable measures; and communicating, enabling, involving and facilitating people’s involvement in the most open and earliest time possible.

PEOPLE AND CHANGE

People generally have a strong resistance towards change. The change leaders are required to have a lot of patience and tolerance in order to help people go through change and may be look at it in a positive manner. The change leaders also need to be mindful of people’s weaknesses and strengths as not everyone will welcome change. The leaders should take time to understand the people they are dealing with and how and the reason they feel the way they do before taking an action against them (Cameron & Quinn, 2005).
SUCCESSFUL CHANGE

According to Kotter (2005), successful change has eight steps these are: Urgency increase, this involves inspiring people to move and making the objectives to seem relevant and real; building the guiding team, this is getting the right people with the right mix of levels and skills and who are committed well emotionally; getting the vision right, this is getting the change team to have a simple strategy and vision and to focus on the necessary aspects in order to drive efficiency and service; buy in communication, this is communicating the essentials and involving as many people as possible and appealing and responding to people’s needs, involves also making the technology work for you rather than against you; empowering actions, this involves removing obstacles and enabling feedback and support from the leaders. Also involves recognition of achievements and progress; creation of wins that are short term, this involves setting goals that are easily achievable, initiatives that are manageable and finishing whatever one is working on before starting on another one; not to let up, this is encouraging and fostering persistence and determination, giving a report of the progress by highlighting the achieved and future goals; making the change to stick, this is by reinforcing the significance of the successful change through new change leaders, promotion and recruitment. Transform change into culture (Kotter, 2005).

CONCLUSION

People generally have a strong resistance towards change. The change leaders are required to have a lot of patience and tolerance in order to help people go through change and may be look at it in a positive manner. The change leaders also need to be mindful of people’s weaknesses and strengths as not everyone will welcome change. The leaders should take time to understand the people they are dealing with and how and the reason they feel the way they do before taking an action against them.

An organisation’s culture is the organisation’s personality. Culture involves the organisational members’ assumptions, tangible signs and behaviors. An organisation’s culture can be equated with a system where the inputs may involve the feedback from professions, heroes, societies, stories, laws, values on service or competition, etc. the culture is based on our values, norms and assumptions. For instance, how we value money, space, time, people, or facilities. The effects or the outputs of our culture may include the technology, image, behaviors in the organisation, strategies, appearances, services, and products.

It is not the employee’s responsibility to manage change. They are however, charged with the responsibility of doing their best which varies depending on one’s experience, maturity, motivation, health, personality, stability etc. it is the organisation’s management and executives responsibility to manage change and to do it in such a way that the employees will be able to cope with it. Facilitation and change enabling is the manager’s responsibility and everything that entails change especially objectively understanding the situation i.e. not to be judgmental and to help the staff understand the aims, and reasons for change and ways to positively respond in accordance to staff’s capabilities and own situations.

The objectives of sony: essay help free

The objectives of sony

The Objectives of Sony (Interest)

Sony announced its "Environmental Vision Towards Sustainability”. This vision expresses high level of Sony’s objectives (Green Management 2002). Now days stoke holders and consumers were more concerned in environmental issues. Companies are rated by the environmental measures and Socially Responsible Investments (SRIs).Many countries are charging environmental taxes and schemes to CO2 emission rights.Eccomic terms the environmental policy have higher importance now days.

Sony realized the importance of sustainable economy, Sony introduced a new strategy to combine economy and ecology together in management policy.

"Environmental Vision Towards Sustainability" (http://www.sony.net/) 2009

Vision

Sony understand that global environment development is the most important subject for the humanity in this 21st centaury. Sony’s main are, continuous technological innovation and initiatives of new

Marketing must be the most priority of the company
Client views are most important than the company view
Focussing on the future and Investing
Should be patient after done all these.

1, Corporate Citizenship

Sony has wide range of responsibility towards the society . Sony is one of the worlds corporate organisation which give desired respect to their employees . and also help their employees to develop their knowledge by varios learning methods like organising training program ,orientation towards new products etc. Sony also show high levels of co-operate integrity to both stakeholder and society. Sony has always a keen view of their importance in local as well as global environment ,which allow the active participation in the different region of the world in the sense to become a good corporate citizen

2. Business Planning

Sustainability and performance is the key factor of their prior consideration in planning a new product and services. creating new business models is to decrease their environment impact and to move forward to attain a sustainable growth

3. Research & Development

The main And objective of Sony international ltd, is to develop a new technology which can contribute towards the improvement of our society, They will also aim to increase their productivity and the product performance and services to make them sustainable and to access high quality concept.

4.Product Design

Sony is applying its creative technology principle to design all their product and services in the sense to meet the environmental benefits. All their product has been designed in such a way to reduce their technological impact on the environmental through out their life period , Sony also focus their attention towards reducing electronic wastes which is very harmful to the human life

5.Manufacturing Process and Site Management

Sony continuously focusing its entire concentration in environmental management through improving their sites both at manufacturing and non manufacturing and tired to move towards zero emission production .Sony is implementing technological innovation and environmental management to reduce its impact on environment while manufacturing their products.

6 Distribution, Sales, Marketing,

Sony marketing is mainly based on their product qualities. Sony has tried to reduce their impact on environment in almost all their processing sectors like packaging , distribution. They successfully includes all the vital information for the costumers in their products

7. Post-use Resource Management

Sony gives the more value to the customer services. They entertain their customers with varies take back or reuse policies which will help to re- use their product and also to covert the waste in to the useful resources

8. Information Disclosure and Stakeholder Communication

Sony always discuss the matters all its products and other matters with stake holders and also disclose all its information details in a form that is accessible to public they also consider the suggestion of the staff and opinions of the stake holders and take effort for a detail evaluation to improve their products and performance

9. Risk, Health and Safety Management

The Sony also focus the attention towards health and safety problems that arise during the manufacturing of their products. They also focus their concentration in all the management part to rectify it. Their aim to reduce the accidents and causality to zero. Sony will discuss the risk factor with stakeholders and public as they realise these measures are the integral part of any business organizations

Sony‘s Swot Analysis
Strength

Electronics

Sony is a well-established and valued brand with consumers, and its products covering a wide range of the entertainment industrial markets.It was on 2004, two group of companies such as Bertelsmann music group and Sony Entertainment made a joint venture known as Sony BMG. With the headquarters in New York, they are operating in more than 46 offices over the world. Their primary aim was to spread their branch over the world through range of distribution channels. The popularity of Sony was its brand image with evident of over 1000 artists catered by them. They have positioned in market as the second largest recording company. Though they had problems with the top positioned executives, they managed well to keep the overall performance in their range. They were focused on customer oriented services and succeeded in introducing artists as many as possible into the market.

Threats
Electronics

The entry of new hi-tech entertainment industries in the competitive market is a real threat to Sony’s present holding position .The main reason is the dramatic technological shift from analog to digital .The successful combination of complex electronic parts helped Sony to access the complicated electronic functions in the analog era. Sony by it’s accumulated expertise took a competitive advantage in designing and manufacturing of electronic parts . In digital era, There was a huge changes happened in technology. The entire complicated functionality had been concentrated into semi conductors and other key digital devices .The semi conductors and other key devices are readily available at affordable rates because of their mass production devices. .this technological revolution has bring great influence in consumer audio visual product markets. This sudden change had immense impact on the Sony products as they were forced to reduce their selling price due to their limited dealers and retailers

Pictures

– DVD format of sony electronics is more than a decade old , so it is showing all the maturation signs and find itself too difficult to compete with latest advance version of other entrepreneurs brand. Sony is working to meet the new challenge with intension to protect its shattered position in newly emerged technological market

Financial Services

– Sony is facing the economic instability due to global economic changes, privatization of postal services, liberalization of insurance sectors , changing policies of banks and other private and government organizations .

Electronics

In the electronic division,there are huge variety of products and specialized market

Audio – Sony has lost its position in the market of portable audio.

The organisations personality

The organisations personality

INTRODUCTION:

Organisation’s culture is the organisation’s personality. Culture involves the organisational members’ assumptions, tangible signs and behaviors. An organisation’s culture can be equated with a system where the inputs may involve the feedback from professions, heroes, societies, stories, laws, values on service or competition, etc. the culture is based on our values, norms and assumptions. For instance, how we value money, space, time, people, or facilities (Parker, 2000). The effects or the outputs of our culture may include the technology, image, behaviors in the organisation, strategies, appearances, services, products etc. According to Schein (2004), culture is a dynamic phenomenon which surrounds us all the time and which is created and enacted through our interactions with others and which is shaped by the behaviors of our leaders, norms that guide and restrain behavior, a set of structures, routines and rules (McNamara 2010, para. 1). When culture is brought to the organisation’s level and even to the organisation’s members, one is able to witness how it is evolved, embedded, manipulated and created also how culture stabilises, provides meaning, constrains, and provides structure to members of a group. These culture’s dynamic processes of management and creation are the essence of leadership (Schein 2004, p. 1).

Organisational culture involves shared basic assumptions that are learnt by a group as they solve their external adaptations as well as their internal integration problems and which have been working well and are considered valid for teaching of new members as the best way to think, perceive and feel in a relationship with those problems (OC 2005, para. 2). As organisations evolve over time, they are faced with two basic challenges: individual integration into an effective whole; and effective adaptation to external environment for survival. As groups try to find solutions to problems over time, they get engaged in learning collectively which then creates the pattern of shared beliefs and assumptions normally called culture. According to Morgan Gareth, culture is a phenomenon which is living and through which people create and recreate jointly the worlds in which they live in. (Morgan, 2006).

According to Morgan, cultural elements of an organisation are: values, unstated and stated; obvious and implicit expectations for behavior of the members; symbols and metaphors which may be unconscious but are found in other elements of culture; climate, this involves the feelings that are evoked as a result of members interaction with their environment, the outsiders and each other; myths and stories of the group’s history; shop talk, this is the normal language that the group uses in and about; and rituals and customs (OC 2005, para. 5).

Each and every organisation has its own personality and for the organisation to ensure its success for a long time there is need for its culture to be effectively managed. The culture management processes are designed to facilitate firms in defining their culture and to help them understand its effects on organisational success and behavior (Black, 2003).

APPROACH TO MANAGEMENT OF CULTURE

An organisation’s culture management contributes highly to its long term success. Management of culture focuses on: identification of what culture is and what an organisation thinks or says it is; determination of what culture should be in order to promote the consistent of behavior with the goals of the company; plan development on how to take the organisation from its original position to a position where it needs to be in accordance with its culture (Management Systems 2004, para. 4).

MANAGEMENT OF CULTURE IN AN ORGANISATION

An organisation’s culture contributes to its profitability and success on a long term basis. This is why it is very crucial to manage organisational culture. For effective culture management, an organisation needs to follow the following:

Collect data. This is information collection about a firm’s systems and culture, structures and the processes that support it. This information can be collected through conducting interviews on a one on one or sessions with a few selected employees who will help identify the nature of the firm’s culture. A culture survey can also be conducted on a large sample of employees. Surveys about an organisation’s development can also be conducted to help identify the degree of the problems experienced in a company with respect to its structure, systems and management of culture process.
Analysis of data and report. The data collected is analysed and synthesised. A report is then prepared which outlines the firm’s real current culture, the gaps between a firm’s current and the desired culture, the firm’s structures, processes and systems that are in support of the current culture and that may reinforce or obstruct the desired culture, recommendations that are designed to increase effectiveness of an organisation and improve the desired culture management.
Findings presentations and discussions. This entails a culture workshop designed to help participants to understand what culture is; to understand their firm’s current culture; to create a statement of the desired culture of their firm; to begin to develop steps with actions for effective management of their firm’s culture. (Management Systems 2004, para. 3).

To keep the employees aligned with the goals and values of an organisation, the leaders

need to create a culture that will encourage employees to keep focus on their works higher purpose. The key is to create an environment where the employees value and enjoy their work. It is of importance to understand an organisation’s culture. To create a successful culture a positive environment needs to be created (Alvesson, 2002).

MANAGEMENT OF CHANGE IN AN ORGANISATION

Management of change entails a plan which is well thought of, implementation that is sensitive and above all involving and consulting the people whom these changes affect. When a change is forced on people it normally creates problems. The proposed change must be achievable, measurable and realistic (Burnes, 2004). Before an organisational change is initiated certain questions have to be evaluated by the people instigating it: what achievements will be realised by the change; the reasons and the means of knowing that the change has been attained; the people who will be affected by the change and their possible reactions towards it; the degree of the change that can be achieved and the part of the change where help may be needed (Chapman 2009, para. 1).

Selling change to people in order for a quick agreement or implementation is not a good

strategy for sustainable success. Instead, it is good for change to be understood and to be managed in such a way that the people involved will effectively cope with it. It is important to consult on the intended change so that the reasons for change can gain support (DurBrin, 2008). When other people are informed and consequently involved in the change enhancement, the burden of change is lightened as the organisational load is spread creating an ownership and familiarity sense and an opportunity for the people affected to get involved in the planning and implementation of the change. According to Chapman (2009), change is very unsettling and so it will be logical for the manager to be a settling influence. The manager should also check that those people to be affected by change are in agreement with it or can at least understand why the change is inevitable and have a chance in decision making in the management of change and to get involved in the change’ planning and implementation (Mehrabian’s, 2009).

When handling change management of organisational aspects that are deemed sensitive, it is advisable to use face to face mode of communication as notices that are written or emails are very weak at conveying or making people understand (Chapman 2009, para. 2-4). When a quick change is needed one has to consider whether the urgency is real, and whether the presiding effects due to limited time frame will be more disastrous than the change itself. Quick changes lack proper involvements and consultations which may lead to more difficulties that will take a long time to be resolved (Keyton, 2005).

For those organisation’s change that entails new actions, processes and objectives to involve a team or a group, Chapman recommends use of workshops in order to achieve goals that are measurable, achieve understanding among the involved people, their commitments, actions, plans, and involvement. These change principles are applicable even on those changes that are considered to be very tough like organisational closures, making people redundant, organisational mergers or acquisitions. When delivering bad news, careful management change is much needed than the routine change. Managers should not deliver the news via memos or through their assistants, it is good to consult and help the people involved understand, this does not make the managers weak rather it strengthens their position. Those leaders who do not consult or fail to involve people in bad news management are perceived to lack integrity and to being weak. When people are treated with respect and humanity they tend to reciprocate the same (Chapman 2009, para. 9). The change leaders should be mindful that most staff have the change as their chief insecurity. People react differently to change and this may put the organisation’s operations in jeopardy if not well managed. As a rule for the directors and the senior managers who are responsible for organisation’s change management, they should not fear the change, they should thrive on it. People do not delight in change, it is rather threatening and deeply disturbing, it is equivalent to one’s fear of failure (Chapman 2009, para. 10).

CHANGE MANAGEMENT RESPONSIBILITY

It is not the employee’s responsibility to manage change. They are however, charged with the responsibility of doing their best which varies depending on one’s experience, maturity, motivation, health, personality, stability etc. it is the organisation’s management and executives responsibility to manage change and to do it in such a way that the employees will be able to cope with it. Facilitation and change enabling is the manager’s responsibility and everything that entails change especially objectively understanding the situation i.e. not to be judgmental and to help the staff understand the aims, and reasons for change and ways to positively respond in accordance to staff’s capabilities and own situations. The role of the manager should be communicate, to interpret and to enable as opposed to imposing and instructing which nobody responds well to (Chapman 2009, para. 11).

CHANGE IMPOSED AND CHANGE INVOLVEMENT

When expressions such as mindset change or changing attitudes of people are used, they often indicate an intention to enforce or to impose change. It also strongly implies that it is the belief of the organisation that its staff members have the wrong mind set which is always not the case. If the staffs are not effectively approaching their tasks or the organisation, it is the organisation which has the wrong mind set. New systems and environments are created due to change such as new policies, disposals, structures, relocations, acquisitions and targets which people need to be explained to in the earliest possible time so that they can get involved, validate and refine them. There always result to difficulties when new things are imposed on people by an organisation (Change Management 2010).

It is very important when an organisation communicates openly in full and early on the impending changes and gives a chance to the staff to participate and get involved. When an organisation requires to develop a collective approach, method, idea, understanding or a system, organising workshops is the best way to achieve this (Workshops 2009, para. 1). It is also advisable that an organisation conducts an anonymous staff survey which should be published and the findings acted upon in order to repair damage and mistrust among the staff. Managers are very important to the process of change to not only implement and convey polices from above but also to facilitate and to enable the process. Change should not be imposed on any one, instead there should be empowerment of people to facilitate them find their own responses and solutions with their manager’s support and facilitation as well as the executives and leader’s compassion and tolerance (Khan 2005, para. 1-2) The clever policies and processes of an organisation are not as important as the behavior and style of leaders and managers. There is a dire need for the organisation to be able to be trusted by their employees. If these change ideas are not worked upon by the leaders, there is likelihood of a painful change and even of loss of the beat people in the organisation.

PRINCIPLES OF CHANGE MANAGEMENT

According to Chapman, there are five principles towards management of change. These are: involving and agreeing to be supported by people within the system. The system may consist of the environment, culture, processes, behaviors, relationships etc; understanding where the organisation is at the moment; understanding where the organisation wants to be, the reasons for being there, when, and the measures to be taken once got there; planning development in the proper achievable measures; and communicating, enabling, involving and facilitating people’s involvement in the most open and earliest time possible.

PEOPLE AND CHANGE

People generally have a strong resistance towards change. The change leaders are required to have a lot of patience and tolerance in order to help people go through change and may be look at it in a positive manner. The change leaders also need to be mindful of people’s weaknesses and strengths as not everyone will welcome change. The leaders should take time to understand the people they are dealing with and how and the reason they feel the way they do before taking an action against them (Cameron & Quinn, 2005).
SUCCESSFUL CHANGE

According to Kotter (2005), successful change has eight steps these are: Urgency increase, this involves inspiring people to move and making the objectives to seem relevant and real; building the guiding team, this is getting the right people with the right mix of levels and skills and who are committed well emotionally; getting the vision right, this is getting the change team to have a simple strategy and vision and to focus on the necessary aspects in order to drive efficiency and service; buy in communication, this is communicating the essentials and involving as many people as possible and appealing and responding to people’s needs, involves also making the technology work for you rather than against you; empowering actions, this involves removing obstacles and enabling feedback and support from the leaders. Also involves recognition of achievements and progress; creation of wins that are short term, this involves setting goals that are easily achievable, initiatives that are manageable and finishing whatever one is working on before starting on another one; not to let up, this is encouraging and fostering persistence and determination, giving a report of the progress by highlighting the achieved and future goals; making the change to stick, this is by reinforcing the significance of the successful change through new change leaders, promotion and recruitment. Transform change into culture (Kotter, 2005).

CONCLUSION

People generally have a strong resistance towards change. The change leaders are required to have a lot of patience and tolerance in order to help people go through change and may be look at it in a positive manner. The change leaders also need to be mindful of people’s weaknesses and strengths as not everyone will welcome change. The leaders should take time to understand the people they are dealing with and how and the reason they feel the way they do before taking an action against them.

An organisation’s culture is the organisation’s personality. Culture involves the organisational members’ assumptions, tangible signs and behaviors. An organisation’s culture can be equated with a system where the inputs may involve the feedback from professions, heroes, societies, stories, laws, values on service or competition, etc. the culture is based on our values, norms and assumptions. For instance, how we value money, space, time, people, or facilities. The effects or the outputs of our culture may include the technology, image, behaviors in the organisation, strategies, appearances, services, and products.

It is not the employee’s responsibility to manage change. They are however, charged with the responsibility of doing their best which varies depending on one’s experience, maturity, motivation, health, personality, stability etc. it is the organisation’s management and executives responsibility to manage change and to do it in such a way that the employees will be able to cope with it. Facilitation and change enabling is the manager’s responsibility and everything that entails change especially objectively understanding the situation i.e. not to be judgmental and to help the staff understand the aims, and reasons for change and ways to positively respond in accordance to staff’s capabilities and own situations.

The significance of corporate governance

The significance of corporate governance

INTRODUCTION

The corporate governance discourse has attracted global interest. At the onset, the focus was naturally on the highly developed countries, having witnessed the collapse of giant corporations such as Enron, WorldCom Inc., Aldephia, but a few (Jones & Pollitt 2003). More recently, due to its apparent significance to an organization’s strategic strength and national development, attention has been devoted to corporate systems in developing countries (Mueller 2006).

The Kenyan economy presents distinctive corporation characteristics in comparison to other developing countries in Africa. With a Gross Domestic Product (GDP) of US$ 30B in 2008, Kenya also has a long stock market tradition and the largest stock market in East Africa, thereby the best-developed economy in East Africa (WDI 2009). However, the recent spate of corporate failures in Kenya has been attributed to weak corporate systems and resulted in significant economic losses with examples like United Insurance Company, Strategies Health, Uchumi Supermarket Limited to mention a few.

Most significant, the recent 2006 Africa Peer Review Mechanism Report (APRM) recognises Kenya’s efforts to improve and create awareness of corporate governance values and principles within the country. Notably, the adoption of the Organization for Economic Co-operation and Development’s (OECD) Principles of Corporate Governance by the Kenyan Government has actively instituted a good corporate governance framework within large publicly-listed companies thereby meeting international benchmarks.

Building on Kenya’s developing economy and corporate system, this paper discusses the economic development benefits of enhanced corporate governance practices on publicly-listed companies in Kenya. While recognizing corporate relationships, contracts and ownership structures of corporations in Kenya, the first part of this paper presents the purpose, characteristics and objectives of corporations within the economy. In the second part, over a sample of companies in Kenya, we analyse the role of internal and external corporate mechanisms in achieving the corporation’s objectives. In conclusion, we consider the effect of Kenya’s corporate system mechanisms on economic development.

THE CORPORATION’S PURPOSE, OBJECTIVES AND FINDINGS FROM KENYA

The understanding of the nature of corporations has significantly influenced the purpose and objectives of corporations. In his treatise, Coase (1937:393) noted that a profitable corporation exists within a system of relationships (see Figure 1 below) managed by an entrepreneur at a lower cost. In addition, Berle & Means (1932) cited in Vives (2000) and Allen & Gale (2001) note that corporations are run by professional managers (agents) who are adversely selected by dispersed shareholders (principals). Subsequently, the shareholders are morally challenged to draw-up contracts that motivate managers to maximise their own utility (Friedman 1997)

To the contrary, Jensen & Meckling (1976:310) view the corporation as a “nexus of contracts” that guides different participants (community of human beings with different goals and interests. In addition, Fontrodona & Sison (2006:9) discredit the premise of maximising shareholders’ wealth arguing that shareholders do not own the corporation but merely “own the capital”. In agreement, (Shankman 1989:320,332) describes the shareholder theory as a “narrow form” of the stakeholder model. For this reason, the maximisation of stakeholders’ interests offers a more comprehensive view of the purpose of the corporation.

Obviously, managers may not always act in the best interest of stakeholders even when control is detached from ownership. In their treatise Barako et al (2006) highlight information asymmetry, where insiders (managers) have an information advantage as a major drawback to maximisation of stakeholder interest. In their proposal, Letza et al (2004) circumvents the agency problem by the issue of effective contracts to align management behaviour with stakeholder’s interest, while Fama & Jensen (1983) refer to the contracts as “rules of the game”. On the contrary, Demsetz & Lehn (1985:4) view that an efficient managerial labour market ought to be sufficient to monitor managerial performance. Keasey et al (1997) and Bonazzi & Sarda (2007) further support that capital market; labour and corporate markets; and market signals restrain managerial divergent behaviour.

While considering a measure for the performance of managers, Li (1964) presents the corporation’s objectives to include the corporation’s survival and growth. He (ibid) critiques the corporation’s profit maximisation objective arguing that it does not financially support nor motivate managers. Nevertheless, the existing legal and governance system (market oriented or relations-based) also influences the survival and growth of corporations (La Porta et al 1997; La Porta et al 1998). In conclusion, Vives (2000) affirms that corporate governance augments the corporation’s survival and growth and is most effective while balancing the corporation’s internal and external controls.

a)An overview of the corporate governance system in Kenya

In light of the above discussion, this section interrogates the existing corporate governance system in Kenya. As a developing economy, the nature of corporations is characterised by small and medium-sized enterprises of which most are not listed on the Nairobi Stock Exchange (NSE). In 2000, it was estimated that only 30% of businesses operated in the formal sector with less than 1% listed on the NSE (Gatamah 2005).

More recently, at the beginning of 2010, only 47 corporations were publicly-held and almost 99% of formally registered enterprises operated outside the capital market authority regulation (NSE 2010). This peculiar organization of factors of production gives room for undemanding governance structures and an almost nonexistent market for corporate control.

Majority of listed corporations are controlled by East African institutions (74.16%), East African individuals (15.90%) and foreign investors (9.93%) with presence of cross-holding structures and pyramid structures. On the other hand, a selected review of listed corporations in the agricultural sector identifies that all corporations are foreign owned. For example, Rea Vipingo Plantations Limited (RVPL) is primarily owned by Richard Robinow, a British nationality. In addition to his individual shareholding of 26,786 shares, companies controlled by the Robinow family and their subsidiary and associated companies own at least 57% shareholding in RVPL. In their research, Nganga et al (2003) highlight that the concentrated ownership structures – mainly multinationals and family interests – have side-stepped the agency theory by acquiring a controlling stake in listed businesses. For example, figure 3 below analyses the Aga Khan for Economic Development’s (AKFED) cross holding in listed corporations.

The Standard Report (2009) also observes that a large number of companies in Kenya have majority shareholding. The concentrated ownership structures in Kenya support Reed (2002:233) as cited in Gustavson et al (2005) and Shleifer and Vishny (1996:38) views that for developing economies a conflict of interest is more evident between majority and minority shareholders and not between the shareholders and managers. On the other hand, La Porta et al (1998) argues that the presence of a common law system should result in stronger shareholder protection regulation. Notwithstanding the presence of common law in Kenya, Nganga et al (2003) comparative study of shareholder rights report the lack of minority shareholder rights where unsatisfied shareholders have two options: sell their shares or sue the company (see Figure 4 below).

Nevertheless, majority of the corporations in Kenya are limited liability companies thereby governed by the existing corporate common law and the market-oriented (Anglo-American model) governance system. Like most former British colonies, the country’s corporate common law is embodied in the Companies Act 1962 (Chapter 486, Laws of Kenya) which is significantly similar to the England’s Companies Act of 1948 (Musikali 2008). While the Companies Act presents the minimum financial accounting and reporting requirements, various independent regulating bodies such as the Institute of Certified Public Accountants Kenya (ICPAK), Central Bank of Kenya, and the Capital Markets Authority (CMA) supplement and enforce adherence of corporations to regulation.

While the Anglo-American governance model is significantly supported by a strong market for corporate control, the lack of hostile takeovers in Kenya limits the efficiency of managers. In addition, the pre-existing “directing and managing” overlap as discussed in Gustavson (2005:11) compromise the maximisation of the corporation’s utility and growth. Supportively, the Corporate Governance Bulletin (2004:1) cited in Gustavson et al (2005) raise fundamental weakness in the controlled ownership structures. For instance, the high incidence of board members overriding management in particular corporations while others cases managers have a lot of control at the board level overshadowing other directors.

In addition, Musikali (2008) bemoans the efficiency of the existing legal system. The paper (ibid) considers the current business laws outdated. The legal process is also lengthy and regulators are constrained in resolving complex commercial disputes. In addition, the political interference within the corporate system of public corporations incapacitates the regulation power. In summary, the World Economic Forum’s Africa Competitiveness Report 2000/2001 ranks the Kenyan legal system almost not effective.

Concluding the above discussion (presence of concentrated ownership structures, prevalence of family ownership, incidences of pyramid control structures, a poor market for corporate control) it is not surprising that Gustavson et al (2005) question the appropriateness of the existing Anglo-American governance system in Kenya.

b)Corporate governance and it’s mechanisms: how corporation’s in Kenya achieve their objectives

The corporate governance discussion builds from the thesis “The Modern Corporation and Private Property” by Berle and Means (1932). Therefore, from the above discussion the standard Bearle and Means’ (1936) firm characterized by dispersed ownership is a rare phenomenon in Kenya. Most corporations in Kenya are significantly influenced directly or indirectly by an economic group that owns a large percent of the corporation’s shareholding thereby exercising tight control over the corporation.

In a broad sense, corporate governance mechanisms that support the corporations overall objectives of survival and growth may be distinguished between internal and external governance mechanisms. In this section we focus on three mechanisms – two internal mechanisms (board attributes and ownership structure) and one external mechanism (the regulation system) – as implemented in Kenya.

1)Board attributes and CEO duality

The concern of corporate governance has been the accountability and effectiveness of the board toward achieving the corporation’s objectives (Cadbury 1997). As argued above, the independence of board members and management is important in achieving the corporation’s objectives. Further Hampel (1998) argues that a board is more independent if non-executive directors (outside directors) dominate the board and the chairman and CEO position is separated. This argument is supported in Daynton (1984:35) cited in Abdullah (2004), if one person is wearing two hats, “it is always the governance hat that is doffed.” However, Fosberg’s (1989) laments that non-executive directors may adversely affect board performance as they neither have sufficient institutional knowledge nor hold significant number of shares (Conyon and Peck 1998). Nevertheless, Abdullah (2004) citing (Reay 1994:74) concludes that non-executive directors support the corporation’s performance as they are expected to be independent of management and appointed for their industry experience.

Additionally, as illustrated in Box 2 the governance code in Kenya advocates that “appropriate committees” should be established within the board (Nganga et al 2003). In their review, Gustavson et al (2005) also note that the guidelines overemphasize the monitoring role of the board at the expense of the strategic role. On the other hand, directors of multinational companies are perceived as mere “rubberstamps” for the parent company while the lack of diversity in the pool of potential directors limits the strategic and monitoring role of the board (Nganga et al 2003; Gustavson et al 2005). In her conclusion (Musikali 2008:17) recommends that a dual standard responsibility be implemented to ensure that directors act in the best interest of shareholders who are tasked to contract them to maximise their returns.

2)Ownership structures and the role of shareholders

In their treatise, Demsetz & Villalonga (2001:231) argue that the market succeeds in bringing forth ownership structures that eliminate any systematic relation between firm performance and ownership structure. However, in developing markets such as Kenya which are:heavily relationship-based rather than effective market rule based; characterized by widespread smaller firms that are not listed on the NSE or large family owned, state owned and foreign owned that are listed on the NSE; and exposed to expropriation by corporate insiders and vested interest groups, it is not surprising that ownership structures have a great influence toward the survival and growth of the corporation (Oman et al 2003).

More specific, the relationship between ownership structures in corporations and the corporation’s survival and growth is discussed in Barako (2007). The study indicates that the corporation disclosure is influenced by the corporation’s concentrated ownership structure. Therefore, building on the premise that the level of voluntary disclosure influences investor confidence in a corporation, the study concludes that the size and value of companies is significantly associated with the ownership structure and subsequent voluntary disclosure of information. In conclusion, Vives (2000) confirms that the concentration of ownership improves the control of management.

3)Regulation and other linkages

In the absence of a market for corporate control, the existing regulation and other linkages such as the Private Sector Corporate Governance Trust (PSCGT), CMA, NSE and ICPAK support the corporation’s objectives. These external mechanisms ensure consistent monitoring of corporate performance, provoking public scrutiny therefore management work hard to avoid poor performance. On the other hand, executive pay packages for management positively influence the corporation’s growth as management seek a better return for the investors (Gustavson 2005). However, in their conclusion, the 2006 NEPAD report recommends for improved enforcement and updating of laws and regulation, enhanced supervisory capacities for the supervisory institutions and proper assessment of corporation boards.

THE KENYAN CORPORATE SYSTEM, ITS IMPACT ON ECONOMIC DEVELOPMENT AND RESULTS

Cadbury (1992) identifies the positive influence of a sound and effective corporate system on a nation’s economic drive and competitive advantage. In addition, Klapper & Love (2004) also presents a positive relationship between corporate governance and firm performance in developing countries. While several arguments have indicated that a strong governance system leads to improved corporation performance, enhanced supervisory and protection of stakeholders’ interest; this section considers the impact of the Kenya’s corporate system on the country’s economic development.

a)Building investor confidence

One may question why shareholder rights are so important while the corporation’s purpose has been concluded as the maximisation of stakeholders’ utility. According to (Paredes 2005:34) shareholder protection encourages investment, development of capital markets, and ultimately economic growth. In the recent years, there is substantial increase in trading activities at NSE.

Strong investor protection is associated with an effective corporate governance system and the presence of greater security of property rights as proposed in (La Porta et al 2000). In addition Claessens et al (2003) cited in Kyereboah-Coleman & Biekpe (2006) mentions that a better corporate governance system benefits corporations through greater access to financing, lower cost of capital, increased market liquidity and more favourable treatment of all stakeholders. In Kenya, while appreciating other factors (among them enhanced corporate system) generates investor goodwill and confidence in the capital market thereby facilitating economic growth – to the extent that recent bond issues have been oversubscribed and foreign direct investment has significantly increased .

b)Mitigates corporation failures: prevention of fraud and ensuring the effective allocation and usage of resources

Developing economy provides much scope for corporate frauds, ineffective allocation and usage of resources resulting in non-optimal economic results. In fact Chen at al (2006:445) report that controlling stakeholders and management are faced with opportunities to increase personal wealth and expropriate assets for the benefit of controlling stockholders. Most significant, corporate governance provides a mechanism for influencing the accountability and fiduciary role of management and board and advocating for stakeholder protection (Otero 1998; Paredes 2005).

The enforcement of the governance code by the CCG, CMA, NSE, CBK and KPSCGT empower the judiciary and legal system to investigate and penalize fraud. This contributes to the long-term sustainable growth of corporations while supporting economic development. For instance, the immediate compensation to stakeholders’ of Nyaga Stockbrokers’ (now in receivership) upholds enforcement of corporation sustainability and economic growth CMA (2009). In addition, the implementation of the governance code in public institution shall significantly contribute toward efficient allocation of resources within companies where the government has a controlling stake. As highlighted in Nganga et al (2003), the Kenya Power & Lighting Company (KPLC) and the National Bank of Kenya (NBK) were often mentioned as cases where government involvement had perpetuated questionable accounting practices. In all, improved accountability by public institutions shall significantly reduce public expenditure and contribute toward efficient allocation of resources and national development.

In conclusion, while the impact of an enhanced corporate system is evident, the question for the Kenya corporate system would be: does the country have an optimal corporate governance system to enhance economic development?

CONCLUSION

The above discussion presents a case for enhanced corporate governance in developing countries. A review of the corporate system in Kenya presents a relationship between corporate governance and economic development. More specific, increased investor confidence and mitigation of corporate frauds boost economic development. While considering effective mechanisms supporting the corporation’s objective: survival and growth the corporation shall achieve its comprehensive purpose of stakeholder interest maximisation.

However, if the corporations are to effectively monitor management by protecting stakeholders’ interest from the abuses and mismanagement of directors and managers while also protect minority shareholders from selfish controlling shareholders, developing countries generally should turn to a mandatory model of corporate law instead of a market-oriented corporate governance system (Paredes 2005:34). In addition, the peculiar characteristics of corporations in the country present the need for small and micro enterprises to gain access to cost effective capital to fund growth and expansion of the economy.

Most significant, the review has highlighted a salient weakness in the legal system. The presence of an inefficient legal system and out dated laws presents a barrier toward the optimal implementation of corporate guidelines. The lengthy legal processes marred with political interference limits the practicability of instituting the governance guidelines. Musikali (2008) recommends for improved enforcement and adequate monitoring of corporate compliance. In conclusion, the business laws, legal and regulatory framework should be updated to optimize the benefits of corporate governance.

The term management and manager: writing essay help

The term management and manager

Define the term “Management” and discuss what managers do.

The terms “management” and “manager” may seem to be self-explanatory to many, but when asked to give a concrete definition to it, only a handful are able to answer the question accurately. Many are unaware that management involves more than just a manager running a company and ensuring a profit. In this essay, the definition of management and the roles of managers will be discussed, as well as the effect of change and technology on managers and the organization. Detailed comparison of the views by different school of thoughts on the discussed topics will also be done, along with supporting materials.

An organization is a group of individuals working together in an organized and coordinated way towards specific goals (Davidson et al, 2009, p.4). The term “management’ can be perceived differently if looked at with different perspectives. Generally, management is a process whereby resources (financial, human, physical and etc) are utilized to attain organizational goals effectively and efficiently. Management is described by Bateman and Snell (2007, p.16) as realizing organizational goals by working with people and resources. This is supported by Davidson et al (2009, p. 9) in which management is achieving organizational goals and objectives effectively and efficiently via a series of actions directed at an organization’s resources. Both parties agree on the fact that management takes place in an organization to accomplish its goals and aims by maximizing the potentials of its resources. However, they’ve failed to acknowledge the importance of people management in a diversified environment. As argued by Drucker (2008), management is about using each individual’s strength in a joint performance to move towards a common goal. He focuses on the significance of communication and individual responsibility instead of that argued by Davidson et al and Bateman and Snell. The differences in individual perspectives can further be seen in how each academic describes the job of a manager.

A manager is defined as a person who accomplishes goals through other people (Robbins, Millett and Water-Marsh, 2004, p.4). There isn’t a clear guideline as to what a manager does. Nevertheless, it can be concluded that management process revolves around Fayol’s concept of planning, organizing, leading and controlling, complemented by Mintzberg’s idea of managers’ interpersonal, informational and decisional roles. Although a manager can be engaged with several tasks at any one time, Fayol proposed that all managers perform the four steps on a daily basis. Many support Fayol’s theory on management function, including Richard L. Daft. In short, a manager is responsible of identifying reasonable organizational

goals for future performance and then decides on an effective strategy to complete the task. In addition to that, a manager has to then allocate tasks and resources to respective groups or departments and motivates his/her staff to work together towards the identified goal, while keeping an eye on employee performance and making adjustment whenever necessary (Daft, 2008). Conversely, Drucker (2008) argued that communication is one of the key roles of a manager whereby he “motivates and communicates” with his team of subordinates and even with his superior. In the case of then Starbucks chairman of board, Howard Schultz, he would approach an employee at the Starbucks Support Centre to personally express his appreciation and gratitude for the effort taken by the employee on a certain project (Michelli, 2007, p.71). Such recognition and approval boosts employee morale; it also creates a positive and active working atmosphere which will then bring about a better performance.

In contrast, Mintzberg (1989) came up with his description of a manager’s job based on a study on the work of 5 chief executives of that time. He claimed that a manager plays several roles (interpersonal, informational and decisional) which can then be elaborated as a figurehead, monitor, entrepreneur and more. In reality, Mintzberg’s concept was not entirely practiced by Larry Page and Sergey Brin, founders and co-presidents of Google. Instead of spending all their time on managing the company, they hired Eric Schmidt to carry the “legal responsibilities” of a CEO while the two of them focused mainly on the “creative side of the business” (Lowe, 2009) in hopes of achieving a balance in both managerial and product performance. Although they still have the final say on every major decision, this gave a new dimension to the management level, allowing Google to emerge as the most widely used search engine yet being an effective and efficient profit-making organization at the same time.

Change is inevitable, let it be organizational structure, public expectations or culture. With the advancement of technology, it is compulsory for a manager to be able to devise a game plan to face changes as the management functions are now different in consequence of a more educated workforce. Templar (2005, p.138) outlined that being creative helps a manager solve problems. On top of that, managers are now able to utilize technology to help them perform their duties and communications are made easier with emails, mobile phones and Skype. Consumers today are well-informed and this causes the phrase “corporate social responsibility (CSR)” to be one of the modern manager’s new tasks. This can be seen in Microsoft Corporate Citizenship webpage (2010) where they explained how the management encourages their staffs to engage in activities that contribute back to the society by offering

monetary incentives, accompanied by technological support system. This is supported by Govindarajan and Natarajan (2007, p.156-157) who believe that managers could make use of education, negotiation, support, facilitation and etc if people are skeptical when it comes to embracing changes. Managers should also take into account the diversity in workforce, as a result of globalization. One example would be Deutsche Telekom in Germany, where their new plan was to ensure 30% of its management positions to be taken by female managers by 2015 along with measures like flexible working hours and child-care services to encourage females to joint their organization (Moore, 2010). It shows that the management has considered the impact and contribution of female population in the corporate world which was once dominated by the male population. Clearly, the impact of technology and diversity in management has changed organization works.

In conclusion, the working cultures are fast-moving and dynamic these days and thus a manager is obliged do more than what Fayol and Mintzberg stated in their theories. In this essay, it has been shown clearly how “management” can be defined differently by different academics, as well as how the roles of manager in reality vary from or similar to that discussed in theories. Influences of technology, change and diversity were also discussed in regards to the organizations available in the real world.

The uae economy

The uae economy

Three Central Issues in HRM
Global Workforce

The UAE economy was earlier driven by oil sector majorly but now the development of non-oil sectors and its contribution in country’s GDP has strengthen the economy of the country. Its emerging construction and real estate business has attracted foreign investors and expatriate workers from around the globe. These workers come majorly from Asia, some from Europe and South America. The major HR issue arises before HR managers to manage such a diverse workforce in the company. This issue is important because it can create communication gap between the employee and employer. Availability of such a diverse workforce in the region provides employers options for their recruitment process.

Nationalization

The Nationalization program of the country is called Emiratization. Nationalization policies of a country are focused on the development of the nationals. The UAE government is concerned about the ratio of UAE nationals in private and public sectors and has a willing to increase the no. of national workers in the private sector and balance the ratio. So the UAE has fixed quota in each sector for the UAE nationals. Multinational Companies working in UAE have to recruit nationals even if they are not enough qualified for the post.

Negative Stereotype UAE Nationals

The UAE nationals do not put much effort for the inconspicuous opportunities of employment that creates negative stereotype of them. UAE nationals are not motivated and dedicated enough for the rigorous jobs in private sector. They are not regular and punctual at work and get loose interest in the job too rapidly and leave jobs in 6-7 months. But some companies have to pay these under performers because of the Emiratization quota compelled by the government.

Global Workforce

Managing the global workforce is a key issue for HRM in UAE. As the 90% of the workforce in UAE comprise of the people from other countries thus they have their own culture, language, and values. The UAE has become a business hub for many multinationals companies so expatriate workers get attracted to UAE. Cultural differences are a big hurdle in the communication channel between the employees and the management level. So to align the diverse and global workforce with the objectives of the company this issue has to be discussed thoroughly. The global workforce has helped in establishing diverse work environment in the UAE corporate culture. Emiratization can be an alternate of the problem of workforce diversity.

HRM Case Study Review
Summary

The article entitled The Impact of Human Resource Management on Organizational Performance: Progress and Prospects written by Brian Becker and Barry Gerhart portrays the impact of Human Resources as strategic advantage in the competitive environment. HR system of an organization is a core competency that cannot be simulated by a competitive firm. The HR strategies have additive impact on the performance of the organization. The term ‘best HR practice’ cannot be used unanimously for any system. Sometimes the pay variable has much importance and in other cases the less importance than the variable grievance procedure. It can be clarified in a better manner if it is applied for policies and their effects simultaneously. A best practice effect is termed as an element of the HR architecture. The HR practices within an organization must be parallel to the HR system architecture to increase the performance of the company. Two companies may practice different HR policies but their HR system architecture may be similar. An empirical study from a high performing HR system show the improvement in value associated with the HR system of the firm. In the corporate world performance based measures of the market are conceived as broader than periodic accounting and books based measures. These performance based measures are used for empirical studies for the relation between company’s fiscal performance and it HR. Different sets of HR practices of an organization may be effect different variables of company’s market values like profitability or growth. The implementation of HR systems may significantly affect the performance of the organization. Market value of a company can be affected from $1500 to $4500 per employee and even the survival of a new company by 22%. Retention of the HR is an important source of value for an organization. So a cost centered part of the HR system in any do exists. In this study the major point of attraction and focus is the HR system not the HR functions of an organization.

Evaluation

The theories discussed in the article are logically applicable in a real scenario and may bestow for the organization as they are justified by various empirical studies done by many renowned researchers. The content in the article is relevant to the title and the research studies discussed. The hypothesis of the study is based on past researches done in the field of Human Resources but the theory has to be tested by the managers in companies. The measures taken into account are appropriate for the study. Some theories and empirical studies do not have any impact on the findings of the article. The major issues are clear from the study as it is clearly written in a proper logical format.

Content Related to the UAE

The content of the study is related to the UAE corporate world to a certain extent. HR management is a key issue in the diverse UAE market where companies have options for workforce. It is company’s discretion for adopting certain set of HR practices for its organizational performance. The theories in the article can be applied in the UAE organizations. The competition level in the country is very high so it would be better for a company to develop this invisible asset for the organization.

The worlds prominent engineering: custom essay help

The worlds prominent engineering

Introduction

Kellogg Brown & Root is one of the world’s prominent engineering, procurement and construction companies. It operates with more than 57, 000 employees in 45 countries on five continents. With a superior and differentiated history of more than a century, it has evolved into an outstanding part of the energy, government services, petrochemicals and civil substructure sectors (Company Profile, 2010). It becomes an independent company in the year 2007. From the time of its inception, it had expended on its position in the increasing end-markets it functions.

The company proffer an extensive range of services through it following business divisions:

Downstream
Government & Substructure
Services
Upstream
Technology
Ventures (Company Profile, 2010).

The company’s foundation for its future is grounded on its constant success within these emerging industries. With its expansion to all over the world it also faces some troubles related with the aspects like management and leadership, which will be discussed in this paper so that the company management can attain significant information regarding these aspects. Here, in this paper the difference between the management and leadership will be discoursed along with the discussion of the roles and responsibilities that organizational managers and leaders basically play in producing and exerting a healthy organizational culture.

Additionally, here in this paper the affect of globalization and management across borders will also be evaluated. In the end of the paper some strategies’ will be recommended to the managers and leaders of KBR for creating and maintaining healthy organizational culture.

Difference between Management and Leadership

In present world the question, what is the difference between management and leadership is quite common and everyone tries to find out its answer. Understanding of the difference between management and leadership is essential as it could direct an organization in a right direction. Similar is the case with KBR that had also extended its position by identifying the difference between management and leadership.

In reality leadership and management are not completely different, but still they are diverse in numerous ways that if acknowledged by an organization can result in assured success. If we undertake both the aspect on the whole we can say that in a nutshell, following is the difference between leadership and management:

Leadership is about setting a novel direction or vision for a group that they follow whereas management organize or directs people and resources in a group in accordance to the principles or beliefs that have already been instituted. In other words a manager is a designation and leader is a function (Leadership & Management, 1995). Management is an emplacement and leadership is an acquisition. Leaders could be seen as charismatic and usually are accepted and held in high regard whereas managers often are considered as organization’s taskmasters.

If prominent difference is identified among management and leadership, it could be said that management is a quite new trend. The outgrowth of large, composite organizations in the last century brought forth the need for a system that can control work and deal with authority and direct issues (Kotterman, 2006). This need ensued in the modern workplace manager who is actually anticipated to decrease the internal chaos of those more complex organizations. Managers brought order and cohesiveness to the large number of workplace procedures.

Alternatively, leadership is an old trend, which is been in use from centuries and is a significant driver of invention for thousands of years. Some fundamental action verbs that can be used to delineate leadership are kick off, introduce, spring up, settle on, imagine, pay attention, vision, direct, instructor, guide, guide the path, expand, motivate, stimulate, establish, control, attain, map and estimate (Kotterman, 2006). All these action verb demonstrates that how a leader can assist an organization in attaining its goals.

Both the terms are used interchangeably in organizations but both have distinct differences. Both leaders and managers may have participation in founding direction, coordinating resources and prompting people. However managers, plan and budget while leaders set up direction (What is the difference between management and leadership, 2009). Managers generally have a slender purpose and attempt to uphold order, even out work and organization of resources whereas leaders attempt to expand new ends and line up organizations. Managers generally control and try to solve the troubles while leaders inspire and encourage.

On the whole, it could be said that managers produce standards, steadiness, inevitability and order and leaders create the potency for dramatic change, bedlam and even collapse. It is generally believed by experts that the understanding of difference between leadership and management is essential as otherwise on cannot compute, test, make evaluations, or systematically hire or prop up them (Kotterman, 2006). This understanding of difference among management and leadership assists KBR in promoting its own different leaders and managers in a more effective and efficient way.

Roles & Responsibilities’ of Organizational Managers & Leaders in creating Healthy Organizational Culture

The immense success of KBR is due to its managers and leaders. The company’s managers and leaders play a significant role in producing and sustaining a strong organizational culture. The company’s managers and leaders had adopted a significant approach towards the management of healthy organizational culture. They direct their employees with participative styles rather than establishing rigid rules and regulations. They had enables their associates and employees regarding the power of decision-making.

KBR’s managers and leaders always try to discover the relationship between them and their employees that facilitate them in enabling a participative culture. They also play a significant role in valuing the attempts of their employees as this is the prominent way to motivate employees to work harder (Smith, 2008). The company managers and leaders also make use of the information elements so that they can affirm the decision making created by their employees and in turn perk up the healthy working conditions in the company.

Moreover they ensure that resources are utilized to those actions that bring back the great advantage and offer the most eminent value to the customers. Managers and leaders contribute on cost of services that the organization serves so that they can offer it with rational price to its customers (Gordan, 2004). In enabling of services and its composite projects, the manager and leaders witness the working on and the actions like labor, materials are collected to create unity to assist healthy working conditions.

The attainment of successful organization at KBR is done by its managers and leaders by following the objectives like guide, change, generate a shared need, form a vision, activate a commitment, and observe progress and change arrangements and systems. All these objectives of the company demonstrate its managers and leaders role in creating and maintaining healthy organizational culture (Smith, 2008).

At KBR, managers engage with their employees in regard to searching their goals whereas leaders try to provide an explicit action with an association of mutual stimulation and altitude that elicits the degree of employee conduct. Managers of KBR always try to transform a mean that could encourage a two way communication and the interchange of information and thoughts. They always try to demonstrate and make a dedication with their fellow employees and this in turn play the key role in exerting and fostering their relationship with employees by giving them a chance to fulfil their desires and needs (Gordan, 2004). In addition to this, they also try to offer other motivations so that a healthy organizational culture can be generated and maintained.

The company managers and leaders also adopt appropriate changes like different management practices, healthy culture of organization, workforce deployment, different organizational structures and work design for attaining higher level of employee performance. All these efforts of KBR managers and leaders assist it in creating and exerting a healthy organizational culture.

Affect of Globalization and Management across Borders

With the increasing globalization all the organizations are getting influenced in different aspects. As more and more companies are moving towards the international locations for expanding their operations, their management is becoming more difficult. Previously when companies used to work only nationally there was no need for the aspect management but as the companies are growing and becoming more complex due to the affect of globalization they are embracing the aspect of management for managing its operations of different nations.

KBR is also affected with the globalization as it had expanded its operation in 45 countries for attaining significant position. This position of the company could have been damaged if it would not have adopted management along with leadership. For managing its different nations operations, the company had appointed numerous managers, who manage the company operations along with coordination and effective mutual communication. With the ability of its managers only the KBR had enabled in attaining success across borders, which in present is quite difficult as it involves variety of different unknown business factors.

Recommendations

With the discussion of KBR and its organizational culture, it could be said that the company’s manager and leaders are doing good in regard to creating and maintaining healthy organizational culture but still they need to make extra efforts in this concern. Subsequent are the various strategies that KBR managers and leaders can use to create and sustain a more healthy organizational culture:

Planning: The first strategy that the company can adopt is planning. The company managers and leaders should plan the core assets available to them for enabling their services and their marketing. This will assist them in planning on how to fulfil their productivity goals, key evolution scenarios and planning a strategic motivator to the workers. All these aspects in turn will result into healthy organizational culture in which everyone will work with coordination and mutual concern.
Effective Communication within Team: Another prominent strategy that can be adopted by the KBR managers and leaders for creating healthy organizational culture is creation of effective communication within team. Until or unless the process of communication is not effective within a team it cannot attain its maximum capability (Goodall, Goodall & Schiefelbein, 2009). With the effective communication employees could be made a part of organization’s goal, which will motivate them to attain these goals as if they are their own goals.
Facilitating: The KBR needs to have a stimulating relationship both between its leaders and the workers for creating healthy environment. The company need to facilitate effective working surroundings to its workers so they could be motivated for delivering their maximum output. Leaders and managers need to develop a feeling of trust by their working behaviour and functioning style as without this it is not possible to create a healthy organizational culture (Smith, 2008).
Development of synergetic and cooperative team: The last significant strategy that the company can adopt for creating healthy organization culture s development of synergetic and cooperative team. As an organization is an aggregation of people, synergy is a must to arrive at the objectives. In this respect, team building is fundamental and the management of the company must take the go-aheads to engage employees in such exercises. This could be done by adopting different team building activities.

Theories and practice of leadership: writing essay help

Theories and practice of leadership

Nissan: Case Study

Theories and Practice of Leadership

When making major changes in a business, efficiency, adaption and human relations need to be considered and the trade-offs between these that might be affected.

Efficiency was improved by closing 5 of the factories in Japan and eliminating 21,000 jobs to maximize production and reduce wastage. To simplify the production process Ghosn reduced the number of car platforms by 50% and the number of power trains by 33%. Human relations is always a trade-off when job cuts are made, this was counter acted by Ghosn. He used natural attrition whilst selling subsidiaries or offering early retirement or part-time work at other company facilities all of which would help the morale of the employees that left and the ones that remained so they did not feel so guilty and suffer from ‘survivor syndrome’ (Daniels, 2006).

Reducing purchasing costs by 20% was another way that Nissan improved efficiency; this was achieved by reducing the number of suppliers and making bigger orders. A negative trade off from this was the reduced relationship status with suppliers which is a highly regarded aspect of business in Japan. Engineers were also to blame for making overly specific orders which increased costs unnecessarily as they produced cars to solely improve performance, the trade off was that cars began to be made with customer needs in mind, not performance improvement.

Weak distribution was also to blame for the downfall of Nissan; Ghosn reduced dealerships by 10%. Brand loyalty is high in Japan and determined by good customer relations which was a trade off for the reduction in dealerships; this was handled by improving the management in the remaining dealerships so that they become more entrepreneurial than social roles in the business.

Design was instigated by engineers and not by the designers; this is why only 4 of the 43 cars in production were profitable. Twelve new cars were to be produced by the designers, to meet customer needs. A trade off of this was poor self-esteem for the engineers but equally designers were given freedom to be innovative and feel more valued by the company.

Adaption was improved by correctly identifying the major changes, whilst not dictating them to employees. These plans were all released at once with the explanations behind their needs as to stave of criticism and prejudgments. The trade off for this was in the use of cross functional teams to improve human relations via interaction across departments for them to identify the major changes themselves, therefore then not feeling like they are being dictated to by senior executives.

Human relations were improved (for the company, not the employee) by not giving lifetime job guarantees and not adhering to the seniority system that was in place for pay and promotions which lead to the replacing of weak middle management with competent replacements. The trade offs for implementing this was for poor employee relations to occur but this was managed by a merit pay plan, for performance related pay increases and promotions, with employees capable of earning up to an additional 33% of their wage based on performance and gaining stock options.

To conclude Ghosn tried to weigh up and counter act the trade offs between efficiency, adaption and human relations well with the use of merit plans, extra innovation and better management. However there was not any strong counter action in relation to reducing purchasing costs, this was evident for the engineers in particular, where as it was obvious how the designers benefited from the changes made.

Effective change is essential to the success and survival of a business as 62% of new businesses fail within 5 years and only 2% survive over 50 years (Nystrom & Starbuck, 1984). With this in mind effective change management is critical to Nissan and Ghosn’s success.

Ghosn used planned change which has both driving forces and restraining forces that affect the organisations state of equilibrium during implementation (Thomas, 2010). Features of planned change include; Assumption of a stable/predictable environment which Nissan do have. Required change must be identifiable, Ghosn meet this by introducing cross functional teams to identify the problems and changes needed. To move from one fixed change to another, this was done with the permanent closing of 5 factories and the loss of 21,000 jobs. Organisational members must be willing to change; Ghosn increased the willingness to change by creating a vision for the company, empowering employees such as the designers and cross functional team to identify the changes needed which meant they would then be more willing to follow the changes through than have them dictated to them. To have the appropriate tools and techniques available, Ghosn had all the tools available, in most instances it was a case of reducing them in terms of factories, workers and suppliers. Where he did not have the correct tools he brought them in such as designer Shiro Nakamura.

Restraining forces of planned change include (Katz & Kahn, 1978) structural inertia, work group inertia, politics and previously unsuccessful efforts. Ghosn changed structural inertia by implementing the cross functional teams to identify and suggest changes for the problems and allowing them to be more adaptive and innovative than ever before. Work group inertia was changed from the design being engineer led to being designer led and customer focused and not performance focused. Politics was addressed by giving more power to the employees via cross functional teams and via the merit pay system were people earned their promotions and pay rises/bonuses.

Ghosn managed to implement these changes using Lewin’s (Lewin, 1947) three step model of change (see appendix 1). In the ‘unfreezing’ stage of the model, Ghosn had to make sure that employees were ready for change and understood the need for it. This was achieved by using cross functional teams, as the employees would identify the issues and solutions of the company which would lead to higher acceptance for change as the changes were realized and not dictated. Ghosn also offered to step down from his post if the targets were not meet which installs confidence, commitment and belief in the employees that the changes are necessary, realistic and achievable.

The ‘change’ stage of the cycle was used to implement the required changes that Ghosn and the cross functional teams had identified such as the reduction in suppliers, better distribution channels and management, customer focused designs and reduction in production costs.

The ‘refreezing’ stage of the cycle is Ghosn’s weakest part in terms of delivery. Nothing had been outlined specifically to make sure those attitudes, processes and cultures do not return to how they were before or that similar patterns do not appear again. The incorporation of a vision and plan for the firm can be seen as a retention strategy for changes made, however this area is significantly weaker than previous two stages.

In my opinion Ghosn was right not ‘refreeze’ the changes, the opening statement points to the need for constant change and transformation for a company to keep up with the changing environments that they work within. This therefore would count as criticism of the theory; as Lewin talks about the tactics for change but does not recognize that change should be constant and never ending, which is not the impression you get in his theory with the ‘refreezing’ of culture which would represent an end to the change.

Ghosn was very focused on the planned changes that he had in mind for Nissan, which could be seen as reasonable due to the short term nature of the plan. However with every planned change, the external environment can not be predicted with complete assurances. All companies have to deal with strategic drift (Johnson G, Scholes K & Whittington R, 2005) which is when strategies fail to address the strategic position of the organisation, relative to the changing environment. Ghosn had not considered this at all in his plans and therefore had failed to acknowledge the potential importance of emergent change. This could have been critical had there been severe and critical changes to the external environment. For example if the banking crisis that has hit us now had happened ten years ago during implementation, did Ghosn have an alternative plan.

Ghosn managed to implement effective change management techniques through the use of planned change and used Lewin’s three step model of change to rectify problems encountered by the restraining forces. Ghosn managed to minimize the resistance to change through the use of cross functional teams, the merit pay system, empowering employees, offering alternatives types of work for some of the people unfortunate enough to lose their jobs and showing his commitment to the challenge by stating he would resign if the goals were not achieved on time.

A trait refers (Yukl, 2002) to a variety of individual attributes, including personality, temperament, needs, motives and values. Skills refer to (Yukl, 2002) the ability to do things in an effective manner and are determined by learning and heredity. The use of good traits and skills will have been used by Ghosn to successfully lead Nissan out of its crisis to meet the goals that he set for the company.

Strategic leadership requires a managerial ability to (Thomas, 2010), anticipate and envision change whilst maintaining flexibility and empowering others to manage strategic change if necessary. Effective strategic leaders (Thomas, 2010) tend to be able to manage operations effectively, sustain a high performance, make better decisions than their competitors, and make courageous and pragmatic decisions. They must also understand how their decisions affect the internal systems and respect the feedback from peers and employees about their decisions and visions.

The three factor taxonomy of skills shows (Yukl, 1994) that it can be broken down into these sections: Technical Skills, Interpersonal Skills and Conceptual skills. Ghosn shows his technical skills in reducing the amount of power train combinations and car platforms due to his knowledge of the processes required. This shows his strategic leadership in managing operations effectively and sustaining higher performance

Interpersonal skills were shown when dedicating cross functional teams to identifying and eradicating the problems in the business. Changing to the merit pay system from the seniority system also showed his good interpersonal skills as by taking one away but replacing the lose with something better and more productive. This was a courageous decision as these strategies have never been contemplated before in Japanese businesses prior to Ghosn’s arrival.

His conceptual skills were proved in his ability to reduce the production costs by as much as 20%, by cutting down on factories, employees, suppliers and dealers and managing to keep a positive spin on these cost cutting initiatives. This showed his ability to make better decisions than his Japanese competitors and therefore be a successful strategic leader.

Ghosn’s personality proved to be charismatic as he holds traits of charisma (Conger & Kanungo, 1988) such as being self confident and enthusiastic and willing to take personal risks, such as putting his job and reputation on the line. He challenged the status quo with things such as reducing dealerships and suppliers and introducing cross-functional teams. Ghosn was also innovative and unconventional in relation to how the Japanese operate normally, by instructing designers to produce 12 new cars for construction and changing the whole pay and promotion system in the company.

Ghosn has shown a range of skills and traits that are needed to be a successful strategic leader, such as the interpersonal skills to convince people of a new vision and get them committed to the goals through his own strong beliefs and dedication to them. Empowering people was used to enable them to become more innovative and creative and to be able to identify and solve problems themselves. Ghosn managed to improve production efficiency with his conceptualization skills whilst showing the charisma to be able to challenge the status quo’s in a culture that has a naturally high level of uncertainty avoidance.

A transformational leader is (Bass, 1985) someone who identifies the needed change, creates a vision to guide the change through inspiration, and executes the change with the commitment of the followers. An empowering leader is (McLagan, Patricia & Nel, Christo, 1995) someone who gives a clear vision, strategy and enabling tool kit. A change-orientated leader is (Tichy & Devanna, 1990) someone who recognizes the need for change, creates a new vision and then institutionalizes the change.

Ghosn was a transformational leader as he incorporated all of the 4 I’s (see appendix 2) into his leadership style (Northouse, 2001). Ghosn managed to gain idealized influence through making a huge commitment to the goals that he set by putting his job on the line. This is a charismatic and confident thing to do that would have firmly set the belief that he was superiorly knowledgeable and capable.

Inspirational motivation was clearly set out by Ghosn as he made his targets clear and bold as he released them all at once, whilst managing to avoid leakage to minimize criticism without understanding. The merit pay scheme would have also been motivational to employees as they would now know they could get recognition and promotion for other reasons than besides seniority.

Ghosn managed to install intellectual stimulation to his employees through the use of cross functional teams that allowed them to be creative and innovative in their approach compared to their previous roles. He equally gave designers the same freedom to become innovative. Ghosn did also challenge organisation processes with the reduction in suppliers, distributors and the use of power trains and car platforms.

Individualized consideration was also covered by the use of the merit pay system and each employee now has the potential to earn an additional 33% of their salary through bonuses. They can also now gain promotion when it was maybe not possible before under the old system. However he could have done more for the engineers as they gained criticism for overly detailed specifications on orders and having too much influence on designers, nothing was outlined on how they would be picked up after these knockdowns. A mentoring or coaching scheme could have been incorporated to help employees reach their personal goals more effectively to improve on this point this further.

Ghosn was also a change-orientated leader as he did identify and implement changes but it was already obvious that change was needed, which is why Ghosn was brought to Nissan in the first place. Ghosn was equally an empowering leader as he gave his employees responsibility and roles they had not experienced before but he done so much more for Nissan than just empower employees as he made radical changes himself. These two leadership styles in my opinion are present for Ghosn but are only small parts of his repertoire and the overall picture, which is that they are aspects which feed into being a good transformational leader.

Ghosn incorporates all three of the leadership styles but uses change and empowering leadership as tools to direct his transformational leadership style more effectively and to help achieve intellectual stimulation and individualized consideration.

With Ghosn making so many changes to Nissan, it was inevitable that some of these changes would affect the culture of the company and the issues that are aligned with them.

One of the big cross cultural issues that had to be addressed by Nissan first was the action of reducing the number of suppliers to the company, which was seen as unprecedented in the past. This was because supplier relationships were deemed “sacrosanct”. Part of the problem was that Nissan was at the time part of the Keiretsu culture in Japan, this is where a large group of companies work with each other to the perceived benefit of one enough. It was seen as a safety net upon which they all owned shares in each other and kept each other safe. If Nissan were to get out of their current crisis bold moves had to be made in comparison to competitors, so moving away from this culture was essential.

An equally important cross cultural issue that was changed at Nissan was the belief of having a ‘job for life’ and ‘promotion and pay based on seniority’. When the merit pay system was brought in, this was to motivate employees to push for their promotions instead of simply waiting for them to happen. With the new procedures of accountability measured against the goals of the company introduced this showed the weak middle/upper management that needed replacing. This would have been a shock to the Japanese as their culture has always been to respect your elders; this was no longer the case with the new system in place.

In Japanese culture there is a high level of uncertainty avoidance, this is when (Yukl, 2002) people fear ambiguous situations and seek security and stability. Ghosn challenged this culture by immediately putting people into cross functional teams to identify the problems with Nissan. Employees will have felt uncomfortable with this new style that had not been experienced before but will have quickly learned the benefits of working with other department managers and understanding the problems they face on a daily basis. This can be a attributed reason as to why the engineers were aloud to dominate the decision making on supply specifications and design for so long, as confrontation was not part of their culture and therefore no would have questioned their workings.

Another cross cultural issue faced is the performance orientation (Yukl, 2002). Prior to Ghosn and his introduction of performance that could be measured against specific goals, the Japanese were very focused on maintaining relationships as they believed it was brand loyalty that would ensure repeat purchase. This can be linked to the ‘sacrosanct’ relationships which they had with suppliers and distributors as well as their involvement in the Keiretsu culture that created this behaviour. Ghosn changed this philosophy of relying on brand loyalty and brought in the need to meet customer requirements which has made them incredibly more goal focused.

References:

Daniels, K. (2006) Employee Relations In An Organisational context. London. Chartered Institute of Personnel and Development.

Bass, B. M. (1985). Leadership and performance beyond expectation. New York: Free Press.

Conger, J.A., Kanungo, R. (1988), Charismatic Leadership: The Elusive in Organizational Settings, Jossey-Bass, San Francisco, CA

Johnson G, Scholes K & Whittington R (2005), Exploring Corporate Strategy 8th Edition, Harlow: Prentice Hall.

Katz, D., & Kahn, R. L. (1978). The social psychology of organisations, 2nd ed. New York: John Wiley.

LEWIN, K. (1947).’Frontiers in group dynamics: concept, method, and reality in social science’ in Human Relations, Vol. 1(1), pp.5-42.

McLagan, P. & Nel, C. (1995). “The Age of Participation”, Berrett-Koehler, San Francisco.

Northouse, P. G. (2001). Leadership Theory and Practice, second edition. Thousand Oaks, CA: Sage Publications, Inc.

Nystrom, P. C., & Starbuck, W. H. (1984). To avoid organisational crises, unlearn. Organisational Dynamics, Spring, 53-65.

THOMAS, G. (2010). Week 18: Leadership at the Executive Level. Birmingham. Aston University: Geoff Thomas.

THOMAS, G. (2010). Week 19: Leading Change in Organisations. Birmingham. Aston University: Geoff Thomas.

Tichy, N.M., Devanna, M.A. (1990), The Transformational Leader, John Wiley, New York

Yukl, G., Gordon, A., Taber, T. (2002), “A hierarchical taxonomy of leadership behavior: integrating a half century of behavior research”, Journal of Leadership and Organizational Studies, Vol. 9 pp.15-32

Yukl, G. (1994). Leadership in Organisations. 7th Ed. New Jersey. Pearsons.

Theories of effective leadership

Theories of effective leadership

Theories of effective leadership

Effective leadership can be defined through 3 theories

1. Trait Theory

2. Style Theory

3. Contingency Theory

1. Trait Theory

Trait theory consider leader having a set of qualities or traits or attributes which may not be possessed by others. These traits may include decision making skills, intelligence, confidence or any other skill that are essential for leadership. A leader may have been born or trained with all these traits or skills.

The common traits in a good leader can be categorized as

Vision

Good leaders have a vision for the future they know what step should the take in order to achieve the targets

Intelligence

Leaders should show signs of intelligence by tackling complex issues with relative ease.

Decisiveness

Leaders should be able to take quick decisions and take calculated risks

Confidence

Leaders should be confident and should know their strengths and weaknesses

Supervision

Leaders should have the ability to supervise multiple individuals and teams effectively and efficiently.

Individuality

Leaders should have their unique way of doing things and achieving targets. They should not follow the crowd.

2. Style Theory

Style theory considers the leadership style of a leader whether he/she focuses on task-oriented jobs or people-oriented jobs. Style theory deals with how a leader looks at the tasks or how does he prioritizes tasks. [2]

It is also known as behavior theory. Leader can use 2 different type of approaches.

Job centered

Leaders emphasize on the tasks assigned to users or employees and the methods used to achieve the goals and complete the tasks assigned to those employees

Employee centered

Leaders emphasize on the development relationships between the management, leaders and employees. The roles and responsibilities and the delegation of authority is discussed and proper steps taken to ensure that the job is done [3]

3. Contingency Theory

Contingency theory looks at the factors which determine the suitable style of leadership. It also looks at the optimal way of leading the team to success. [4]

This theory looks at how leaders can increase the value of employees by assigning them tasks that employees may be find interesting and suitable

Leadership vs. Management

Leadership and management are 2 different entities but they are used interchangeably. Management deals with trivial and short terms problems and solutions that affect the inner working of the organization. Managers define and refine processes, establish goals, take care of team requirements and individual needs, meet deadlines, analyze current situation and take appropriate goals.

Leaders look at the boarder picture they make decisions that inspire individuals; they take risky decisions and control the environment and have the ability to make decisions that defines the behavior of an organization and the people working in it.

Leaders and managers require a different set of characteristics. Bennis (1989) have identified the characteristics as

The functions performed by management and leaders are also somewhat similar however both of them have their unique view of looking at different attributes. This can be depicted as

Management and leadership both are required for the proper working of any organization.

Managers are required to run and organization smoothly and efficiently while leader are required to come up with a vision for the organization.

Role of leaders in a management system

Leaders inspire managers and team leaders they also help motivate the workforce their charisma and vision.

Leader set future vision for any organization.

Leaders see the working of operation from a broader perspective. They identify areas which need improvement.

Leaders lead people with new ideas, vision, new management techniques, resolving conflicts and sharing ideas.

Leaders do not bother with trivial issues rather they focus on the extending the limits of what can be achieved with the available resources.

Leaders multiply the efforts of managers and workforce managers can rely on the new found energy for the mutual good of their teams and the whole organization.

Leaders can play a pivotal role in change management. All organizations and individuals are susceptible to change leaders can ease the process by resolving conflicts, coming up with new ways to over come issues, stretching boundaries and rules and overcoming bureaucracy to achieve targets

References

[1], [2], [4] Shamil Naoum (2001). People and Organizational management in construction. pp 196

[3] LI Kouqing (2009). Leadership: Theory and practice [PowerPoint slides]. Retrieved from Asia-Pacific Finance and Development Center website: http://www.afdc.org.cn/afdc/cn/UploadFile/2009111336327749.pdf

Three well known companies: essay help

Three well known companies

1.1 INTRODUCTION: –

This task contains the research of three well known companies which have recently changed their marketing strategy to come out from current economic climate. The three companies are AMAZON, EAT and TFL (Transport for London). I am going to research about the changes which they made to run their business.

1.2 OBJECTIVES

Investigate the nature of the companies and their position in the current economic climate,
Carried out a research about the changes they took place in last five years,
Show the positive or negative outcome of the changes.

1.3 Individual report of three chosen companies 1.3.1 AMAZON
BACKGROUND

The world’s leading online retailer Amazon.com had done international expansion, on 15th Oct. 1998. The new internet bookstore service presenting broad range and small prices. The site operated by the Book pages Ltd, previously was replaced by the new site which was acquired by Amazon.com. The new Amazon.co.uk site had over 1.4 million titles and more than 200,000 bestselling US published titles. The good part of this site is anyone can order any book 24/7 and then they deliver the products within 3-4 working days at the address which is recommended by the customers. The leading online retailer is based in US and it has achieved $116 million in just over 3 years from start up in second quarter of 1998. Among 160 countries it has served over 3.1 million customers.

COMPETITORS: As we know that Amazon is doing a virtual business and there are other companies in UK market which are offering a same service, like EBAY, Play.com, e-buyers and price runners.

CHANGES

On 21st January 2010, Amazon.co.uk has launched the Amazon MP3 music store Application for AndroidTM, which is its latest mobile application. With Android-based mobile phones, customers can now search, download, buy, and play more than ten million songs from the Amazon MP3 music store whenever they want and wherever they go. In October 2009 Amazon has launched Car & Motorbike store, which featuring more than 10,000 products from tools to spare parts, tuning products to GPS system and car care to protective clothing. The aim of Amazon was to create a one-stop shop for all car and motorbike enthusiasts. Amazon had cuts its free shipping threshold from £15 to just £5 on 16th October 2008. The reduction means that the UK customers can get over 90% of products which are selling by Amazon will be delivered free. Amazon offers customers a choice of delivery option with the Prime membership programme, offering unlimited free One-Day delivery for an annual fee of £49.

Outcome of Changes

As we know the Amazon has introduced something new to its business every year to attract more customers. From October 2008 to October 2009, the number of customers is increased by 9% just because of the free shipping on order of only £5.

BACKGROUND

EAT, THE REAL FOOD COMPANY was founded fourteen years ago by Niall MacArthur and Faith MacArthur with the ambition of providing the best food, soup and coffee in London at low prices. On 12th October 1996, the first shop was opened on Villiers Street, London WC2 and we stood in uniform awaiting our first customer at 7 am without any industry experience. Now you can find EAT on every street of Central London with over 100 branches. The kitchen is the secret of its success because they don’t buy a single mass-produced sandwich, soup or salad from any factory. They make them all themselves by hand in their own kitchen, with a ONE-DAY self life for maximum freshness and quality.

COMPETITORS: There are four main competitors in UK market, which are Pret a Manager, Costa, Star Bucks and Cafe Nero.

CHANGES

With the intention of attract more customers EAT has introduced a weekly menu for soup last year with two variety, like Simple Soup which is for vegetarians and Bold Soup for non-vegetarians. After some time they have launched a new shop with new lay-out, new uniform of the staff, very high standard of customer service and some new products, which is named as X-FACTOR Shop. They made some changes to their site as well to get quick feedback from the customers so they can improve their customer service and finally you can find EAT on your IPHONE as well with new EAT application.

Outcome of Changes

Each and every customer has different choice. Just because of weekly menu for soup, customers can find the favourite soup will be served on which day and gradually the company will come to know that which soup is more favourite and which one is less among the customers, so they can prepare as much as require and decrease the waste and not only that but it helps them to increase the numbers of customers especially for soup. As we all know that Iphone is revolutionary product of Apple and EAT has now on Iphone so it will help to get more customers.

1.3.3 TRANSPORT FOR LONDON (TFL)
BACKGROUND

TFL was designed by the Greater London Authority Act 1999 as part of the Greater London Authority in 2000. TFL got most of its functions from its ancestor which was London Regional Transport in 2000 but TFL did not take over duty for the London Underground until 2003. TFL is organised in three main directorates and corporate services, each with responsibility for different aspects and modes of transport. The three main directorates are:

1) London Underground, commonly known as the tube. It is responsible for running London’s underground rail network.
2) London Rail, liable for

Synchronization with the operators that offer National Rail service within London.
London Overground.
Docklands Light Railway: in general shortened DLR, which is the automatic driven light rail network in East London.
London Trams, accountable for managing London’s tram network, by contracting to private sector operators, which is only, operates in South London.

3) Surface Transport, consisting of:

London Buses: – the red bus network in whole London managing by London Buses.
Par transit service is providing throughout London by London Dial-a-Ride.
London River Service
London Congestion Charge
London Street
Public Carriage Office, which is responsible for licensing the famous black cabs and other private hire vehicles.
Victoria Coach Station.

CHANGES

On 23rd February 2010 TFL had expand its service on DLR with three carriage train to provide 50% more space for the passengers on train. London’s first two cycle superhighways works started on 16th February 2010. TFL has also launched cycle hire programme last year to promote cycling in the capital. The Mayor of London said the New Year will see the start of a new age of travel in London – The Oyster Age, on 2nd January, because TFL has introduced oyster pay-as-you go in all rail services in London. It means the oyster is the ticket for Londoners.

OUTCOME

The passengers are really happy to travel by DLR because it is running from South-East London to Central London and now they get more space and pleasant journey during the peak hours as well. Cyclist are now more safe because TFL has started the work for cycle superhighways and they don’t need to buy a cycle because they can hire a cycle for one week, one month or one year at very low price, which is just for security when they return the cycle they will get their money back so basically it is deposit. The passengers who are living in South and North-East London can use the national rail and they don’t need to buy a special ticket for the journey because they can use their oyster pay-as-you go.

2.1 INTRODUCTION

In this task I am going to select two organisations which are classified as bureaucratic. I will also do detailed analysis about their strength and weakness and also their position against their competitors and customers.

2.2 OBJECTIVES

Explain about the efficiency through which the organisations are run,
Explain about the impact of the bureaucratic organisations on their environment,
How the organisations react to change.

2.3 Individual reports for two chosen organisations about their efficiency.
2.3.1 PUNJAB NATIONAL BANK (PNB)

BACKGROUND: PNB had started in 1895 and it has continued to retain its leadership position among the national banks, with more than 38 million satisfied customers and 4668 offices. PNB has remained fully committed to its guiding principles of sound and prudent banking. PNB has also entered the credit card and debit card business; bullion business; life and non-life insurance; and gold coins and asset management business. PNB has achieved significant growth in business which at the end of March 2009 amounted to INR 364,463 crore. Today, the bank has asset of more than INR 246,900 crore. PNB is ranked as 3rd largest bank in the country.

Competitors: Now-a-days baking sector is booming and there are so many competitors of PNB in India, like State Bank of India, ICICI, HSBC, HDFC and AXIS Bank.

CHANGES:

PNB has started branches in small villages of India to provide basic financial service to hand-cart pullers, vegetables vendors, women and other sectors;
It has tied up with NGOs to enlarge microfinance in North-Eastern States of India;
It has launched PNB global credit card;
PNB is associated with SMC Global Securities and NSBL to provide Demat and Trading account;
PNB has started subsidiary in UK with four branches;
It has upgrade its infrastructure and hardware which can handle a business of 6000 branches and 0.1 million terminals;
It has recently launched Prepaid World Travel Card in three currencies (USD, Euro, and GBP).

Outcome of the changes:

The branches of PNB are now more customers centric so the customers have easy access to the bank and they are getting better service and the bank is doing more profit.
The bank is providing a global credit card with 60 days interest free shopping and because of that customers prefer to shop with PNB credit card.
The customers who travel around the world prefer to use the PNB Prepaid World Travel Card instead of carrying a cash currency.
The below table shows growth of PNB;

Parameters

Mar’07

Mar’08

Mar’09

Operating Profit*

3617

4006

5744

Net Profit*

1540

2049

3091

Deposit

139860

166457

209760

Advance

96597

119502

154703

Total Business

236456

285959

364463

Total quality management

Total quality management

Senge (1990) states stating that many of the problems that face organizations can be traced to the lack of leadership. W.E. Deming (1988), leading advocate for Total Quality Management (TQM), is even more adamant about this point. He states that 85-90% of the problems that an organization experiences are due to the lack of leadership. There is little reason to think that education is any different. If significant changes in schools are to occur, then it is imperative that those who are responsible for providing leadership in education possess the vision, knowledge, and skills that are needed to bring about that transformation.

During the past sixty years the role of school administrators has undergone changes which parallel those that have occurred in how we view the role of leadership in organizations generally. Beginning in the 1930’s and extending into the 1960’s school administrators were expected managers to provide the technical skills that were needed to run schools as hierarchically structured, rationally organized, bureaucracies. This view of “leadership”, copied from business and industry, was driven by the belief that schools were similar to business organizations and that the way to improve them was to introduce was to apply the same managerial skills that appeared to be working so well in business and industry. Fundamental to this view was the belief that there was a clear distinction between leaders and those who were being led. Those at the top of the organization (principals and central office administrators) gave the orders and those at the bottom (teachers) followed the orders.

In the 1970’s organizational theorists, partially in reaction to the concept of leader as manager began writing about and promoting the great man view of leadership. According to this view, the organizations that were most successful were those that were led by someone who possessed the managerial skills described earlier and a also possessed a clear vision of where the organization ought to go, and who made the decisions that guaranteed that it would get there. Simply put, this model of leadership was the “great man” theory of leadership. In education this view was particularly evident in schools of thought which argued that if a school or district was not successful(however success was defined) it was the fault of the leader because it was the administrator’s sole responsibility to insure the success of the organization. What is now painfully clear is that in organizations that are as loosely coupled as schools such a view of leadership, while heroic, is not appropriate.

Recently a different perspective about leadership has evolved. This new notion of leadership is based upon a recognition that not only are we no longer a manufacturing economy, we are not even a information based economy. Rather we are becoming a knowledge production economy and the organizations that will be most successful in the future will be the ones who possess the capacity to access information and use it to produce new knowledge. In education this has led to the realization that schools also need to become places which the same kinds of activities occur. In essence, schools need to become learning organizations in which everyone is a learner. This new model of education requires a different kind of leader that possesses skills that are substantially different than either of the previous models of leadership (Senge,1990; Sergiovanni, 1992).

Senge proposes that in learning organizations the leader’s “new work” should include a commitment to:

being the organization’s architect;

providing stewardship; and

being a teacher.

Leader as Architect: To explain why leaders need to be architects, Senge uses the analogy of trying to turn a large ship. He asks the question: Who is most important in ensuring that it can be turned successfully? The captain, the first mate, the navigator, or the engineer down in the engine room? Senge suggests that the single most important person in making sure that a ship can be turned successfully is the architect who designed the ship. If it is not well designed it will be virtually impossible to maneuver. Such a ship, regardless of its other features, will be virtually useless. It is vital that the design be done with a clear understanding of the “ship’s” purpose. If the purpose of schools is to provide a quality education for all students, then leaders need to design the organization with that purpose in mind. There is considerable evidence that schools as currently designed are not operating in the best interest of either the students they seek to educate or the people who work in them. This is certainly the case in our urban schools.

If, as Senge suggests, many of the conditions that impact organizations are beyond their control perhaps what is needed is to transform organizations. Nowhere is this more true than education. The factors and conditions that led to the present organization structure of schools no longer exists. What is needed is the fundamental transformation of schools as we know them so that they can be more responsive. If this is so, then leaders have a responsibility to get on with it.

Leader as Steward: The second dimension of leadership is that of providing stewardship. By stewardship Senge means that someone (or perhaps some group) within the organization needs to accept responsibility for ensuring that everyone who works in the organization is clear about why it exists. In schools, much lip service is given to the belief that “All children can learn”. In the learning organization Senge describes we need to go beyond just viewing students as learners and begin to think of everyone who is connected with the school as a learner. As Sarason (1991) has stated we will not be able to create the kinds of conditions that we need for students until we are committed to creating the same kinds of conditions for our teachers. Such a vision is very different from how schools have been organized in the past. As steward it is important to make sure that this new vision be put into practice and that the decisions that are made on a day-to-day basis be consistent with such a vision.

The act of stewardship means being entrusted with the responsibility for something. In education, one cannot assume that everyone has a clear picture of the school’s purpose; therefore, the act of providing stewardship of this new vision is critical.

Leader as Teacher: The central premise ofThe Fifth Disciplineis that the successful organizations that will exist in the future will be those in which everyone is a learner. There is a powerful message here for education. If we are truly committed to learning for all, the word “all” has to mean just that–everyone.

For schools to become learning organizations, the school’s leader(s) must accept responsibility for creating conditions that promote and enhance that learning. Principals must create opportunities for teachers to acquire information about what is occurring in the school and engage them in finding solutions to the problems that occur. A fundamental difference between the old view of leadership and that proposed by Senge is that the leader has a responsibility to create opportunities for teachers to learn about current research and apply that research in their classrooms in an environment that promotes learning. Perhaps most important of all, principals need to create a climate that promotes risk taking and eliminates the fear of failure. If these things can be done successfully schools will then possess the capacity to develop a shared vision about what needs to be done and engage in the kinds of activities that are needed to make their shared vision a reality.

“Throughout the world managers and other leaders are wrestling with the question of how to integrate experiences and goals among large groups of people working together in order to ensure that things happen in a learning mode” (Kline & Saunders, 1998).

“Most companies today are under severe pressure to proceed with needed organizational transformation in order to cope with increasing rates of environmental change and turbulence. These new organizations must be responsive, flexible, adaptable, and value adding for all stakeholders” (Dervitsiotis, 1998).

Organizations are open systems and their survival and prosperity depends on their ability to learn and adapt to threats and opportunities presented by dynamic external environments ([Burke, 2002]and[Katz and Kahn, 1978]). History is replete with examples of organizations that fail to learn and adapt internal processes to maintain congruence or “fit” (Nadler & Tushman, 1989) with evolving external environments

Our position is that doing so is best affected when leaders intervene: 1) at the micro level by fostering followers’ readiness to learn and promoting their learning through engagement in developmental experiences, 2) at the meso level by promoting and facilitating effective knowledge-centric social networks, and 3) at the macro/systems level by scanning, sanctioning, and institutionalizing critical emergent knowledge using specific leadership and management practices.

as advanced economies become more knowledge based, the importance of leadership for learning and innovation will increase, and the ability to create a climate for learning will likely become a valuable leader asset.

Building learning organizations requires that leaders develop employees who see their organization as a system, who can develop their own personal mastery, and who learn how to experiment and collaboratively reframe problems .

Learning requires that organizations and managers be truly open to the widest possible range of perspectives in order to identify trends and generate choices.

The difference between effective and ineffective leaders is their mental models or meaning structures, the way they view and deal with their world. They need to know that developing effective mental models is the key to their success.

the organization that learns well functions well. More precisely, the organization that enables knowledge to flow and be shared at all levels is the organization that performs best.

As stated by Senge (1990), the leader’s role in a learning organization is that of a designer, teacher, and steward who can build shared vision and challenge prevailing mental models. The leader is responsible for building organizations where people are continually expanding their capabilities to shape their future. Leaders of organizations can learn to enable successful knowledge management environments

The role of the leader is critical to the effectiveness, growth, and well-being of an organization. Under the influence of good leadership, organizational missions are established, goals are reached, problems are addressed through innovative and creative means, and the growth and development of individuals within the organization is nurtured. In short, without good leadership, organizations falter in their progress

Effective leadership is required in all types of organizational structures, whether they are political, economical, or social; encompassing both large and small businesses, families, and informal groups.