The need for reward management and systems

The need for reward management and systems Reward management is not just about money. As shown in the above diagram, it is concerned with intrinsic as well as extrinsic rewards and with non-financial as well as financial rewards. Intrinsic rewards arise from the nature the job itself. Decenzo and Robbins ( 2005, p.274) stated that intrinsic rewards are self initiated rewards like pride in ones work, a sense of accomplishment or being part of the job. Intrinsic rewards related to responsibility and achievement they are inherent in individuals and not imposed from outside. On the other hand, extrinsic rewards arise from the factors associated with the job context such as financial rewards, promotion and benefits. They are external to the job and come from outside source. All reward systems are based on the assumptions of attracting, retaining and motivating people. Rewards are of two type Financial and non-financial rewards. Many people view money as the sole motivator but many studies have found that among employees surveyed, other non financial reward also motivate them and influence the level of performance. A recent study of reward practice by CIPDs shows that higher proportion of employers have adopted a total reward approach, in which they try to align the financial and non-financial elements. Non financial rewards indirectly increase workers financial position. It differs from workers to workers. For example an employee may value office furniture and other may find it useless whereas financial rewards can be wages, bonuses, or indirectly paid sick leaves and paid vacation. They are mainly of three types such as profit sharing, job evaluation and merit rating. However, Decenzo and Robbins (2005) classified financial rewards as shown in the diagram above as performance based, implied membership based and explicit membership based. They mentioned that performance based use commissions, piecework pay plans, incentive system, group bonuses, merit or other node of payment for performance whereas membership based rewards include cost of living increases, benefits and salary increases attributable to the labour market conditions, seniority, qualifications, and specialised skill. Membership-based rewards may attract many employees on the whole when the extent of the reward increas es with seniority.   Though, there are drawbacks:   They discourage poor performers from leaving and people from leaving the organization, they indirectly motivate job performance. However, Seniority-based rewards lessen turnover because the cost of leaving raise with the employers duration of service. 2.3 REWARD MANAGEMENT LINKED TO THEORIES OF MOTIVATION Employees motivation depends on the perception of achieving the reward, i.e. their expectations. Motivation theory describes why people at work act in the way they do, and what organisations can do to persuade people to apply their efforts and abilities in ways that will help to achieve the organisations goals as well as satisfying their own needs. Everyone has their own needs and a different set of goals. Employees can motivate themselves in different ways that will guide them to expect that their goals will be achieved whereas management can motivate people through methods like pay, promotion and praise. Motivation is important because there is reward. People work because they get revenue to spend on their individual, family and society needs. Some needs are the basics of life, what individual needs to survive physiologically. Maslow defined the hierarchy of needs with essential physiological needs at the base and going up through safety, social needs and ends in the need for self-fulfillment. However, some critics say that there is little empirical evidence to support this model. Herzberg differentiated between firstly hygiene extrinsic factors such as pay and organisation strategy and measures that will cause dissatisfaction in the workplace if absent or insufficient. Secondly, motivators which are intrinsic factors such as the worth of the work, attainment, appreciation, responsibility and potential for growth which will positively motivate people. Maslows Hierarchy of Needs and Herzbergs Two Factor Theory are a content theory of motivation. They both suggest that needs should be satisfied for the employee to be motivated but, Herzberg argue that only the higher levels of the Maslow Hierarchy (e.g. self-actualisation, esteem needs) act as a motivator. The remaining needs can only cause dissatisfaction if not explained clearly. Thus he stated that satisfaction and dissatisfaction were not necessary related. Taylor developed his theory of scientific management where he made three assumptions in his observation: Man is concerned with maximising money, People are considered as individuals and they can be treated like machines. Taylor had analyzed what motivated people at work which was money. He though workers should be paid for what they worked and pay should be associated to the amount produced Workers who work less would be paid less and Workers who did more than usual would be paid more. The main limitation in Taylors approach is that it overlook that each individual is unique Secondly, money is not an important motivation for everyone. Taylor ignored the fact that people work for reasons other than financial reward. Other theories of motivation have been developed as well which are believed to focus on cognitive or process theories that are how people consider their reward. Expectancy theory distinguishes two factors of value and probability. People value reward according to the level it satisfies their needs of security, community esteem, achievement and autonomy. Armstrong also agrees with the fact that Expectancy is the likelihood that reward depends on effort where there is more effort, the higher the reward but Marchington and Wilkinson (2006, p.325) argue that this is not a fixed and there may be other sets of expectation at different times. For that effort to be useful to the organisation, individuals need to have the correct ability and the right perception of their role. The theory implies that low motivation will be product of jobs where there is little worker control. (Marchington and Wilkinson 2006, p.326) Two other theories of motivation are significant to reflect on. Latham and Locke developed goal theory which describes that both performance and motivation are improved if people have challenging and monitored goals but accepted when there is feedback on performance. On the other hand, Equity Theory which advocates that people are more motivated when they are treated equitably and demotivated if they are treated inequitable while they deserved more than that. 2.4 STRATEGIC REWARDS Reward strategy is a declaration of intent that defines what the organization wants to do in the longer term to develop and implement reward policies, practices and processes that will further the achievement of its business goals and meet the needs of its stakeholders. (Armstrong 2006, p.643) Reward is more than compensation and benefits. Thus, a reward strategy must consider many aspects of the workplace in order to both attract and keep high value employees doing the correct things in the correct way so that they the organisation is successful. Reward policies provide guidelines for the implementation of reward strategies and the design and management of reward process. Basically, every employer must obey four major policies (White Druker 2000): internal alignment, external competitiveness, employee contributions, management of the pay system. Many research and studies on reward strategy has revealed that people are difficult and motivation is a complex process. What is obvious is that while financial reward is essential, for many people other factors are also, and can be more, important. Rewards are designed to promote behaviour that will contribute directly to the achievement of the organisations objective.Reward systems should be in line with the following: HR Strategy Business Strategy Organization Culture The elements of reward management and their interrelationship can be shown in the figure 1.2 Figure 2.2: Rewards management: elements and interrelationships Source: Michael Armstrong, 2006, A Handbook of Human Resources Management Practice, p.630 The elements of a rewards management system are: Job Evaluation Job evaluation is an organized method for defining the relative value or size of jobs within an organisation in order to institute internal relativities. It provides the basis for designing a fair grade and pay structure, grading jobs in the structure, managing job and pay relativities and guiding the success of equal pay for work of equal worth. However, there has been many criticism of job evaluation by some HR practitioners, in the late 1980s and early 1990s A numbers of major charges were made against it in many organisation. Critics argued that it was not only bureaucratic and rigid, but also time-consuming and unsuitable in todays organisations. 2.4.2 Grade and Pay Structure Pay grade is a system indicating rate and shows the rate at which an employee receives basic pay. It is also a means to compare ranks, which may have different names in the different services. Pay grades facilitate the employment method by providing a flat range of salary whereas Pay structure refers to the various levels of pay for jobs or groups of jobs by referring to their point as determined by job evaluation as compare to market rate surveys. it provides scope for pay increment in accordance with competence or contribution. Market Rate Analysis Market rate tell us the actual salary of some jobs. It is determined by the forces of demand and supply of the labour market. If an organisation pays below the market rate then it will probably have trouble in recruiting and retaining suitable staff. To know the market rate an organisation has to do pay surveys. It helps to obtain and keep high quality staff and response to market pressures. There are several ways in which a company can obtain data on market rates such as Local employment agencies, Job centres, Job adverts in national newspapers 2.4.4 Contingent Pay Contingent pay measures what do we value and what we are ready to pay for? It refers pay for individual that is related to performance, competence, contribution or service. Employee Benefits Benefits can be defined as all the indirect financial payments an employee receives for continuing his or her employment with the company. Benefits are generally available to all firms employees and includes such things as time off with pay, health and life insurance, and child care facilities. (Dessler 1997, p503) Today many organisations regard benefits to be an important approach in reward management in order to achieve a competitive advantage in labour markets. Both financial and non-financial benefits play an important function when it comes to attract, keep and motivate employees. As an addition to base pay financial benefits may improve an organisations ability to attract and retain employees, and non-financial benefits allows organisations to meet the specific needs of the employees. Allowances Allowances may be regarded as additional to base pay. Example of it may be meal allowances where some employees in any organsation are given a sum of money for a meal. Performance Management Performance Management refers to a process, which frequently measures work as it occurs. It is a way of obtaining better results by managing performance according to set of planned goals and competency achievements. It motivates people to do the right things by specifying their goal. Non-Financial Rewards It refers to rewards that are not related to pay but rather satisfaction arising from the job itself like recognition, success, responsibility, autonomy, and leadership skill. Total Remuneration Total remuneration refers to all the monetary reward and benefits than an employee received for working in the organisation. Total Rewards A total reward refers to all the rewards that exist like financial aspects of reward of basic pay, any bonuses and additional financial benefits with the non-financial benefits at the personal and organisational level. WorldatWork (2006) introduced a total rewards framework that proposed to advance the concept and help practitioners think and implement in new ways. Today, professionals primarily use the terms total rewards, total compensation or compensation and benefits to describe the joint strategies. There are five elements of total rewards, each of which includes programs, practices, elements and dimensions that together define an organizations strategy to attract, motivate and keep employees. These elements are: Compensation Benefits Work-Life Performance and Recognition Development and Career Opportunities 2.5 INDIVIDUAL REWARD SYSTEM Many sectors of employment use remuneration systems that contain direct relations to individual performance and results. On an individual basis this may be payment by results (PBR) for example bonus, piecework, commission, work-measured schemes and pre-determined motion time systems, measured day work (MDW), appraisal/performance related pay, market-based pay and competency and skills based pay. 2.5.1 Performance Related Pay Performance-related pay (PRP) is a method of remuneration that links pay progression to an assessment of individual performance. Performance pay may be defined as any remuneration practice in which part or all of remuneration is based directly and explicitly on employees assessed work behaviour and/or measured results (Shields 2007, p.348). Performance related pay is generally used where employee performance cannot be appropriately measured in terms of output produced or sales achieved. Like piece-rates and commission, performance related pay is a form of incentive pay. Individual performance is reviewed frequently (usually once per year) against agreed objectives is known as performance appraisal. Then employees are classified into performance groups which determine what the reward will be. The method of reward involves a cash bonus and/or increase in wage rate or salary. However performance related pay is not very understandable in the mind of researchers. Thorpe and Homan (2000) accounts both for research stating that one of the main advantages of performance related pay is that it attract and retain good employee while other research indicates that performance-related pay fails to motivate and that the employees generally regard the performance-related pay system as unfair in practice. Some drawbacks may be rewarding employees individually does very little to encourage teamwork and, such schemes also usually carried out only once a year assessment and payout, which may weaken any incentive effect. If a worker rated less than satisfactory receives no increase at all under an appraisal pay scheme their motivation and morale may be badly affected. Thus, it is important to focus appraisals on the assessment of performance, the identification of training needs and the setting of objectives, not on any dependent pay. 2.5.2 Individual Payment by Results (PBR) The aim of any PBR scheme is to provide a direct relationship between pay and productivity: the more effectively the employee works, the higher their pay. This direct link means that incentives are stronger than in other schemes. However, in recent years traditional bonus, piecework and work-measured schemes have decreased, as many employers have moved to 360-degree feedback, also known as multi-rater feedback that is employee development feedback that comes from all around the employee. Nevertheless, payment by result fails because material shortages or delays can affect production and Individual skills are not rewarded and indeed the most skilled may be put onto more complicated and potentially less rewarding work. 2.5.3 Piecework, Bonus Schemes and Commission Piecework is the easiest method of PBR workers are paid at a particular rate for each piece of output. This means the system is simple to operate and understand, although open to the shortcoming that it is often at the expense of quality. Pieceworkers must be paid at least the national minimum wage. Incentive bonus schemes is where for instance an extra payment is paid when production exceeds the established threshold, or where there is a raise in sales which surpasses given targets. Variable bonuses can also be paid in relation to performances achieved against pre-determined standards so that the higher the performance achieved, the greater the level of bonus produced. However, Armstrong (2006, p.635) mentioned that bonus payment are related to achievement of profit and or to other financial targets. Time rates are used when employees are paid for the quantity of time they spend at work. The common form of time rate is the weekly wage or monthly wage. Generally the time rate is fixed in relation to a standard working week (e.g. 40 hours per week). Time worked above this standard is known as overtime. Overtime is generally paid more than the standard time-rate. It reflects the extra contribution of the employee. The main advantages of time-rate pay are that they are appropriate for organisations that desire to employ workers to present general roles (e.g. financial management, administration, and maintenance) where employee performance is not easy to evaluate. Commission is a payment made to employees based on the value of sales achieved. For example, in sales jobs, the seller may be paid a percentage of the selling price or a flat amount of each unit sold (Werther Davis 1997 p.411). The rate of commission depends on the selling price and the amount of effort required in making the sale. Armstrong (2006, p.638) stated that commission provide a direct financial incentives and attract high performing sales staff. 2.5.4 Measured Day Work Measured day work (MDW) has been developed from both individual PBR and basic wage rate scheme. Salary is constant and does not vary in the short time provided that that the targeted performance is maintained. MDW systems need performance standards to be placed through some framework and undergo modifications as required. It involves full commitment of management, workers and trade unions. The pay structure is regularly formulated by job evaluation and with full employee agreement. MDW is now somewhat unusual. It suits organisations where a high, secure, expected level of performance is required, rather than highest potential individual performance. 2.5.5 Market-Based Pay Market-based pay refers to the salary level available in the market for the same type of work. Factors that help to consider the market rate are: the skills that are necessary are widely accessible, the unemployment level in general versus the employment rate and the jobs requirement for specialised skills. It is usually used in conjunction with other rewarding scheme like performance appraisal, but may be element of a reward strategy integrating several performance elements. 2.5.6 Competency and skills-based pay Competency and skills-based pay schemes are more common nowadays. There a direct relationship between the attainment, development and effective use of skills and competencies and the individuals pay. Competency and skills-based schemes measure what the employee is inputting to the job. Competency based systems have become more popular because many organisations use competencies in staffing and in performance appraisal for non-pay reason, such as training. There is an increasing trend for pay to be associated to the abilities of the individual. Competency based pay is used together with an existing individual performance related pay scheme and will reward them not on the basis of their performance but competencies. Leadership skill or team-working may be examples of competencies. Reward is given for the skills already gained and for the acquirement of new skills that would be helpful in other jobs in the same job band. This can promote multi-skilling and improved flexibility. 2.6 GROUP AND ORGANISATIONAL REWARD SYSTEMS Group pay schemes include those based on the performance of the team, plant or company. Team-based pay gained its importance with the increased interest in teamworking. It reflects the performance of the team. It is not easy to define the team, the goals, and the right reward. Peer group pressure can also be useful in increasing the performance of the whole team. Company based performance pay schemes are based on the whole organisation performance. The most common forms of this system tend to be based on overall profits (profit sharing), gainsharing systems. They are effective where communications and employment relations are good Share incentive plans involve the provision of shares to employees. In the journal of knowledge management, Milkovich and Wigdor, (1991) said: Team-based rewards may potentially result in a loss of motivation because of feelings of inequity due to a perceived free-riding of other team members and the use of an equality principle when allocating rewards rath er than an equity-based principle. (Milne 2007, p.33) 2.6.1 Gainsharing Gainsharing is a pay scheme that links workers pay to the success of organisational goals by rewarding performance above a pre-determined target. This is always led by measures of productivity, performance and quality. Gainsharing aims to develop these indicators by improving communications, staff involvement and promoting teamwork. It should be element of a full long-term strategy to maintain an effective system through involvement and sharing. It may thus be used as a substitute for bonus/piecework schemes, where quality is at times lost to quantity. The whole employees and management who have any association in the product of the organisation should be integrated in any gainshare plan. Marchington and Wilkinson (2006, p. 336) pointed out that such scheme have the merit that employees perceive their contribution to the total effort of the organisation and they do not consider themselves as individual units. They further mentioned that gainsharing plan will affect the role of trade union as their collective bargaining will become less important in determining wages or union will think employees will be more committed to the organiastion. 2.6.2 Profit Sharing Profit Sharing means rewarding employees a percentage of the companys profits. Singh (2006, p 385) defines profit sharing usually involves the determination of organizations profits at the end of the fiscal year and the distribution of a percentage of the profits to workers qualified to share in the earnings. Profit sharing helps employees to form part of oganisation success. However, Beardwell and Holden (1997, p.574) argued that there is little evidence that such schemes have any great consequence on the performance, motivation or attitudes of employees. 2.6.3 Share Ownership Schemes Businesses whose shares are traded on a stock exchange can offer shares to its promising employees. This compensation method can motivate employees to be committed to the business in the long run.There are different schemes available which companies can use to offer shares such as: 2.6.3.1 Share Incentive Schemes Under this scheme employer gives employees shares directly or ask them to buy. This motivates staff to be involved in the performance of the company. The Share Incentive Plan, previously known as the employee share ownership plan. For example, In the UK, a company using an ESOP can give employees shares worth up to  £3,000 each year. 2.6.3.2 Savings Related Share Option Schemes (SAYE) All employees and directors benefit from this scheme All scheme members get the right to buy a number of shares (normally at a lower price than their current price) after three, five or seven years. In this period of time, employee members save an expected amount to pay for the shares. If the shares increase in price, employees have a profit when they buy the shares. No income tax is paid on any gains made on these shares. 2.7 INFLUENCES ON PAY DETERMINATION According to Beardwell and Holden (1997 p.555) the pay system is affected by the following: 2.7.1 Beliefs about the Importance of the Job If a job is considered to be of high value, the salary scale of the job will be higher as compared to other jobs. 2.7.2 Personal Characteristics Individual characteristics like age, experience, education, skill affect the salary of a person. 2.7.3 Labour Market The demand and supply of labour affect pay determination. A business will have to match its pay with that of its competitors before setting its own pay structure. 2.7.4 The Strategies and Policies of the Company Each company has it own remuneration policy and strategy that determine the salary of its employees. 2.7.5 Government Rules and Regulation The government usually intervene for the welfare of employees like we have the equal opportunity Act, employment right Act 2008, and the employment relation Act 2008. Organisations have to consider all these Act before setting a fair compensation program. 2.7.6 Power of Bargaining Group Trade union action may affect the pay level. They can bargain for an increase in salary. 2.7.7 Cost of Living Due to high inflation rate, the cost of living tends to increase. Thus, this may affect the salary of employee.

Company G’s Three Year Marketing Plan Marketing plan Essay

Company G’s develops electronic appliances based on current technology. The marketing plans exemplify the strategies employed and market segment to assign new consumers and create solid financial benefits while retaining the existing customers. G’s Company is a unique electronic appliance developer which gives an advantage over the competitors by exposing he customers to a new outlet of electronic appliances. This fulfills the real need of the competent electronic appliance developer and expands the company’s reach to populations who have no yet subscribed for our products. The company will fund the development of the electronic appliances by provision of consultation services for retailers willing to use products for promotional services. The consultations will come up with advertisement sponsorship for the company. In the initial 3 years of the business, we expect consultation services to form part of our revenue stream. Mission We enable consumers to improve the quality and convenience of their lives by providing innovative electronics solutions.† Product Description The first product of microwaves will come in three different sizes; compact, medium and large capacity microwaves. The new line microwaves will help the power designers and low noise amplifiers to shorten the design cycles as well as becoming consumer friendly with minimal environmental impact and energy saving. Furthermore, the demands of our customers in microwaves are based on quality products and convenience. Besides, the company will employ effective distribution channels intertwined with online purchasing. We hope this will make the company derive its mission home. Convenience products: Compact Microwave This will be a small, portable microwave available for the customers. Compacts are the dominant microwaves in the market today. Ours will measure 18 inches wide and 14 inches long and 12 inches tall. Compact ovens will be rated as 700 watts of power and capacitate 27 liters. The compact ovens will primarily be used for reheating food and preparing microwave popcorn and food. They are not made to cook large meals. Compact products will be price convenient hence the consumers will spend minimal time to compare due to our brand prestige. Shopping Products: Medium Capacity Microwave These microwave products a larger than compact microwaves. They will measure 20 inches wide, with the same length and height to the compact microwaves. They will carry 45 liters and run-up to 1000 watts. They will be the standard family microwaves with added grills and a few features. These microwaves will target those who want to do home cooking, essential, a growing family. The company market analysis reveals that capacity microwaves are less purchased and are bound to stay in the warehouse for a long time. Specialty Products: Large Capacity Microwave They will be the large cooking microwaves for preparing large meals. Their capacity will handle (9 by 13 inch) cooking tall items like roasts and casserole dishes. They will have an auto look with precise temperature control measures. The large capacity ovens will be powered by 2000 watts and contain 60 liters of capacity. With the uniqueness, the buyers are expected to expend ample time balancing the effort of purchase. However, the company brand prestige will enable the consumers to choose our products. Target Markets Direct consumer markets with arrangements of successful licensing of products and services. The company learned that the number of direct consumers have increased in the market. We hope for higher sales in the direct consumer markets with increased demand. The number of families has grown and the demand of the microwave has aloso grown in the market. Therefore, the compact and medium microwaves targets the increased number of families and singles. Nonmanufacturing and nonindustrial segments of the business to business market with customer networks such as hotels, family homes and institutions. The large capacity and medium capacity microwaves have brand prestige and that fits the personality and lifestyle of the customers. With the new line of microwave products, the consumers will make purchases due to the technological advances of the products. Large company and stand-alone retail companies with extensive dealer, broker or distribution network. Company G’s marketing brand will enable other like-minded microwave companies to purchase our products for re-sale. The brand prestige fulfills their needs from the feedback of the consumers. Competition Analysis Risk of Entry by Potential Competitors The market forecasts predict that the products of the company are likely to diffuse in the market faster than imagined. With many people buying the electronic appliances, the market may experience new entrants given the prevailing opportunity. This will increase the capacity of the industry and lead to stiff market competition hence lower the current costs. Given that the existent economic, governmental, cost advantage and brand loyalty barriers, the company is optimistic of controlling the market share even if new companies join the business. Rivalry among Current Competitors The electronic business has attracted many companies which have led for the struggle of the market share between G’s and the competitors. The cut-throat competition in the market leads to low-profit margins as the low-income consumers opt for a cheaper product in the market. Based on the presence of global customers, growth rate of the industry and demand conditions of the product, the company operates optimistically compared to other competitors with undefined establishment factors of brand. Bargaining Power of the Buyers The power of the consumers or distributors to bargain down the prices of the products poses a higher competition for the company. The company has established the target consumers to be high and middle-income earners. This population is usually driven by the quality of the products the company offers as opposed to the high prices charged. The high-income earners do not exhibit a high bargaining power as compared to their lower income earner counterparts. The industry will maintain the prices and try reducing the cost of production to maximize on their profit margins. The high-income and middle-income earners have the required information on our products and will emphasize on the quality of the products. Bargaining Power of Suppliers The suppliers of the company are on alert of increasing their bargaining power. Provided the high-quality of the products, the raw materials also come at a high price. The supplies, therefore, finds it unreasonable to increase their prices due to fixed prices. The only threat is the uniqueness of the products of the suppliers. They have a high cost of switching because of the basic need of their products. Threat of Substitute Products The company identified high-income and middle- income earners as their competent consumers. Provided the high-quality products, it is the pride of the company since customer satisfaction is guaranteed. The substitutes such as the saucepan, stoves and other microwaves such as Flavor microwave are technology unconscious hence the company maintains its prices for greater profits. SWOT Analysis Strengths Value pricing high quality, market orientation and support services and product customization Long-term relationships with primary suppliers High percentage of reorder business Weaknesses little room for expansion lack of employee talent management scarce human resource opportunities Strategic alliances Technological advances Easy distribution Threats Slow diffusion rate of appliance Alteration of traditional channel relationships Competition Strengths Core Competency Strengths The high percentage of reorder business implies customer satisfaction and promising word of mouth advertisement High quality innovative product- brand prestige. Other Strengths The long-term relationships with the primary suppliers have led to the knowledge share of product adherence to quality standards, requirement and a common mission through-out the production and development process. The differentiation strategy as a result of commitment to, value pricing, high quality, market orientation and support services and product customization Weaknesses Human resource management of the company predicaments in the near future. This is because, with the brand prestige, the company is likely to expand, however, there are limited qualified employees such as engineers in the job market. Company G’s current facilities are crowded; there is little room for additional employees or new equipment for expansion of the business. Lack of management of the employee talent that requires the company to create a department for nurturing the talents, this requires additional financial muscles the company may not afford any soon. Opportunities Strategic alliances that enhance the products of the company that will allow production of a myriad of new products, sharing of resources and increase the customer base. Technological advances have freed up time for consumers as well as bringing efficiency in product promotion and all product enquiries The medium and compact microwaves are easily distributed locally, nationally and globally. Business globalization creates an opportunity for new customer relationship establishment in foreign markets. Threats Slow diffusion rate of appliance may affect the sales return of the new products leading to low profits and low growth rate. Reengineering, outsourcing and resizing trends in product development may alter traditional channel relationships with dealers, brokers and distributors of eliminate them completely. Theft of brand piracy and trade secrets through unauthorized copying are difficult to control leading to unsecured branding. Competition from traditional microwave producers and other promotional items is strong. This poses a challenge to meeting the cost demands of production. Marketing Objectives Product Objective To commit to service and quality products to effectively implement the niche differentiation strategy in the diverse marketplace. The objective is a distinct and realistic to the company mission that will assist company G’s satisfy the customers. To improve the standard of the products the company offers now by incorporating the knowledge of the needs of customers and specific opportunities for offering the new products. To create new products that will use its new technology, equipment and knowledge base. Price Objective To verify the price of the new products and services to the customers. The objective is a distinct and realistic to the company mission that will assist company G’s satisfy the customers. To check the pricing of the competitors manufacturing microwaves To use the pricing of the competitor’s research to meet price marketing objectives Place Objective To define the most secured place of the new products To make a new product easily available to the consumers within 24 hours of manufacture using elaborate distribution channels for easy access by the customers hence focusing on the mission. To evaluate the degree of customer interaction with the new products Promotion Objective To conduct simple research and analyze substitute products with the aim of developing specialty advertising products that are technologically conscious, but not just calendar related. To better understand the satisfaction and needs of current customers through benchmarking on marketing research and company G’s marketing information system. The company will create a website page immediately where customers will post their feedback on the products. To use the product calendar as a promotional tool that will provide a microwave to the customers as advertisement premium. Marketing Strategy The marketing strategy of G’s company is focused on satisfaction of the prospect market and current consumers by providing the best microwave appliances in the market. The target market share based on projected demand and supply is also of our interest. With over 10 years of experience in the market, the workforce will provide the support needed by the customers to enable us meet our objectives. The knowledge and expertise from the employees from marketing and sales will provide the company with feedback for harmonizing the strategies based on the marketing objectives the company adopted. Distinct strategies Company G’s high quality products specialty product advertisement is customized to the needs of the consumers. The service and product value is reflected in the company’s premium price. The company will be sensitive to the elasticity of price of the products and overall demands of customers. G’s company will be sensitive to account for the place of new product distribution, product availability and the level of the consumer interaction with the microwaves. The company already had a brand that was well known by the customers. The brand prestige that focuses on the middle and high-income earners will be improved by producing the new satisfactory products. Product Strategy G’s company is committed to supplying affordable and quality wise products to the customers. Company G’s intangible attributes is its ability to meet or exceed the consistency of customers’ expectations, its anticipation of new customer needs and its responding speed to the demands of customers. Such intangible attributes are difficult for the competitors to copy, hence giving the company a competitive advantage. Boosting the consumer confidence. Some consumers are often hesitant to buy the product they have little knowledge about. The marketing campaign will emphasis on the quality and value of the products which will result to additional cash register Price Strategy Company G’s high quality products specialty product advertisement is customized to the needs of the consumers. The service and product value is reflected in the company’s premium price. The company will be sensitive to the elasticity of price of the products and overall demands of customers. The company’s new products have a prestige of high quality. The prices offered will account for warranties, endorsements and testimonials that will make the buying decision easier for the customer. The company will employ the trial and error method to fix the market prices, but remain flexible. The results of the new pricing initiative will be closely monitored to enable us expand the customer base. Place Strategy G’s company will be sensitive to account for the place of new product distribution, product availability and the level of the consumer interaction with the microwaves. The company intends to be flexible on the supplies, distribution and customer interactions. Such practices will promote planning and meet the deadlines of product sales. The company already had a brand that was well known by the customers. The brand prestige that focuses on the middle and high-income earners will be improved by producing the new satisfactory products. Promotion Strategy Approximately 80 percent of the company reorders every year, so the bulk of promotional expenditures will focus on new product offerings through publications, journals and direct-email advertising. The remaining promotional resources will be directed to personal selling of new products. This will enable the company cut on the costs and reduce wastage of financial and human resources. The company will conduct a campaign aimed at promoting a new product. To achieve this, the company will create logos and names of products while remaining within the advertising budget. Tactics and Action Plan G’s company and the new products require extensive customization to not only meet but exceed the needs of the customers. It is, therefore, necessary to reorganize the customer groups and market function. The new marketing strategies intend permit the company to invest their effort on marketing exclusively on specifications and the needs of the customer segments. Product action plan Tactic Due Date Responsible Party Develop marketing information system to monitor customer satisfaction by year two November 15th , 2014 Business Analysis Team Implement any changes implemented by the business analysis team November 15th , 2014 Business Analysis Team Develop new product offering with their potential customers November 15th , 2014 Production Manager Price action plan Tactic Due Date Responsible Party Create three sales manager positions November 1, 2014 President Develop marketing information system to monitor price feedback January 15, 2015 Marketing Director Evaluate the profitability of the new product February 15, 2015 Business Analysis Team Place Action Plan tactic Due Date Responsible Party Distribute free samples or discounted microwaves to orphanage institutions November 15th ,2014 Sales Manager Increase direct sales through sales representatives September 1, 2014 Sales Manager Increase sales of the products to individuals and re-sellers September 1, 2014 Sales Manager Promotion action plan Tactic Due Date Responsible Party Assign 3 research team on potential new products offering and client October 1, 2014 Marketing Director Analyze the current billing practices and cycles September 1, 2014 Marketing Director Design customer survey project September 1, 2014 Business Analysis Team Monitoring Procedures To evaluate the marketing plan effectiveness, the company will compare its actual performance with the objectives of the plans. The procedures include, however, not limited to the following; Monitoring Activity Due Date Responsible Party The use of project management concept procedure to evaluate marketing plan implementation through establishment of human resource needs, time, and budgetary expenditures November 15th, 2014 – December 15th, 20114 yearly Business Analysis Team Each project team will be responsible for determining the changes to be made in product focus from the result of studies from its area. The company will conduct internal audit to evaluate the activities. September 1, 2014 – October 15th, 20114 every year President A perceptual comparison of planned and actual activities will be conducted monthly through self assessment by the company business analysis team. Monthly Business Analysis Team Reference Luther, W. M. (2001). The marketing plan: How to prepare and implement it. New York: AMACOM. Source document

Assumptions Used Cash Flow Vulcan Essay Example Pdf - Free Essay Example

Sample details Pages: 11 Words: 3250 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Delloyd Engineering Sdn Bhd (Delloyd) specializes in the production of precision metal castings that are components used in the automotive industry. The company is considering automating part of the production process by considering the purchase of the Vulcan Mold Maker, an automated molding machine. The company has proposed to allocate RM 1 Million towards investing into the new molding-machine proposal, and will make a decision on whether to retain the current Semi Automatic Machines or proceed with the investment into the Vulcan Mold Maker. Don’t waste time! Our writers will create an original "Assumptions Used Cash Flow Vulcan Essay Example Pdf" essay for you Create order The decision will be based on the net incremental cash flow projected through cash flow forecasts, along with relevant qualitative characteristics and a cost-benefit analysis. 2.0 Assumptions used in preparation of the cash flow for Vulcan Mold Maker and the Semi Automatic Machines Two cash flows have been prepared to project the estimated cash inflow and outflow associated with using the Semi Automatic Machines and the Vulcan Mold Maker for eight years. An eight-year period was chosen for both cash flows as the Vulcan Mold Maker will be fully utilized and depreciated in 8 years time. This is to ensure comparability of the net cash flow for both options available. There are a number of assumptions made and these assumptions serve as the basis for the preparation of the cash flow statement. Firstly, total sales volume need to be determined in order to calculate the cash inflow from sales. The figure used in the cash flow is RM280 million, which equals to the expected sales for calendar-year 2000, provided in the case. It is assumed that the sales figure remains constant over the years for both the machines. This is because the figure is determined by market demand for the moldings and not influenced by the production level of the supplying company. To simpl ify the cash flow presented, factors such as economic downturn and inflation are assumed not to affect the total sales for Delloyd. [NOTE 1] The total cost of goods sold is calculated as a balancing figure by setting the gross profit margin at 35%. The gross profit margin was calculated based on an estimation of the industry average rate. Cost of goods sold consists of direct labour and direct material cost. Direct labour cost for both machines are calculated based on the information given as follows: Vulcan Mold Maker Semi Automatic Machines Number of shift 2 2 Hours per shift 12 12 Days working 210 210 Number of machine operators required 2 12 Labour rate per hour for machine operators RM11.36 RM7.33 Number of maintenance workers required 0 3 Labour rate per hour for maintenance workers RM7.85 Total direct labour cost [NOTE 3] RM 57,254 RM 562,010 Delloyd is currently negotiating a tough collective-bargaining agreement with the employees union regarding the layoff of 24 operators that would no longer be of service should Delloyd choose to purchase the Vulcan Mold Maker. Thus, the cash flow statement for Vulcan Mold Maker is prepared on the basis that the negotiations with the employees union were favourable to Delloyd, without any unforeseeable effects on the companys operations. Information was given in the case that the foundry operated two shifts a day and total of 210 production days in a year. An assumption has been made that the workers work 12 hours each shift as the production process is continuous. The total cost calculated above has been rounded up to the nearest Ringgit. On the other hand, the direct material cost for both machines are calculated by subtracting the direct labour cost calculated above from the total cost of goods sold. It is also assumed that the respective total cost of goods sold will remain c onsistent over the years for both machines as it will not be affected by inflation and economic downturn. [NOTE 2] The calculation of expenses will cover general expenses that cannot be traced directly to the production and is charged on a yearly basis. The expenses for the Vulcan Mold Maker will consist of contract maintenance and power costs. On the other hand, expenses for the Semi Automatic Machines consist of maintenance supplies and power cost. The information on the expenses incurred is provided in the case and assumed to be consistent over the years. [NOTE 4]. Besides, the labour savings that are expected from the use of Vulcan Mold Maker is assumed as a cash inflow, amounting to RM5,200 in the cash flow statement of the new machine. [NOTE 5] The annual depreciation for Semi Automated Machine is RM47,520 and it is provided in the case study. Meanwhile, depreciation for the Vulcan Mold Maker is calculated based on the total cost of investment and depreciated over eight years assuming the straight line method is adopted. Thus, the annual depreciation cost amounts to: Total cost = RM 1.01 m  [1] Useful life = 8 years Annual Depreciation = RM 126,250 [NOTE6] The tax rate used equals to the companys effective tax rate of 43%, which reflected the combination of national and local corporate income-tax rates as given in the case. [NOTE 7] The net capital expenditure in the first year (Y0) for Vulcan Mold Maker is calculated with the assumption that the six Semi Automatic Machines have been sold for the price of RM130,000. The calculation is as follows: Book value of old machines = RM285,125  [2] Capital loss = RM155,125  [3] Net Capital Expenditure = Total cost Offer price Tax savings = RM1,010,000 RM 130,000 (RM155,125 x 43%) = RM813,296 [NOTE 8] The cash flow statement prepared will not include any extraordinary costs that were not mentioned in the case study to ease the comparability purpose. In addition, the consideration of purchase of the Vulcan Mold Maker was decided as the best option after careful consideration of all available molding-machine proposals. This option is assumed to be the most suitable and beneficial choice for Delloyd after a detailed analysis on all of the proposals. 3.0 Cash Flow Statement 3.1 Vulcan Mold Maker 3.2 Semi Automated Machine 4.0 Discount Rate Cost of Equity = Risk-free premium + (Beta) Risk Premium = 5% + (1.25) 6% = 12.5% WACC = % Equity (Cost of Equity) + % Debt (Cost of Debt)(1-Corporate Tax Rate) = 67%(12.5%) + 33% (6.8%) (1-0.43) = 8.375% + 1.279% = 9.654% The Weighted Average Cost of Capital (WACC) for Delloyd is 9.65%. This percentage was calculated by multiplying the cost of each capital by its weight and then adding the two. The weight of debt was given as 33%. The cost of debt given was 6.8%. This number was based on the interest rate of loans to the company from Bank Pembangunan. The corporate tax rate for Delloyd is 43%. The weight of equity was given as 67%. The cost of equity used was 12.5%. This number was calculated by multiplying the companys beta of 1.25 by the equity risk premium of 6% and adding it to the risk free return of 5.0%. The beta, equity risk premium and risk free return were given in the case. The reason for WACC to be chosen as the discount rate is that in actual f act, it is an equally weighted combination of the  cost of equity  and the after-tax cost of debt. It will thus provide the company with information regarding the best financing method whether via equity or debt, or the different combinations of both, that result in a lower cost of capital (Value Based Management.net, 2010). The WACC is then used as the discount rate to discount the net incremental cash follow. The net incremental cash flow is calculated by subtracting free cash flow of the Semi Automatic Machines from the free cash flow of Vulcan Mold Maker for the eight years. The calculation results in a negative NPV, which means that the investment in the new machine should be rejected. Only projects that yield a positive NPV will be regarded as a good investment decision (Michel, 2001). It was provided in the case study that the inflation rate is 3%. This rate was not incorporated in the calculated cash flow and NPV. However, if this has been taken into acco unt, it would have been resulted in a lower NPV because discount rate will increase. This is in accordance with Fishers Equation Theory which presents that nominal interest rate has to increase so that the borrowers can achieve their real interest rate. The lower NPV further reduces the attractiveness of the investment if it was financed by loans (Sun Phillips, n.d.). 5.0 Calculation of net incremental cash flow to NPV 6.0 Impact on the discount rate for two different financing methods Delloyd has two different options to finance the acquisition of the Vulcan Mold Maker. Delloyd can either take up a loan or issue additional shares in order to raise capital to fund the acquisition. The current market value of the companys capital is made out of 33% debt and 67% equity. Hence, the effect on the discount rate is further analyzed in two separate situations below, where the company chooses debt or equity financing. The WACC is calculated with the assumption that all other factors, other than the debt and equity percentages, will remain consistent. Situation 1-The company takes up a loan to finance acquisition. Effect : Composition of 60% debt and 40% equity = 40% (12.5%) + 60% (6.8%) (1-0.43) = 7.326% The discount rate drops when the company relies on more debt. Cost of debt is comparatively lower than cost of equity. This is because of the pecking order theory, whereby companies have a specific hierarchy when it comes to selection of financing methods. New debt is preferred over issue of new external equity due to lower transaction costs (Emery, Finnerty Stowe, 2007). Tax shields provided by debt financing also leads to a decrease in WACC as interest payments are tax-deductible. Besides that, debt financing also involves the use of company asset as security to the loan, as well as restrictive loan covenants set by the lenders to ensure that Delloyd would use the loan strictly for a proper purpose (Anderson, 2000). Hence, the WACC value is generally lower to reflect lower risk. A lower WACC would result in a maximization of the firm value. When the company decides to take up additional loans, this would indicate the company is now relying more on borrowed funds. Debt financing will lead to additional obligations of meeting interest and capital repayment (Anderson, 2000). Although these obligations may have a negative impact on the cash flow, this could motive management to work towards earning more profits in order for the company to meet these monthly obligations. Delloyd must reconsider taking up debt financing because if the company plans to use additional debt financing in the future, banks might be more reluctant to provide loans. A higher reliance on debt to finance assets indicates that Delloyd is at a higher risk of being unable to repay loans. This may result in higher interest rate charges in the future. Situation 2-The company issues additional shares to finance purchase of Mold Maker Effect : Composition of 20% debt, 80% equity = 80% (12.5%) + 20% (6.8%) (1-0.43) = 10.78% The WACC increases when the company relies on more equity. The issue of additional shares will lead to a dilution in ownership for existing shareholders, and this usually leads to a negative market reaction in the initial stage (Liesz, 2001). Equity financing will also involve transaction costs, including administrative and underwriting costs and this will have an impact on the WACC (Myers, 1984). In addition, when a company becomes liquidated, the shareholders will only be able to claim the residual assets after all debt obligations have been met. Hence, shareholders bear the highest risk and hence, must be compensated with relatively higher returns. The WACC will increase as a result, to reflect a higher risk associated in relying on equity financing. 7.0 Qualitative Issues Important decisions should not be made based on quantitative considerations alone. There are also qualitative issues related to the purchase consideration which are important and relevant to this capital investment decision. One of the most pressing issues faced by Delloyd is the ongoing negotiations with the employees union. This external stakeholder has the power to influence the reputation of the company should the union become dissatisfied with the outcome. Delloyd could easily be portrayed as a company that does not value the contributions of their employees. The layoff may adversely affect employee morale within the company. The other employees may suffer from survivors guilt, a term used to describe the feelings of surviving employees post layoff period. They feel that their job security has weaken or become angry if they feel that the layoff was injustice. This may potentially affect employee productivity (Brockner et al, 1986). This is supported by Brockner (1992), who goes on to say that proper management of layoffs can occur as survivors reaction can be influenced by upper management. Although Delloyd considered reassignment of the 24 workers to fill up vacant positions within the company, the only available positions were for the post of janitors, who were paid RM 4.13 hourly. The company could offer these positions to the workers that are interested in continuing to work for Delloyd. Managing Director Debbie Lee believes that the quality of the metal castings would increase resulting from the purchase of the Vulcan Mold Maker. Consequently, the scrap rate will reduce leading to fewer rejections of metal castings. The purchase of the Vulcan Mold Maker would allow Delloyd to enjoy a competitive advantage in this aspect. A comparatively lower rejection rate will show potential customers that Delloyd emphasizes on product quality. However, it is difficult to quantify competitive advantage in the cash flow statement and thus, the statement will not reflect this aspect. The purchase of the Mold Maker will also lead to an increase in supply due to a higher theoretical maximum capacity. The increase in supply does not necessarily correspond to an increase in demand. The company becomes more efficient in meeting current demands quickly, but an increase in demand will occur due to external factors beyond the controls of Delloyd. The economy is predicted to slow down, and this will affect the demand for metal castings. It is difficult to quantify this factor as there is no certainty of the future economy condition. However, the company had survived the 1997 financial crisis and could estimate the impact of the current slowdown based on previous experience in preparing the cash flow during the last financial crisis. Another factor to consider is the approval of the Board of Directors (BOD) to purchase the Vulcan Mold Maker. They have already rejected three proposals of similar mold maker and the latest being in 1999 due to economic downturn. As economic downturn is predicted to occur again, it will not be an easy task to get the approval. In addition, the total cost of RM1.01 million has exceeded the proposed expenditure slightly. The BOD also may question the need for extra capacity for the company as the existing machine itself is not running in full capacity. 8.0 Cost benefit analysis As we have looked into the cash flow for the two options and also the other qualitative factors, we can now summarise the cost and benefits of both options. 8.1 Semi Automatic Machine One of the benefits of not replacing the Semi Automatic Machines is that the company does not need to change their way of operating. Change is a word that most people fear because it requires them to move out of their comfort zone. If the company decides to remain status quo, they can comfortably produce their product without new surprises. Of course, this is not always a good option. Not changing into something better often comes with a cost. The company will not be able to progress further and achieving greater heights would be difficult. In addition, the Semi Automatic machines involve more labour costs as it requires more workers to operate the machine. Hence, this will increase the expenses and subsequently, lead to a decrease in NPV. This is due to an emphasis on quality in the metal castings produced. The acquisition of the mold maker would have lead to a drop in rejection rate, but if the company choose to maintain with the use of the Semi Automatic Machine, the scrap ra te would be maintained at 70 parts per million. They would have to forgo the benefits in the form of a reduction in scrap rate. 8.2 Vulcan Mold Maker If the company decides to replace the Semi Automatic Machines with the new Vulcan Mold Maker machine, the company will be able to produce higher quality products. This is an important factor if the company wants to retain its existing customers and also to attract new ones. According to a marketing website, people often buy products that are value for money and not just cheap products (Ali, 2007). By producing higher quality products, it is highly definite that the company is going to be more profitable. Also, the company is able to cut material costs because the Vulcan Mold Maker will result in lower raw material scrap rates. Besides that, the Vulcan Mold Maker requires only 2 workers to operate. Therefore, there will be a substantial amount of labour cost saved as less training and retraining costs will be incurred. The lower number of workers also helps the company to avoid any problems from the employees union which can be a cost to the company in the future. When the Vulcan Mold Maker is purchased, it will decrease the medical claims. The medical claims have doubled since 1998 as there was higher demand on employees to lift heavy objects. It is expected that the demand to lift heavy objects will decrease with the purchase of the new machine. Although it is unquantifiable at this point, there should be a decrease in medical claims leading to a saving in insurance costs. However, if the company decides to put the new machine in place, the company will have to deal with the tough collective bargaining agreement with the employees union before we are able to lay-off the existing workers. The company might need to offer monetary compensation or may provide early retirement benefits to those workers that are affected. These are necessary as the workers may find it difficult to obtain another job as economy is heading downwards. 9.0 Recommendation Although it seems like the benefit of investing in the new machine outweighs the benefit of using the existing machine, Delloyd is advised to maintain its current use of the semi-automatic machines. This is because investing in the new machine will result in negative NPV of the incremental cash flow, reflecting an investment that is not viable. The rule of thumb in investing in a project is that the project must generate a positive NPV. However, Delloyd may want to invest in the new machine in the future when there is an increase in sales and when the economy is stable given the benefits that the company will reap. For the time being, we will advise Delloyd to remain status quo. 10.0 Conclusion Delloyd should not invest in the new machine because it results in negative net incremental cash flow, which is the main consideration in making the investment decision. Qualitative factors were also taken into account when deciding the best option for Delloyd. The NPV of the Semi Automatic Machines is higher than the NPV for the Vulcan Mold Maker. This implies that the current machines will increase the value of the overall company in the future. The ongoing negotiation with the employees union is another main factor. Delloyd has not come up with any solutions other than the layoff. With the recommendations, the 24 workers will be continually employed and this allows Delloyd to maintain a good relationship with the union. Besides that, excess capacity exceeding the current 90% might not be useful for Delloyd as the economic downturn is due to occur. The current scrap rate is relatively low and should not be of concern for now. Hence, the company should focus their efforts towards preparing for the economic slowdown that may occur in the near future. (2960 words)

Salinger s The Catcher s The Rye - 1303 Words

Irving Howe, a literary and social critic said, â€Å"The knowledge that makes us cherish innocence makes innocence unattainable† (BrainyQuote). The Catcher in the Rye, a novel by J.D. Salinger tells of a very important part Holden Caulfield s life. Holden, a 17 year old from New York, writes about the events that follow him flunking out of Pencey Prep School. Holden is very critical of everyone around him, except the small group of people that he protects with his life. He cherishes the youth children have, and hates the qualities that adults share. He acts very young for his age, but has the responsibilities on his shoulders that an adult would have. Holden is very defensive of other’s innocence and attempts to selfishly protect it from the†¦show more content†¦His innocence, and Allie’s innocence were quickly taken away, which leads Holden to cherish the youthfulness that he no longer has. Through his constant hatred of phonies, he reveals what he is truly hiding; he does not want himself and others to grow up. The innocence that children have stops them from becoming an adult and learning of the true dangers of the world. He is very critical of his brother D.B., because he went to make a name for himself in the movie-making business, instead of writing more stories, â€Å"Now he’s out in Hollywood, D.B., being a prostitute. If there’s one thing I hate, it’s the movies† (Salinger pg. 2). Holden hates the decision his brother made when he went to Hollywood. It is a very adult decision, that required D.B. to take a lot of risks, yet rewardingly pays off. Holden refers to him as a prostitute, which shows how he really feels about D.B.’s choices. He sees him as a sell out, even though he is pursuing a good career. Holden is trying to retain the innocence of those around him, because he does not want to see them become adults and put on a fake act for the world. Children to him are genuine and pure, whereas people like his brother are phony and do not meet his extremely high standards. Allie is idolized by Holden throughout the book, and he sees him as perfect, but he could not protect him from the cancer that quickly killed him. He should not protect the innocence of others, because it