Strategic Planning

Strategic Planning Explained

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Title: Strategic Planning – When we travel we usually have a clear destination in mind. We know what mode of transport we want to use, how long it will take to get there, who is travelling with us and what route we are going to take. This is because we have spent a bit of time beforehand planning our trip.

You would not simply turn up at an airport with no luggage or ticket and expect to end up at your ideal destination (although some more adventurous people might argue that is the best way to travel). Instead you would have to waste time with last minute paperwork, have limited options, you may end up going to a less desirable place or even have to go home and start again.

The same can be said of strategic planning a business or organization. If there is no clear plan then the owners or management have no way of knowing what outcome they want to achieve or how to get there. Successful organizations use strategic planning to map out the best way to achieve their desired outcome.

A strategic plan is a document created specifically for an organization and clearly states the core values, mission statement and objectives. It covers the available resources such as staff, supplies and technology and states how these are to be used for the advancement of the overall business. It is a valuable tool that can be used to measure progress at any stage and to determine when all the objectives have been met. Strategic planning is the process used to create a strategic plan.

This post will look at the following points.

  1. Who uses a strategic plan?
  2. What are the key elements or features?
  3. Why use a strategic plan? What are the benefits?
  4. When to use strategic planning?
  5. How to use strategic planning effectively?
  6. What are the potential problems?

Who uses a strategic plan?

These days businesses both large and small use strategic planning. While it is not essential to have a strategic plan in place when starting a business it is certainly advisable. It is important to note at this stage that it is not a business plan. A business plan is generally focused on facts and figures such as budget forecasts, prospective markets, products and the like. Simply put, a business plan outlines the ‘who’ and ‘what’ of an organization. A strategic plan looks at the ‘how’ and ‘why’. It involves the creation and implementation of strategies to shape and guide how all resources are best used.

A plan can be created by a single person, outsourced consultants or by a dedicated committee over a period of time. The larger the organization, the more beneficial it often is to involve a greater cross-section of relevant people. For example a national software development company may choose to include staff from upper and middle management, sales, research and development, marketing, accounts, production and dispatch. The owner of a small chain of bakeries may find it more beneficial to use the experience of a business advisory service either on a once-off or an ongoing basis.

What are the key elements or features?

Strategic planning is a process, not a one-off action. The process involves a series of discussions or meetings between interested parties in which key ideas and concepts such as corporate culture and common goals are brainstormed and analyzed. As with planning a holiday, strategic planning looks at:

  • “Where are we now?”
  • “Where do we want to go?”
  • “Why do we want to go there?”
  • “How are we going to get there?”
  • “How do we know when we have reached our destination?”

Through this process a document is created that communicates all the values, goals, strategies, procedures and desired outcomes at every level of the organization.

After a series of drafts the plan is laid out in a final document that then becomes a valuable resource for management, employees and anyone else connected to the business. The final format may be unique to the organization or based on one of the numerous templates available. The completed strategic plan is often produced as a printed booklet and also as an online resource.

Why use strategic planning? What are the benefits?

The starting point

The use of a strategic plan benefits an organization in many tangible and intangible ways. The main benefit is in the process itself. The ongoing analysis and reflection through a series of steps allows for organic growth and development. Those with a clear, proactive plan are more likely to achieve an outcome that meets their specific goals and once implementation begins they have a clear pathway to follow.

Many businesses fail within their first few years due to lack of careful strategic planning. If they do manage to keep going, they may find the rate of growth disappointing or they may move from obstacle to obstacle without being able to see way ahead. They may waste a lot of time and money ‘putting out spot fires’ simply reacting to unplanned situations as they arise.

Trailblazing corporations such as Google and Apple not only know where they stand in the world market now, they know where they intend to be in 5, 10 and even 50 years time. Their strategies would be flexible enough to allow for changes in technology and the market conditions.

Shaping the future

To begin with, companies need to establish how they want to be positioned in the marketplace and what themes will form the backbone of their corporate culture. Defining these core ideals will shape the whole nature of the resulting plan.

A very successful company with unique and readily identifiable ideals is The Body Shop. Founded by Dame Anita Roddick in 1976, Anita’s first store was initially set up as an income source for her family but her personal experience and beliefs set the scene for the company culture that followed. She had travelled widely and was interested in the different ways in which women around the world looked after their bodies. Growing up in post war Britain also influenced her thoughts on recycling, giving value for money and on general consumer culture.

“Anita believed that businesses have the power to do good. That’s why the Mission Statement of The Body Shop opened with the overriding commitment, ‘To dedicate our business to the pursuit of social and environmental change.’ The stores and products are used to help communicate human rights and environmental issues”.

More than 35 years later, The Body Shop now has an outstanding global reputation. The ongoing commitment to the original core values such as recycling, sustainability, ethical trade, and community involvement have benefited many thousands of people across the world.

“There is no doubt that The Body Shop and Anita have always been closely identified in the public mind. Such was the inspiration she provided, that The Body Shop has become a global operation with thousands of people working towards common goals and sharing common values. That’s what has given it a campaigning and commercial strength and continued to set it apart from mainstream business”.

Visions, missions and values

One of the key benefits of the strategic planning processes is that it creates an opportunity for an organization to carefully consider why they exist in the first place. “Why are we doing this?”

They can break this concept down further into vision, mission and value statements.

A vision statement portrays the ideal future that the organization would like to achieve. In the case of a not-for-profit group this statement would depict the ideal outcome for the community whereas the vision statement of a corporation would naturally be more focused on growth and profits. In either case, this kind of statement serves to establish the purpose of the organization.

While it may be tempting to write a long, flowery vision statement that would look good on an inspirational poster, it is far better to keep it simple and relevant to the company. The following vision statement for technology giant Samsung is short but very well focused. It clearly shows the desired outcome for both the company and the people it serves.

“Samsung is dedicated to developing innovative technologies and efficient processes that create new markets, enrich people’s lives and continue to make Samsung a digital leader”.

Mission statements relate more to what will be done. It takes the vision a step further and briefly outlines the core approaches that will be used to allow the vision to be fulfilled. McDonald’s needs no introduction as a corporation. They are not only an internationally recognized brand, but they are also an outstanding example of how having a well constructed mission statement impacts on every aspect of the company.

“McDonald’s brand mission is to be our customers’ favourite place and way to eat and drink. Our worldwide operations are aligned around a global strategy called the Plan to Win, which centre on an exceptional customer experience – People, Products, Place, Price and Promotion. We are committed to continuously improving our operations and enhancing our customers’ experience”.

A carefully considered value statement becomes a valuable tool for all employees to refer to as a guide when making complex decisions. While some organizations may not take the time to create this third type of statement, in reality they make value-based judgements constantly. Whenever they have to make a choice to establish what is more important to them that are a value based decision. For example; when deciding what area of the market to focus on, where to base their production or what to include in a staff development program they need to reflect on their core values. If these are clearly stated and easy to access, then that decision becomes much easier to make.

The Coca-Cola Company uses a handful of value statements but they are extremely efficient and effective.

“Our values serve as a compass for our actions and describe how we behave in the world.

  • Leadership: The courage to shape a better future
  • Collaboration: Leverage collective genius
  • Integrity: Be real
  • Accountability: If it is to be, it’s up to me
  • Passion: Committed in heart and mind
  • Diversity: As inclusive as our brands
  • Quality: What we do, we do well”.

One thing all of these successful brands have in common is that their branding is uniquely identifiable. They stand out from all their competitors and ensure their market position because they knew their destination from the outset and they have maintained their focus ever since.

On the other hand, businesses that have not given thought to how they can offer a unique experience to their customers run the risk of getting pushed out of the market by more pro-active competitors. They may manage to stay afloat with a steady turnover but it is very unlikely that they will grow significantly in the long term.

Drafting the map

The next step in the strategic planning process is to carefully map out how the company’s goals will be implemented. This stage is beneficial in a number of ways.

The plan helps to define how all the available resources can be used most effectively to achieve these goals. This includes employees, raw materials, production equipment, initial capital and much more. These are no right or wrong answers when it comes to making these types of decisions. Individuals have their own preferences and biases so in order to avoid successive board members or employees making decisions that move away from the original company goals it is vital for them to have clear cut guidelines to follow.

An example of this would be if the organization had a very strong environmental emphasis in its’ value statements, then the person responsible for managing the company car fleet should consider things like fuel types and efficiency, materials used and possibly other more sustainable methods of getting the employees to work. It would be counterproductive for them to order fuel-guzzling SUV vehicles for inner-city travel even though they are generally cheaper than electric or hybrid cars.

Having a strategic plan does not mean that the resulting procedures have to be rigid and mapped out to the last minute detail. Imagine having a travel itinerary so strict that it doesn’t allow for interesting detours or changes in the weather. Having broad guidelines and boundaries enables an organization to respond to changes in both internal and external conditions as they occur.

The Global Financial Crisis unfortunately saw the demise of many organizations across countless industries. Some businesses have products or services that have gone out of fashion or have become more automated. There are many reasons why a business that was doing well suddenly faces an unforeseen roadblock that can cause everything to grind to a resounding halt.

The ones that survive are those who have people who think ‘outside the square’ and come up with new areas to focus their attention. The printing industry used to be very labour intensive with staff needed to set the machines or create the lino cuts by hand. Computers have rapidly changed many of these processes to the point where the majority of printing is now produced digitally.

Modern printing businesses now offer customized products such as books, calendars or posters in small quantities that would not have been feasible with the large manually operated presses. They have found new paths that are still compatible with their original goals even if the goalposts have been shifted slightly. The companies that did not have the desire or flexibility to keep up with the changes in technology have now largely gone out of business.

An intangible benefit of the strategic planning process is the increase in job satisfaction for those involved at every level. Knowing that their contribution is valued and appreciated encourages people to participate more fully and gives them the confidence to put forward new ideas.

This is true not only for businesses but for other organizations such as community groups and local councils. Whenever there is an open and clear communication pathway and people can see that their ideas are well considered they are far more likely to step up and take ownership of their proposals.

To refer back to the values of The Coca-Cola Company above, “If it is to be, it’s up to me”.

“Are we there yet?”

While the strategic planning process is usually ongoing, organizations do need to periodically review if they are still on the right path. Using the previous holiday analogy, imagine that you are in your car with your family, you have all your luggage well packed and are driving along the same highway your parents used to take so you don’t consult the map. Slowly you realise that you don’t recognise the scenery and the signs don’t make sense. You’ve missed a turn off and now face some choices. Continue on the same road and just ‘make do’ when you get somewhere that could be ok to stay? Turn back and keep trying different roads that look as though they might be right? Or do you pull out the map (or consult your GPS), work out where you went wrong and find your way back to the original route?

When organizations start showing signs of losing their path, those that continue anyway will most likely end up in a position they don’t really want to be in. That could be a poorer financial position, they could have missed some great opportunities or they could have drifted away from their original goals and values. The same could be said of those that do attempt to address the problems but not in a cohesive or organized manner.

By having a well focused plan and referring to it regularly an organization can determine when the goals have been achieved and whether the plan has been successful. The desired outcomes can be measured using Key Performance Indicators (KPI’s) and other measures. These could include indicators such as increased profit, more patronage or participation or faster turnover.

The following flowchart shows how all these planning factors interact.

Strategic Planning
Strategic Planning

When to use strategic planning

The nature and size of an organization usually determines how often strategic planning should be carried out. New companies or those in rapidly evolving markets may need more frequent planning reviews than other, more stable organizations.

A brand new company would develop a strategic plan at the same time as their business, marketing and financial plans. The original plan would require more time and effort than subsequent reviews.

More established companies or organizations should review the progress of major strategies quarterly, however most areas could be reviewed annually. They could then do a new strategic plan every 3-4 years. The faster an industry or focus area is changing, the more often the plan should be reviewed or re-done. The key is to keep the plan fresh and relevant to the current situation.

A new plan should be developed at the start of a new venture or development stage. This could include opening additional stores, adding a new department or moving into a new community or market.

Strategies can also be altered when internal feedback shows a definite need. If an aspect of the plan is clearly not working at ground level then the employees or other parties should be able to communicate this to the decision makers. Communication is a two-way process so an effective plan would have provisions in place for receiving feedback and responding to it accordingly.

Most people would be familiar with the classic board game Monopoly. The stages of this game make a good analogy for the stages of strategic planning. At the start of the game (the opening of a new business or venture) the players move in a fixed direction with known resources and pathways. As the game progresses, players have to make decisions about how to use their resources. They may choose to widely invest or to hang onto their capital according to their personal strategy (or lack of one).

Passing ‘Go’ could represent the end of the financial year or the end of a project. At this stage the players (competitors) have changed the status of their finance and assets. Some may have even ‘gone to jail’ or collected bonuses along the way. This is a time to review their initial strategies and to alter them as needed in order to win the game. Regular review and changes to strategy leads to more profits and a stronger enterprise.

How to use a strategic plan effectively

People power

Initiating a strategic plan needs planning in its own right. The key decision makers (business owners, board members, etc) need to decide who to involve in the planning process and how and when it will take place. Ideally they would include people with established skills in areas such as group facilitation, meeting management and conflict resolution. These people may already be part of the organization or they may be external consultants or facilitators.

If the right people exist within the organization already it is very beneficial to include them in the planning team as they are more likely to be passionate and focused. It is more meaningful to them and gives them a sense of ownership and belonging.

Inviting people from different departments or with varied experience has many advantages too as it helps them see situations from different perspectives. For example an accounts person may not understand why a higher priced piece of equipment could be more beneficial to the company until an engineer shows them that it generates more units per hour or is safer to operate.

The team members participating in the meetings may vary as each meeting will have a different agenda and desired outcome. If there is uncertainty as to whether to include a specific person in a meeting it is generally best to invite them anyway. They may not have much to say but they could also put forward the best ideas of the day.

Outside knowledge

Hiring a professional planner as a facilitator also has many advantages especially if their experience is related to the industry of the organization. It would be similar to the choice between planning a holiday yourself online and seeking the services of a travel agent.

Of course there will be costs involved but as with any aspect of business, utilizing resources that will ultimately lead to increased profits is always a sound investment

The level of involvement a professional consultant has can vary greatly from several meetings with an individual consultant to a series of meetings over several weeks with a dedicated team. This would be influenced by the size of the organization and the amount of time and capital they have available.

Using an impartial moderator in meetings may help to manage conflicting ideologies and personalities. They are generally trained to consider all points of view with respect and to present them to the group without bias. They can keep the group on track rather than going off on tangents not relevant to the core strategies.

A professional consultant also has the advantage of being able to look at the whole organization objectively and provide a fresh perspective. They should have a strong working knowledge of current industry trends and be able to accurately compare similar organizations.

Getting started

Having the right people sitting around the table does not guarantee a successful planning meeting. They need a purpose and a pre-planned agenda to follow. This is where the vision, mission and value statements come into play. These can either be read aloud, given as handouts or be visible on a large screen or board. They don’t have to be discussed in great detail but they should be available for quick reference. These statements will set the scene for the meeting and provide a focal point whenever a decision on important matters is required.

In the first meeting one of the vital tasks the members need to undertake is a SWOT analysis. This stands for Strengths, Weaknesses, Opportunities and Threats and it is used worldwide as a key tool in assessing the current status of any given group or organization.

SWOT Analysis

Strengths
Quality staff
Positive corporate culture
Strong market position
Unique products
Research and development

Weaknesses
Lack of training
Supply Chain gaps
Poor cash flow
Not enough staff
Outdated systems

Opportunities
Niche markets
New technology
Competitors weaknesses
Change in tactics
Production capabilities

Threats
Sustainable finance
Location issues
Government policies
Loss of key contracts
Economic conditions

The first two components, Strengths and Weaknesses, assess the internal aspects of the organization. Planning team members use a variety of discussion techniques such as brainstorming to produce a list of what they perceive to be the major factors in each of these two categories. Some factors may be immediately apparent but others may not come to light until the discussion process starts. This is especially true of weaknesses as people can be uncomfortable with talking about any flaws and may take them personally.

For example the sales team might have doubled their new customer list but deadlines for outgoing orders may have been missed due to insufficient stock being supplied.

Data showing the external factors that influence the direction of the organization can be sourced from various reports, economic trends, patterns and customer feedback. This data is often collected by internal staff but professional planning consultants can also provide valuable information on the status of the industry.

A SWOT analysis brings together all the components that make up the picture of what is currently happening in the organization. What it doesn’t do is make recommendations on how to act on that information. That step comes later in the planning process.

Setting priorities and themes

Before moving on to strategy development, the planning team needs to review all the information gathered through the SWOT analysis and decide which areas need the most urgent attention.

Collecting the data can be a major time consuming exercise in itself. It would generally include reports on areas such as sales history and forecasts, industry trends, research and development and customer feedback. This information would need to be gathered and collated well before the planning meetings start. It may take the form of spreadsheets and charts, surveys and reports.

These days that process can be made faster and more efficient through the use of compatible or fully integrated database, accounting, sales and workflow applications. Automated data collecting applications are readily available and could save lots of time and money.

Deciding priorities can be a challenging exercise as it is influenced by personal opinion. A useful approach can be to ask team members to prioritise the lists generated in the SWOT analysis individually and then poll the top responses. Some weaknesses may call for urgent action before anything else can take place such as the purchase of new applications to manage the incoming data.

The planning team also need to refer back to the original vision, mission and value statements and break these down further into several key areas or themes. The factors listed in each section of the SWOT analysis can be grouped under these themes.

Strategic themes form the link between the organization’s vision and the actions required to achieve them. The themes can be used to develop a strategic framework by forming the pillars or pathways. Each theme can be given its own set of aims and desired outcomes as shown in the previous strategic planning flowchart. Examples of strategic themes could include:

  • Organizational outcomes
  • Customer outcomes
  • Working together
  • Capable and engaged people
  • Embracing change

It is important not to have too many themes on the table at the same time. Generally two to five themes are manageable. Undertaking more can create too much pressure for the team and not allow each theme to be tackled thoroughly. Less urgent themes can be handled in future strategic plans.

Action time

This stage of the planning process creates the guidelines for implementation within each strategic theme. It maps out the steps that need to be taken, who will be required to take those steps and how their progress will be measured.

For example, the theme of ‘Embracing change’ might cover the acquisition of new equipment and the hiring or training of staff to operate it. The steps involved would need to include the selection of a person to manage the entire process with a team to support them. They would need to research types of suitable equipment, how many operators would be required, what training they would need and then create budget forecasts for the accounts department.

The strategies generated though this process should be measurable and have a reasonable due date for completion. Using a variety of Key Performance Indicators (KPI’s) at this point is a way of measuring and evaluating if the strategy aim has been successfully achieved. KPI’s could include:

  • The purchase of new equipment within budget and before the due date
  • Satisfaction ratings given by customers at the conclusion of a sale
  • Having all the required staff trained within a set timeframe

Mission accomplished

The final strategic plan does not need to be a huge document but it should be clearly communicated throughout the organization and be readily accessible (not locked on one computer or sitting on a lonely shelf). Everyone involved should be aware of their individual responsibilities and the strategies they need to use to achieve the desired results.

There is never an end to the strategic planning process. Once the goals of the initial themes have been reached they should be reviewed periodically and new plans put in place as required. An organization that regularly reviews its strategies and takes action on them is one that will ultimately be very successful.

What are the potential problems?

Ideas vs strategies

If the leaders and the planning team are not clear on the difference between the abstract visions or goals and the concrete strategies required to achieve them then they run the risk of creating a plan with no real substance. They could create a lovely looking document with poetic vision, mission and value statements but without clear cut strategies to achieve them the goals will always remain floating somewhere just out of reach.

Ignoring the finished product

For a strategic plan to be an effective tool then it needs to be utilized and updated constantly. Why spend all that time, money and effort creating the plan and then not use it?

The people and their roles

Selecting or hiring the wrong people to develop the plan is a real gamble. Leaders may like the power that comes with their role but they may not be effective communicators or delegators.

Leaders must be willing to make the tough decisions and follow them through. They must always be conscious of the organizations’ goals and adhere to them at all times in order to keep them on track.

If responsibility is delegated then it must be followed though. There is no point in assigning a key task to someone and then not checking on their progress. This could potentially cause major gaps in the whole process and make it less likely to succeed.

Other members of the planning team may lack the commitment or motivation to participate fully. For example they may feel their ideas are not seen as being valid or they may not have a clear understanding of what the organization is trying to achieve.

Ideally the team should consist of the same core group of people for as long as possible or as new people are introduced, some of the original members should still be involved. This not only ensures a sense of continuity but those involved will retain a sense of ownership of their tasks.

Too much, too often

Planning too frequently uses up valuable time and resources. It can take many days or weeks out of the teams’ regular work times which can be very disruptive. The resulting stress could become a deterrent for them to be involved in future planning activities.

Too little, too late

Not scheduling planning sessions frequently enough could mean that opportunities are missed or that people are drifting away from the desired pathway. Getting the timing right allows planners to respond to changes in the internal or external environment with relative ease. It also means that if some individuals or groups are not on track they can be guided back to the path without losing too much time or money.

Ignoring the signs

Not being aware of potential roadblocks or economic fluctuations could stop planners in their tracks. They need contingency plans so that when the first signs of a problem appear they can take appropriate action. Avoiding these potential problems through proper planning and forethought gives an organization a much greater chance of achieving success.

Summary

Strategic planning helps organizations to clarify and understand their philosophical goals and gives them the tools to develop these goals into clearly defined business strategies.

By having targeted approach to planning an organization creates the opportunity to increase market share and profits.

When run properly it gives all those involved in the planning process a sense of belonging and purpose. It is important to remember though that a system is only ever as good as the people who use it. Plan ahead and plan well and everybody benefits.

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Sustainability IKEA

Sustainability IKEA

The popularity of the issue of sustainability has been growing in the past several decades and it now represents a priority point for the strategic planning and operations of companies, organizations, but also for communities and whole countries (Bell and Morse, 2008). This report addresses one particular area of sustainability from a business perspective and that is the area of monitoring and evaluation.

In order to enable this, the report refers to the theory behind the concept of monitoring systems, indicators and most importantly, the characteristics and features that these systems and indicators need to possess in order to be successful and effective.

To enable a more detailed analysis, this specific sustainability area has been overviewed by applying the selected theory to practice. IKEA has been chosen as the company of interest of this report, and its sustainability efforts, accomplishments and plans have been considered from the perspective of the three sustainability dimensions.

To furthermore focus the research and analysis conducted in this report, one specific dimension of sustainability, the environmental one, has been chosen and reviewed in more depth. In relation to this, an identification and selection of relevant indicators has been conducted and these indicators have been analyzed in terms of their measurement and limitations. The purpose of this was to ensure the tangibility of the indicators and to identify the potential problems that the company may encounter while pursuing the set objectives and goals.

Monitoring Systems

Over the last three decades, sustainable development has become priority for a large number of countries, communities and organizations. All of these expect one thing from their various development programs and projects and that is to deliver results (Bossink, 2012). This is why the ideas and actions that are implemented in these projects and programs have begun to be evaluated form one perspective – whether or not they promote, enable, improve sustainability. But, in order to answer this question, countries, communities and organization in fact have to provide the answers to two other questions – what will success mean and how do we know that this success have been achieved (Gorgen & Kusek, 2009).

Sustainability IKEA
Sustainability IKEA

Monitoring systems are what makes the answers to these questions possible. By definition, monitoring stands for the periodic and repetitive measurement of specific values of variables, and represents one of the crucial factors in the actual achievement of sustainability (Chai, 2009). The sustainability monitoring systems are designed to gather information, cross reference it in regards to a set scale and support the decision making process. The data that is received as a result from the monitoring systems enables the decision makers to assess whether or not they are on the track with sustainability progress and helps them to quickly identify if something has diverted the organization from the planned path and how to quickly move back to it (Devuyst, Hens & De Lannoy, 2001).

In order for monitoring systems to achieve the objectives they have been designed to achieve, they need to be well defined, optimized and tested continuously to ensure their adequacy. But, what they need the most is a good set of indicators that will be used for the actual measuring (Dalal-Clayton & Bass, 2002).

Sustainability Indicators

Indicators related to various aspects of the society have become increasingly popular after World War II. Economic and social indicators have been introduced during the second half of the twentieth century, even though some of them did not manage to capture the political acceptance that they aimed for. In addition to these indicators, the environmental ones began to take up a significant portion of the public attention with the strengthening of the global environmental movement (Lawn, 2006).

After the emergence of all these indicators, sustainability became the No. 1 topic during the 1990’s making sustainability indicators as important as the issue itself. These indicators were first developed by the United Nations, but they have been continually developed and widened with the use of various different approaches (Zoeteman, 2012). The greatest improvements of the sustainability indicators were introduced by a number of non-governmental agencies, and mostly the United Nations, the OECD, the European Union and the World Bank, who have been investing significant resources and efforts into the development of these indicators (Patterson, 2002).

However, their efforts did not end there, which leads to the next most important trend in the development of sustainability indicators. Namely, after setting up the base of indicators, the aforementioned agencies and organizations have attempted to standardize this set across different countries in order to enable the tracking and comparing of the achieved progress in relation to one another. Today, this set of basic sustainability indicators numbers about 200 indicators, about 50 of which are considered as core sustainability indicators (UN, 2013). And even though they have been primarily intended for use by countries, today they are widely accepted and used not only by countries, but also by communities, companies and various organizations (Hak, Moldan & Dahl, 2007).

What Makes Good Monitoring Systems And Indicators?

According to Espinosa and Walker (2011), it is essential that the monitoring system used is well defined and relevant. In addition to a base set of indicators, every monitoring system needs to integrate four crucial elements in order to be successful and efficient. These four elements are ownership, management, maintenance and credibility. Here, ownership stands for and comes from all of those who use the system in every level, or represents the stakeholder of the system. Kusek and Rist (2004) argue that if people who do not recognize the need of such a system or do not have any use of the data collected with the monitoring system, than there will be issues related to the control of the quality.

Management answers the questions of who, where and how will manage the system, which is crucial as it ensures timely collection and distribution of data in order to support the decision making process. Maintenance ensures that the system used will not crash or decay. This means that updates, improvements and control continuously undertakes to enable the renewal, rebuilding and strengthening of the system. Finally, credibility ensures that reliable and valid data are collected with the system, which means that the data will be realistic or not tempered with, and also that both bad and good data will be displayed and used by the system (Kusek & Rist, 2004).

The selection and use of indicators is also one of the main factors that define the quality of the monitoring system in general. When selecting these indicators, it must be taken into consideration that their number should be relatively small and that they should be chosen in accordance with the following criteria (Gosling & Edwards, 2006):

  • Data collected will clearly show whether set objectives have been achieved or not
  • The problems to which the indicators refer are of priority for the organization
  • The data needed is available and it can also be gathered accurately and effectively
  • The data gathered will be used for evaluation and reporting

In addition to these criteria, sustainability indicators should also have a number of other qualities including tangibility, regardless of whether qualitative or quantitative indicators are used, linkage to the set objectives, relevancy for various stakeholders of the monitoring system, they need to be specific, need to reflect different situations, to reflect changes and to have a well-defined and specific baseline data that will clearly show whether results are good or bad (Gebremedhin, Getachew & Amha, 2010).

The Company

The history of IKEA which spread across 6 decades of success actually began in the 1920’s in a farm in southern Sweden where the IKEA’s founder Ingvar Kamprad was born. He pursued the idea of having his own business ever since he was a little boy, and at the age of five, he began his first trading attempts by selling matches to his neighbors. He soon found out that he could buy matches in greater amounts for cheaper price from Stockholm and then sell them with good profits. His matching endeavor was so successful that he expanded his business to selling greeting cards, flower seeds, Christmas ornaments, pencils and pens (IKEA, 2013).

In 1947, Kamprad introduced furniture into his business. He used local manufacturers, enabling him to lower the costs of the items he sold, which led this branch of his company to become very successful. In fact, it became so successful that he soon turned out all of his other products and decided to focus solely on furniture. IKEA opened up its first showroom for the furniture in 1953 (IKEA, 2013).

During the following several years, IKEA began to sell more and more furniture, which soon led it to come into direct confrontation with its main competitor and soon entered into a price war. In order to minimize the expenses as much as possible, and thus make the price war endurable, IKEA started implementing some of the concepts that will eventually make it one of the world’s greatest companies. These concepts refer mainly to stylish and innovative design which enabled flat packaging. This in turn, enabled a minimization of the transportation costs, reduced the damaged acquired during transport, increased the capacity of IKEA’s inventory, and made it easier for customers to take their own furniture home (Parker, 2012).

According to Haig, the innovative approach to packaging and the main focus of IKEA to producing stylish and good quality products at affordable prices is not the only reason why IKEA is being referred to as a concept company. Namely, the spirit of the company, in the words of Kamprad himself, consists of thrift, enthusiasm, humbleness, responsibility and simplicity. These are the very qualities that the company does not implement only in the design of its products, but also in all of its operational practices (Haig, 2007).

The Three Dimensions of Sustainability in IKEA

The extent to which IKEA is committed to sustainable development is evident from several perspectives. Primarily, IKEA has created a sustainable strategy that is systematic and well defined, but has also been upgraded and improved continually. Besides from setting short-term objectives in its annual strategies, IKEA has also constructed a long-term strategy setting its goals and priorities for achievement of sustainable development by the year of 2020. This strategic plan offers concepts and guidelines that the company follows in the achievement of its goals of environmental, societal and economic nature, thus addressing the three dimensions of sustainability (IKEAa, 2013).

The environmental dimension in the IKEA’s sustainability strategy is represented through a number of initiatives and programs which include supply of the wood used for the production of furniture from preferred sources. In 2012, over 22 per cent of the total wood used came from FSC – Forest Stewardship Council certified forests. It is also projected in the long-term strategy that this percentage will be over 50 per cent by the end of 2017. Furthermore, the cotton used in the production of furniture is produced in alignment with the Better Cotton Initiative, and it is planned that 100 per cent of all the cotton used should be such by the end of 2017 (IKEAa, 2013).

The company also invests in the sustainability training of farmers and foresters to ensure that the issues are addressed at the very source. Other environmental initiatives include production and use of renewable energy from the wind, the sun and biomass. In 2012, the company has produced 34% of the total energy it consumed from renewable resources, enabled through the quarter of a million solar panels placed on the company’s facilities and 83 wind turbines that have operated during 2012 (IKEAa, 2013).

The social dimension of sustainability is also addressed in IKEA. Not only that the company is committed to designing and production of furniture that will improve the quality of life for all of its consumers, but also the company makes significant efforts to ensure the rights and well-being of all of its workers. The company also requires that all of its suppliers also be compliant with the people strategy of IKEA. This strategy is based on the UN Guiding Principles on Business and Human Rights that have been implemented. Furthermore, the company also supports the best interests of all children, and implements the Children’s Rights and Business Principles all throughout its operations to ensure the protection of their rights. Finally, it must be stated that part of the sustainable strategy of the company is to ensure that 95 per cent of employees and suppliers as well as 70 per cent of all the consumers consider the company as a company that is highly environmentally and socially responsible (IKEAa, 2013).

The economic dimension of sustainability is represented in both the short and long-term strategy of the company. In fact, in terms of economic performance and growth, IKEA has set a series of goals which include the increase of production and sales volumes of its products to four times by 2020. In the meantime, IKEA is focused on achievement of short-term goals, sales and growth. In 2011, for example, these goals were both achieved as the company has opened up stores in several new countries, finishing the year with 287 stores in 26 different countries, and has managed to increase its global net profits by almost 7 per cent, amounting to a total of 24, 7 billion Euros (The Local, 2012). This indicates that the economic dimension of sustainability still remains to be an important focus of the company.

The Environmental Sustainability Dimension in IKEA

In accordance with what has been stated above about the three sustainability dimensions applied to the operations of IKEA, it is clear that the company is dedicated to all three dimensions equally, and is investing serious resources and efforts to achieve positive financial goals and positive social impact, while reducing the damage and negative influence on the environment, and this is, in fact, the true purpose and goal of sustainability. Considering the nature of business that IKEA runs, and its great impact on the environment in particular, which is due to the use of natural resources as production materials, this dimension of sustainability is especially interesting for IKEA. Indeed, the company needs to employ additional efforts to ensure that the negative impact of its operations on the environment are minimized and/or diminished. This is why this dimension has been selected for further exploration.

List and Assessment of Sustainability Indicators

The importance of the environmental dimension for IKEA is so great that it is necessary for indicators for monitoring this dimension to be very carefully selected. In order to enable this, the criteria for selection of indicators stated above were used. Also, the key features of effective indicators were also considered during the selection. Consequently, a list of several indicators for monitoring environmental sustainability has been created and is given in detail below:

Indicator Definition Measuring Limitations
Increase of FSC certified wood used Ensure that all the wood is certified and comes from companies – suppliers that are also committed to sustainability Percentage of FSC certified wood used in the production of furniture (goal – 100 per cent). Lack of FSC certified companies – suppliers present and operational locally, which may increase total cost of expenditure due to transport and import costs
Increase of Better Cotton Initiative cotton used Ensure that all of the cotton used in the production of the furniture is in compliance with the Better Cotton Initiative Percentage of Better Cotton Initiative cotton used in the production of furniture (goal – 100 per cent) Lack of suppliers aligned with the Better Cotton Initiative present and operational locally, which may increase total cost of expenditure due to transport and import costs
Increase of main furnishing materials used for the production of the furniture that are made from renewable, recycled or recyclable materials  Ensure that all of the materials used in the production are renewable, recycled or recyclable Percentage of renewable, recycled or recyclable materials used in comparison to total materials used None
Production of renewable energy Production of as much renewable energy as it is consumed by the company Percentage of renewable energy produced in comparison with the consumption None
Use of electric vehicles and environmentally safe transport solutions Use of electric vehicles and environmentally safe transport solutions to and from the store to ensure that all aspects of the company related to energy used are from renewable sources Percentage of used electric vehicles from the car parks of IKEA and the proximity – availability of environmentally safe public transport to the IKEA stores Local level of sustainability, government policies

If this list of indicators is analyzed, it shows that all of the indicators selected are very realistic, in line with the priority problems of the company in relation to the environmental dimension of sustainability, and above all measurable. Indeed, for each of this indicator a good base line is identified and it is easy to assess what the progress of the company actually is in its achievement of the set goals and objectives. However, the analysis also shows that there are two types of factors that influence the limitations or challenges related to these indicators. The internal factors are related to the company and refer mostly to the increase of costs of production which is not considered to be a serious problem. The external factors, on the other hand, refer to forces that are outside of the influence of the company. These are mainly related to the existence of suppliers with the desired sustainable operations in terms of certification or compliance. Given that the company acquires its materials and products made by other supplier locally in order to reduce the expenses, this can be considered as a serious problem. However, the demand that IKEA sets on its suppliers may influence setup of such companies due to economies of scale.

References

Bell, S., & Morse, S. (2008). Sustainability Indicators: Measuring the unmeasurable. London, UK: Earthscan.

Bossink, B. (2012). Eco-innovation management and sustainability. New York, NY: Routledge.

Chai, N. (2009). Sustainability performance evaluation system in government. Springer Science + Business Media.

Dalal-Clayton, B., & Bass, S. (2002). Sustainable development strategies: A resource book. London, UK: Earthscan Publications Ltd.

Devuyst, D. Hens, L., & De Lannoy, W. (2001). How green is the city? Sustainability assessment and management in urban environments. New York, NY: Columbia University Press.

Espinosa, A., & Walker, J. (2011). IKEA A complexity approach to sustainability: Theory and application. London, UK: Imperial College Press.

Gebremedhin, B. Getachew, A., & Amha, R. (2010). Results based monitoring and evaluation for organization working in agricultural development. International Livestock Research Institute.

Gorgen, M., & Kusek, J. (2009). World Bank. IKEA Case Study.

Gosling, L., & Edwards, M. (2006). Toolkits: A practical guide to planning, monitoring, evaluation and impact assessment. London, UK: Save the Children.

Hak, T. Moldan, B., & Dahl, A. (2007). Sustainability indicators: A scientific assessment. Paris, FR: SCOPE.

Haig, M. (2007). Brand Royalty: How the world’s top 100 brands thrive and survive. London, UK: Kogan Page Limited.

Kusek, J., & Rist, R. (2004). Ten steps to a results based monitoring and evaluation system. World Bank.

Lawn, P. (2006). Sustainable development in ecological economics. Cheltenham, UK: Edward Elgar Publishing Limited.

Parker, D. (2012). Service operations management: The total experience. Cheltenham, UK: Edward Elgar Publishing Limited.

Patterson, M. (2002). Headline Indicators for tracking progress to sustainability in New Zealand. Wellington, NZ: Ministry for the Environment.

Zoeteman, K. (2012). Sustainable development drivers: The role of leadership in government, business and NGO’s performance. Cheltenham, UK: Edward Elgar Publishing Limited.

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Strategic Quality Dissertation

Strategic Quality and Systems Management

The report on strategic quality identifies how organizations like Chery Motors Company can plan their strategic quality change and respond to market environments for their successful implementation. It also evaluates the strategic quality change of the concerned organization with effective planning to improve the performance of the organization, defining resources, tools and systems helpful in business processes and implications of planned strategic quality within an organization. The research work on strategic quality is also focused to identify the various systems essential to implement strategic quality change in an organization. It identifies the design of systems used to monitor the implications of strategic quality change, their ability to respond changes in market environments, embedding a quality culture in organizations for continuous organizational improvements and monitoring implementation of strategic quality, and identifying outcomes of a strategic quality change in the concerned organization.

Organizations should adopt continuous planning and implementation of strategic quality change either they are public or private organizations. Every quality management initiative must be tied up with their main business process performance indicators to make a real impact on the productivity and continuous growth of their respective organizations. However, strategic plans are rarely transferred into quality management strategies that are essential to make sure overall performance improvement gains. Cherry Motors Company, founded in 1997 in the Chinese province of Wuhu achieved considerable growth in the automobile production industry due to their effective strategic management policies. In 1999, they started their operations in automobile production using SEAT Toledo chassis system and improved their production quality by successfully founding a research and development institute. They also recruited large numbers of Japanese automotive consultants to get their assistance in achieving six sigma or lean process standards to their Wester/Japanese competitors. Cherry Motors improved aesthetic design of automotive parts production and made a contract with AVL Australia to get assistance in continuous production of 18 new engine models to integrate them into new models.

Ability to Plan Strategic Quality Change in an Organization

Plan of Strategic Quality Change in Improve Performance of Organization

Plan of strategic management quality to implement change within an organization is highly essential to improve performance in an organization. It improves the competitiveness, departmental quality and successful implementation of of their strategic quality change to make quick fixes into the realm of solutions. It leads them to the successful development of strategic management qualities and achieving their business objectives in competing with others. Planning strategic quality change in an organization of international reputation like Cherry Motors is possible if management successfully executes their strategic plans and deliver their desired changes in project through effective communication with their partners and stakeholders and effective management of their people (Crawford 2013).

The process of strategic quality plan starts with what an organization mean about their strategic quality management process to get competitive edge over their competitors. It identifies the process of defining quality to make sure the continuous process of developing quality standards along with creation of quality and translation of vision into a series of quality strategies. Quality strategic plans are associated with review of organizational strategic plan or imperatives, identification of strategies that have been used in the past, understanding the voice of their customers, engaging employees to get their feedback with continuous commitment to quality, creation of quality vision, development of the statements of quality standards, identification of quality strategies and development of effective and result oriented strategic implementation plan (Crawford 2013).

Chery Motors have always focused to achieve their customer satisfaction by adopting effective strategic quality management plans to enter into the market and establishing their business goodwill. They have successfully implemented the strategic plan to compete well with their business rivals and to continuously improve their products quality and standards. They have also improved the design and networking of their business processes by achieving a secure retail license after breaking international competitive barriers. They have taken all necessary steps in planning a strategy quality change to ensure consistent growth in their Foreign export, Sales growth, Production growth, increasing for the next several years. Policymakers at Chery Motors Company has given key importance to effectively plan strategic issues with the interpretation of information in predictable ways (Dutton and Duncan 2004).

Defining Resources, Tools and Systems to Support Business Process

Resources, tools and techniques are considered to be highly effective in meeting strategic quality plans and supporting business processes. Organizations that are interested in developing new products or want to improve their existing products or services depend largely on innovative tools and techniques used in strategic quality management systems. Businesses can be developed with the generation of new business ideas by listening to their quality management teams, or by measuring customer satisfactions. Benchmarking, strategic quality management teams, and the measurements of customer satisfaction are the resources, tools and systems that are used in quality management and recognized to be highly supportive of the management of innovation (Bossink 2002). Some quality tools have also become essential part of a most successful business organization in the recent times. These tools and systems are used in mainstream management to effectively control their manufacturing processes like Fishbone diagram that is quite specific to the engineering as well as to manufacturing disciplines. These resources, tools and systems have a strong focus in Kaizen, Lean management and other useful techniques most successfully used in various organizations like Chery Motors Co. (Thomas, Corso and Pietz 2013).

Strategic quality tools are referred to as tools and systems that are used to support Kaizen and other quality improvement standards within different organizations. It helps them to get a competitive edge and customer satisfaction in successfully enhancing the quality of their introduced products and services to their customers. These tools and systems are mainly based on statistical and manufacturing process tools, and quality tools that are most effectively used in organizations. Typically these resources, tools and systems are used to analyze Kaizen work within organizations, team analysis and review of business activities and uncover of inefficiencies. Chery Motors have successfully adopted these resources, tools and systems like Poka-Yoke, a Japanese term, that means ‘mistake-proofreading’ and it is lean manufacturing process used to help the equipment operator to overcome their equipment operating mistakes. The main objective of this tool and system is to get rid of product defects with successful correction, prevention or drawing attention on human errors. 5-S –S is another successful method used in quality management standards and it is based on five Japanese words including seiri, seiton, seiso, seiketsu and shitsuke. They represent housekeeping, workplace organizations, clean up, standardization and sustaining discipline in manufacturing organizations (Andersen, Savik and Lawrie 2004).

Implications of Planned Strategic Quality in an Organization

Strategic quality management with effective planning can make a considerable impact on public or private level organizations. It can make a significant impact on their customers as well and increase their competitiveness among others. In this way, organizations can make timely and more effective decisions with the aim of managing limited resources in a rational way along with improvements of their services to achieve greater satisfaction from their customers (Salkic 2014). Strategic approach to management has made considerable impact on various organizations in the recent years and it has improved their quality and customer services more significantly. It has gained more and more popularity due to the increased complexity of organizational environments, technological developments, globalization and shrinkage of economic resources at global level. The central focus of strategic quality planning is associated with the efforts of internal and external decision makers that work together in solving various issues and making the organizational achievements more effectively by crafting and implementing new strategic quality services. Furthermore, strategic planning focuses on the achievements of three C’s like cooperation, collaboration and coordination that can be operated to create a highly supporting culture and leadership system within the organization (Asghar 2011).

Strategic Quality
Strategic Quality

A planned strategic quality change could affect the strategic goals of the organization and enhance its productivity, competitiveness and customer satisfaction. Strategic quality change within the culture of an organization can impact the entire vision of the organization and thus improve every aspect of business process. These changes could also impact the managerial and personal staff working within the organization. Change can even create confusion in the operational processes of the organization, but it can even alter the clarity and stability of various roles and relationships that can even create chaos. It needs the realignment and renegotiation of formal patterns of business relationships and policies. But strategic quality management can improve the performance of an organization and increase productivity despite chaos or instability in roles and responsibilities of management. Strategic quality planning is useful in developing a link between organizational strategy and organizational performance, particularly in terms of their business quality. High level of strategic quality is also useful because it creates the potential of pursuing both differentiation and cost leadership strategy with a market where that organization operates and offers its products and services (Prajogo and Sohal 2006).

Design of Systems to Monitor Implications of Strategic Quality Change

It is the main responsibility of senior management is to come together to review, discuss, challenge, and finally agree on how effectively the components of strategic quality plans are used. The genuine commitment from senior team members is essential to make sure the successful implementation of strategic quality planning in a business organization like Chery Motors. Furthermore, strategic group members should be well aware about their purpose and intention to make changes, and pushing for consistent operational definitions that each member of the team agrees on. The strategic quality management is useful to prevent differing perceptions or turf-driven viewpoints effectively. A carefully selected team of professionals is highly essential to overcome business processes, group dynamics and interpersonal issues. An organization can know about their strengths, weaknesses, threats and opportunities through conducting a SWOT analysis. It helps them to identify them to know about their strengths and core capabilities, products, resources, and maximum facilitation of their customers. In this way, organizations like Chery Motors can know in which areas they are best and why they are in this business and how effective can compete with their competitors (Finlay 2000).

It is the core responsibility of top level management to develop and design systems to monitor the impacts of strategic quality change in organization of internal and external business environments. In their internal business environments, organizations like Chery Motors should monitor work environments, use the latest technologies to improve productivity, improve warehousing and logistics and give rewards and promotions to the best performers. They can review external business environments to know about different opportunities and growth possibilities or market conditions. They should evaluate whether or not these opportunities corresponds to their organizational strengths. Business managers can even evaluate critical changes in the marketplace over the next one to five years, the position of their organization for the anticipated market changes and need for greater innovation or change needs to occur in the organization to be successful (Peljhan and Tekavcic 2008).

Ability to Respond Changes in the Marketing Environment for Implementation of Strategic Quality Change

Implementation of Strategic Quality Change in an Organization

The implementation of strategic quality change within an organization is possible through the successful adoption of benchmarking. It is known as the best strategic process of identifying ‘best practices’ adopted within an organization like Chery Motors in relation to their products and processes. Using strategic quality change implementation, products are created and developed using innovative technologies, best available resources, tools, techniques and business systems. The search for best practice can be interrelated to a particular industry and also be applied to other industries to increase their productivity and customer satisfaction. The main objective of benchmarking is to understand and evaluate the current situation of a business where it stands with its strengths, weaknesses, threats and opportunities. Benchmarking involves identification of performance improvement techniques that can be used within a successful business organization. They identify how others have achieved their performance levels that they can also adapt to get benefits of available business opportunities. In the application of benchmarking, four key steps are involved, including an understanding of current business practices, analyzing business processes of others, comparing business performance with the business performance of others and implementing necessary steps to close performance gaps (Pfeifer 2002).

Embedding Quality Culture in Organization ensuring Continuous Monitoring

Embedding a quality culture in an organization is developed within an organization to make sure continuous monitoring and development of their business processes. Every successful business organization has their own organizational culture depending on their past beliefs, values and norms. It is highly due to various reasons. Organizational culture is effective to increase employee commitment and loyalty due to their emotional attachments with their organization. It is highly useful in enabling an organization to achieve their strategic goals as Chery Motors have successfully achieved their business goals after successfully planning, and implementing their strategic quality plans into business processes. The success of any business strategy relies heavily on their existing organizational culture. It is also effective in reducing disagreement in between different organizational departments and facilitates decision makers in developing their business policies (Malhi 2013).

Continuous improvements in organizational culture help them to achieve the commitment of their employees, delight their customers and build added value to their developed products and services. To build continuous improvements within a business organization, it is necessary to implement a quality culture in that organization. Culture is defined as the arrangement of things, norms or values on the basis of which organizations operate. It identifies the personality of the organization of what employees do with shared beliefs, behaviors, attitudes and assumptions acquired over time. Attitude shows the outlook and thoughts by which work habits emerge and related to qualities stem applications. Vision, mission, values, goals and strategies of the organization work as guideline principles of an organization and its culture is culminated from them (Bertels, Papania and Papania 2010).

Monitoring Implementation of Strategic Quality Change in an Organization

An organization can never win the battle by simply developing an effective strategic plan. But getting it implemented is generally tougher and complicated task to do. Monitoring, controlling and successful execution of strategic quality is highly important for the success of a business organization. Monitoring the strategic business plans is important due to several reasons as they are highly effective in meeting business needs. Strategic quality plans help to assure that business efforts are aligned with their strategic quality plans. It helps to make sure the results Chery Motors or a successful business organization can achieve aligned with their quantified objectives. Business monitoring and controlling help organizations to take corrective actions by fine tuning their business strategies and planning their business processes. Monitoring is a part of control process that is useful to encourage improved business performance by knowing it will considerably improve performance of their workers. Monitoring offers essential link in between their written business plans and their day-to-day business operations to manage their businesses, according to their plans (Daft 2003).

Evaluation of the Outcomes of a Strategic Quality Change in an Organization

Outcomes of Strategic Quality Change

Strategic quality change that is aligned with the goals of the organization needed to improve the quality of their products and services and enhance customer satisfaction. The processes of organization are redefined to make sure efficient and effective steps to ensure the quality maintenance throughout all the processes of the organization before the final product is produced. Strategic quality change is useful to assist the increased efficiency within an organization as achieved by Chery Motors by eliminating all the wasteful tasks. It is helpful for a successful business organization to better manage their available resources by implementing a system of quality control to make sure cost-effectiveness and to meet expanding customer needs. Overall, outcomes of strategic quality change are helpful to various organizations to get competitiveness and to achieve sustainability and satisfaction of their customer needs by eliminating unhealthy tasks (Lyon and Sullivan 2007).

Recommended Areas for Improvements to Strategic Quality Change Aligned with organizational Objectives

It is highly recommended that an organization should implement a balanced scorecard to make sure each and every department of the organization has achieved considerable improvement. The balanced scorecard is the strategic planning of the organization aligned with business activities to the vision and strategy of the organization. It is highly effective to improve the internal and external communications, coordination and successful monitoring of organizational performance against their strategic goals. The balance scorecard gives a framework of providing performance measurements to help planners that should be effectively done and measured. It enables business executives and top level management to successfully execute their business strategies (Hillier 2004).

Conclusion

Strategic management can help in implementing the strategic plan. Appropriate measures show the strategy is important for the leaders, provide motivation, and allow for follow-through and sustained attention. By acting as operational definitions of the plan, measures can increase the focus of the strategy, aligning the workforce around specific issues. The results can include faster changes (both in strategic implementation, and in everyday work); greater accountability (since responsibilities are clarified by strategic measurement, people are naturally more accountable); and better communication of responsibilities (because the measures show what each group’s primary responsibility is), which may reduce duplication of effort. Creating a strategic map (or causal business model) helps identify focal points; it shows the theory of the business in easily understood terms, showing the cause and effect linkages between key components. It can be a focal point for communicating the vision and mission, and the plan for achieving desired goals. If tested through statistical-linkage analysis, the map also allows the organization to leverage resources on the primary drivers of success.

References

Bossink, B., A., G., (2002). “The Strategic Function of Quality in the Management of Innovation.” Total Quality Management, Vol. 13, No. 2.

Andersen, H., V., Savic, N., and Lawrie, G., (2004). “Enabling Quality Management: How Strategic Context is Needed to Drive Effective Application.” 2GC Working Paper, 2GC Limited.

Thomas, C., Corso, L., Pietz, H., (2013). “Evaluation, Performance Management, and Quality Improvement: Understanding the Role They Play to Improve Public Health.” Centers for Disease Control and Prevention, CDC.

Salkic, I., (2014). “Impact of Strategic Planning on Management of Public Organizations in Bosnia and Herzegovina.” Interdisciplinary Description of Complex Systems.

Asghar, Z., (2011). “New Approach to Strategic Planning: The Impact of Leadership and Culture of Plan Implementation via the three Cs: Cooperation, Collaboration and Coordination.” ASBBS Annual Conference, Las Vegas.

Prajogo, D., I., and Sohal, A., S., (2006). “The Relationship between organizational strategy, total quality management (TQM), and organization performance – the mediating role of TQM.” European Journal of Operational Research.

Finlay, P., (2000). “Strategic Management: An Introduction to Business and Corporate Strategy.” Financial Times, 1st Edition, London.

Lowson, H., R., (2002). “Strategic Operations Management: The New Competitive Advantage.” Routledge, 1st Edition.

Peljhan, D., and Tekavcic, M., (2008). “The Impact of Management Control Systems – Strategy, Interaction on Performance Management: A Case Study.” Organizacija, Volume 41.

Pfeifer, T., (2002). “Quality Management Strategies, Methods, Techniques.” Hanser Fachbuchverlag, 1st Edition.

Malhi, R., S., (2013). “Creating and Sustainability: A Quality Culture.” Malhi, J Def Manag 2013, Defense Management.

Bertels, S., Papania, L., and Papania, D., (2010). “Embedding Sustainability in Organizational Culutre.” Network for Business Sustainability.

Daft, R., L., (2003). “Management. – Sixth Edition” Thomson Learning, South Western, Ohio, USA

Lyon, E., and Sullivan, C., M., (2007). “Outcome Evaluation Strategies for Domestic Violence Service Programs Receiving FVPSA Funding.” National Resource Center, Harrisburg, PA.

Hillier, F., (2004). “Introduction to Operations Research.” 8th Edition, McGraw.

Thompson and Martin, (2010). “Strategic Management.” 6th Revised Edition. ClExcl Vacation.

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Strategic Issues HRM

Strategic Issues in HRM

Owing to the globalization, many companies have begun setting up their business boundaries beyond a single place. They are going from their primary market to other countries in order to have access to the much larger international market (Heidenreich, 2012). In management terms, the foreign countries where these businesses attempt to set up are the host countries while the country where the corporation has its head office is the home country. Multinational companies are a function of sovereign companies, each focusing on its domestic markets. But the independence of the subsidiary is not always true since a lot of times the subsidiary also has to borrow the policies of the parent company. While multi-nationalization is an organization wide phenomenon, dealing with the employees, from recruiting to managing is the job of the human resource department. It is assumed that Human resource management is a soft skill; however effective practice within the organization demands a much strategic focus in order to confirm that the organizational goals can be achieved via human resource. Today, when the terms ‘strategy’ and ‘human resource’ are combined, it means that the human resources becomes responsible for adopting the steps and practices to achieve the longer term organizational goals and objectives (Jiang, 2012).

There are not only the huge advantages that the multinational are benefitted from the host and the home country but also, there exist several critical strategic issues that these companies have to face. However, there are a lot of advantages the host country gets from multinationals in the form of investment opportunities, income for unemployed resulting in a much better standard of living. Speaking of multi-nationals, the main idea behind these multinational organizations is that they organize as per the local responsiveness in order to be efficient worldwide (Shah, 2012). This local responsiveness does not always hold true; some firms borrow the policies of the parent company assuming it to be better for the overall corporate results.

Misalignment of subsidiary from overall corporate strategy

Moving from one country to another creates the problem of misalignment between various departments and the overall corporate strategy. Usually the problem occurs when the human resource department is not aligned with the parent company’s mission and vision as it begins operations in another country to adapt as per local standards. The drift in one department of the organization causes the entire subsidiary to shake up as a result of unguided principles and policies.

Cultural diversity

Besides the merits of multinationals, one major strategic issue that the Human resource manager faces is based on the fact that when companies go global they tend to have a diverse workforce in their organization. And it is this organizational diversity that makes managing people across various religious, cultures, and standards, a major problem in implementing the goals of the organization as a team. Talking of diverse workforce culture, when a company moves from a country where unethical practices are considered to be the norm to a country that has stringent policies against any unethical practice, it is at that time when the problem for the management takes a start. For example, in countries such as Saudi Arabia, where bribery is thought to be the norm to run the business but such a practice is highly disregarded and looked down at in countries such as Brazil (Rose, 2012). Then managing employees from such a background becomes a problem for the manager in order to ensure that the disease of unethical does not spread in the organization.

Recruitment, selection and placement problems

Recruitment, selection and placement of the employees are the main functions of the human resource managers. However, this function is important and is viewed as the backbone of any business which guides the success or failure of the organization. Studies have also identified the three forms of approaches used to employ people beyond the local boundaries. Of the three approaches quite often multinational companies adopt the ethnocentric approach (CHOY, 2007). For instance had the company have a policy of employing people only from the parent company, the practice of ethnocentrism can pose a difficult situation for HR managers challenging them to train such nationals as per the local standards, policies and demands of the consumers such as American employees going to Saudi Arabia. Given the limited independence to select and recruit the people as HR wills, this diverse workforce tends to pose a problem of controlling of human power, their communication and remuneration.

The differences of employment practices

Another problem that the human resource faces is with respect to the employment practices. Under this are the problems of age, racial, sex and cast discrimination arises of which gender discrimination is very common (Wu, 2008).Given the differing laws and rules in each country it is important for the human resource to go by those laws to sustain and succeed beyond borders. For instance, countries such as India are really high in gender discrimination by restricting management and engineering position to men and softer skills jobs to women. Research by Pudelko (2007) clearly shows that when the a MNC moves from a country that does not offer equal employment opportunities such as India to a country that gives equal employment opportunity such as Thailand, the manager explicitly tends to discriminate the jobs based on gender in the latter case as followed previously in the other country. This happens because the HR manager is accustomed to policies adopted and practiced in the parent company and would be likely to follow the same policies at the subsidiary.

Basic salary and other forms of compensation

Human resource has the major function of motivating its employees to keep them committed to the organizational goal and mission. This motivational strategy largely comes from the compensation that the human resource manager engages in. Other than the selection problems, what is of particular challenge for the HR employer and the employee working in the organization is how to compensate employees in the multi-national context. The concern is how to appropriately measure and manage the compensation of the human power within the organization relative to employee contribution and performance in the MNC. And this is the basic function and duty of the HR managers towards their employees to regularly appraise the performance of its workers and keep giving proper constructive feedback (Sepura, 2009). For instance, if a company is based in the US, it tends to evaluate its employees based on performance only while that is not the case in Japan. Japanese firms value seniority and experience and would evaluate performance based on the employees experience in the industry and his position in the hierarchy (Harzing, 2006; Kono & Clegg, 2001).

Strategic Issues HRM
Strategic Issues HRM

Having offices in both developed and developing countries there tends to be a huge gap in the salary payout. For instance, workers working in US might earn 5 times more than their counterparts working in any underdeveloped nation, example India or Pakistan with the same skill set. Here comes the challenge for human resource to make sure that wherever it operates must do so in acceptable and fair boundaries. Nike a well-known company outsourced its manufacturing to Pakistan where under aged children worked for extensive long hours at a very low pay out of around 60 cents (Buckley, 2000). Quite similar is the case of MNCs that operate in low cost countries. In this case, the human resources management may face the ethical issue of whether to narrow the gap in compensation.

When it comes to paying basic salary, it is observed that a lot of MNCs that are fair in their practices want to and try to pay its workers a fair wage that is in line with the wage of their parent company. They also do so to retain and attract the best employees and avoid extensive training costs, but then again such practices are seen as disruptive for the local companies and the economy as a whole. The problem comes in when the local companies are not able to pay as much and this lead to disruption of the entire wage structure (Timo, 2005). As a result of this, the healthy competition falls out and they themselves fail to compete and work towards the economic growth. However, as a result of this factor the human resource is unable to decide again what compensation can work best for the employees. And how can this compensation make the organization seem as a non-disrupting entity which exists for the good of the economy (Marin, 2010).

Industrial relation factors

Freedom, voicing the opinion and autonomy are some concrete terms that are quite popularly used and practiced in countries such as Germany, UK and USA. Industrial relation factors pertaining to workers, employer and unions may vary from country to country. For instance, in much developed and open economies such as Germany, co-determination is the rule. This means that a lot of firms in Germany have their employees speak up and voice their opinion in corporate strategy and company operations such as wage and hour setting but that might not be appreciated elsewhere. For instance in countries like Japan where there is high power distance and a lot of centralization, employee contribution in these areas might not be the norm (McCrae, 2004). Here comes an issue that must be worked over by the human resource manager and this tends to greatly impact the HRM practices. If a multinational company appoints a local from Japan as the head of HR and have some workers from the parent company shifted to the subsidiary, this can create conflicts between the employer and employee. Because the head might not be familiar with the idea of employees collaborating and working together on issues of pay or perhaps other HR related issues, he might consider the employee to be interfering in matters he is not responsible which creates an uncomfortable working environment within the firm.

Attempting a balance between global and local amalgamation

One key challenge facing the MNC Human resource is how to attempt a balance between the global amalgamation and the local adaptation. The dilemma for the human resource is the fact whether it should go by the policies and practices of the home country because it views those practices to be much fair or should it adopt local policies which can be exploitative. When the human resource decides to adopt a fair culture for its employees based on ‘not-so-local’ practices they are accused of exporting the practices of another country and trying to impose it on locals ignoring their traditional and cultural values (Chen, 2008). However, when the human resource decides to go by the standards of the country where they are operating, a problem originates of ‘trying to exploit’ the employees that work under it and not being there for the better living standards of the host country citizens just because the policies of that country are generally exploitative in nature. This puts the practices and workings of the human resource manager at question as to which root to take. All in all, the country of origin for these MNCs is seen to be the major influence in shaping what balance to take (Almond, 2011). Quite a lot of research has been conducted on this issue and it was eventually comprehended that the way MNCs manage their foreign subsidiaries tends to be out of the result of the national origin (Harzing, 2003).Elaborating on the view, Harzing (2003) concluded that although MNCs are quite internationalized, their major controlling practices are determined by their country of origin.

Transferring the policies from the parent company is also much more problematic for the service oriented industries than the manufacturing firms. Because service provision requires the firm to deal with employees and the expectations of the customers who have differing cultural values, the burden of localization falls on the human resource to meet the local customer demands (Gamble, 2003).

Cultural differences

The major cultural differences between various countries demand human resource department to act in accordance with the culture of the country’s foreign subsidiary. Lingual skills form another sort of barrier to most organizational growth. When a company is moving to another country they must make sure they are well aware of that company’s priority and value system in order to enhance the intercultural communication in cross-cultural management (Gullestrup, 2002). A lot of times, employees from the local context tend to prefer to be spoken in their own language because they tend to feel ethnocentric of their culture. For example, in Saudi Arabia, the locals do business in their own language and prefer to be spoken in Arabic only. A company moving to another country must also educate its employees of various languages to settle in well with the local populace. The difficulty for the human resource manager is when they have no knowledge of the culture of another country and do not have the required training to deal with the ethical dilemmas (WriteWork, 2004)

When there is a drift between the values of the parent company and the subsidiary that’s where human resource department has to come in and get to a congruent solution. Culture clashes are the most prominent problem in these businesses. When the company decides to shift, it must have an adaptive approach to its subsidiary, where there is high independence between the parent and the subsidiary and the corporation is much consistent with the local environment (Grewal R, 2008). However, given the senior management, usually it’s the other way round. Subsidiary is expected to borrow a lot of rules from the parents creating cultural differences to take over the legitimacy. Generally, US MNCs have an organizational structure that is often more centralized and formalized; in contrast, Japanese MNCs have strong but informal centralized co-ordination with a network of Japanese expatriate managers, yet are likely to adapt HRM practices to local conditions due to the perceived periphery status of subsidiaries. Now given the different cultures in each country it becomes difficult for the human resource to organize people from one country to the other with the cultural air being so different (Caprar, 2011).

Local labor laws

When a company begins its operations beyond its borders, it is important for them to recognize that the local employment relationship is governed by local labor laws. There are certain countries that favor the employees while there are others that favor the employer. Contrasting the labor laws in America and Europe, there is considerable difference in each area. Taking an example of US, they usually have really brief offer letters stating the pay, compensation, bonus or stock options and at the same time it also includes a statement favoring the employer that sates that the employees might be terminated at any time by the company without giving reasons. This concept of employment is a form of employment contract that is not recognized in any other country because it is seen as harsh and as a result it does not have a legal standing in the court. However, companies that have operated in Japan, Brazil or China would not be appreciative of such HR practices had the parent company been in US had the employer adopted the same policies.

Communication glitches

Communication forms the backbone of any organization. It is only effective when taught rightly by the superior management in the company. Had the communication not been so strong and transparent, it can lead to major ethical problems for the organization as a whole and the HR particularly who is primarily concerned with the effective training of its people. It is the duty of the human resource manager to prepare its employees communication via training. It must be noted that broken communication can lead to corruption problems (Lager, 2010). Corruption might not be that big issues in the developed economies but developing economies do pose a question mark. In a survey in 2012 by Ernst and Young, around 39% people said that corruption occurred quite often in the developing countries (Newswire, 2012). Countries such as Pakistan and Brazil are rated quite high on the corruption continuum. A problem that occurs for the human resource is to prepare its employees shifting, or moving to these countries on how to deal and communicate with the people in such countries.

Four level training to avoid merger failure

It is important to make sure that a harmonious organizational culture is maintained and there is no merger failure of subsidiary and the culture (Weber, 2004). It is extremely important for the managers to train and orient their employees before shifting them to the international operation. Yet a lot of countries even today do not have structured or systematic overseas oriented training practices in order to acquaint them to the foreign country economics and practices. A lot of organizations are realizing the worth of international businesses and have been trying to incorporate the special training in their operations for their employees. This sort of training has four basic levels. The first level deals with cultural awareness. This initiative must be undertaken to acquaint the employees of the cultural differences and it impacts the business outcomes. The second level knowledge must deal with attitude formation as to how the attitude can lead to a particular type of behavior towards other. For instance, managers who form stereotypes tend to view their foreign based employees with a critical eye and unconsciously have a favorable or unfavorable behavior towards them. Level three is the factual knowledge of the country the subsidiary is going to be developed in. And lastly the problem comes of building up skills and adapting to those skills such as language adjustment (Weber, 2004).

Conclusion

However, in order to overcome the problem of strategic differences within the MNC, firms must look into the generic strategic international orientations when crossing the local borders to step in the international market. MNCs and the human power can help and create a hybrid of the strategic orientations in order to make sure that the practices of the host country are molded blue print of the home country corporation so that it meets the local demands of the customers, enable employees to adapt to the local standards to counter the overseas problems and ensure an alignment between the subsidiary and the parent entity.

References

Harzing, A.S., 2003. The relative impact of country of origin and universal contingencies in internationalization strategies and corporate control in multinational enterprises: Worldwide and European perspectives. Organization Studies, 24(2), p. 187.

Almond, P., 2011. Re-visiting ‘country of origin’ effects on HRM in multinational corporations. Human Resource Management Journal, 21(3), pp. 258-71.

Anabel Marin, S.S., 2010. Heterogeneous MNC subsidiaries and technological spillovers: Explaining positive and negative effects in India. Research Policy, 39(9), pp. 1227-41.

Buckley, S., 2000. The Littlest Laborers: Why Does Child Labor Continue To Thrive In The Developing World?

Caprar, D.V., 2011. Foreign locals: A cautionary tale on the culture of MNC local employees. Journal of International Business Studies , 42, pp. 608–28.

CHOY, W.K.W., 2007. Globalization and Workforce Diversity: HRM Implications for Multinational Corporations in Singapore. Singapore Management Review, 29(2), pp. 1-19.

Wu, C., 2008. Overt employment discrimination in MNC affiliates: home-country cultural and institutional effects. Journal of International Business Studies, 39(5), pp. 772-94.

Shah, F. A., 2012. A Critical Review of Multinational Companies, Their Structures and Strategies and Their Link with International Human Resource Management. IOSR Journal of Business and Management, 3(5), pp. 28-37.

Gamble, J., 2003. Transferring human resource practices from the United Kingdom to China: the limits and potential for convergence. International Journal of Human Resource Management, 14(3), pp. 369-38.

Gullestrup, H., 2002. The Complexity of Intercultural Communication In Cross-Cultural Management. Intercultural Communication and Changing National Identities, (6), pp.1-19.

Grewal R, C.M.D.F., 2008. Navigating Local Environments with Global Strategies: A Contingency Model of Multinational Subsidiary Performance. Marketing Science, 27(5), pp.886-902.

Harzing, A.W.K., 2006. Response styles in cross-national mail survey research: A 26-country study, International Journal of Cross-Cultural Management, 6, 243-266

Heidenreich, M., 2012. The social embedded of multinational companies: a literature review. Socio-Economic Review, pp. 549–79.

Jiang, K., 2012. How Does Human Resource Management Influence Organizational Outcomes? A Meta-Analytic Investigation Of Mediating Mechanisms .Academy of Management Journal, 55(6), pp. 1264-94.

Kono, T. & Clegg, S., 2001. Trends in Japanese management. Continuing strengths, current problems and changing priorities, Houndmills, New York: Palgrave.

Markus Pudelko, A.-W.H., 2007. HRM practices in subsidiaries of US, Japanese and German MNCs: Country-of-origin, localization or dominance effect? International Business review, pp. 1-40.

McCrae, R.R., 2004. Personality and Culture Revisited: Linking Traits and Dimensions of Culture. Journal of cross cultural psychology, 38(1), pp. 52-88.

Newswire, C., 2012. Only 52% of Canadian companies protect themselves against corruption risks when buying into business globally: Ernst & Young. Regional Business News.

Timo, N., 2005. A survey of employee relations practices and demographics of MNC chain and domestic luxury hotels in Australia. Employee Relations, 27(2), pp. 175-92.

Weber, R. A., 2004. Cultural Conflict and Merger Failure: An Experimental Approach. Management Science, 49(4), pp. 400-15.

Chen, R., 2008. The Cost of Doing Business Abroad in Emerging Markets and the Role of MNC Parent Companies. Multinational Business Review, 16(3), pp. 23-39.

Rose, C., 2012. The Corner House Case and the Incomplete Incorporation of the OECD Anti-Bribery Convention in the United Kingdom. Tulane Journal of International & Comparative Law, 20(2), pp. 351-83.

Sepura, 2009. Code of Business Conduct and Ethics. Sepura, pp. 1-6.

WriteWork contributors, 2004. Ethical difficulties faced by multinational companies in today’s business world.

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Financial Statements CEMEX

Financial Statements CEMEX

CEMEX is one of the largest building materials suppliers and cement producers in the world. The company produces, distributes and sells cement, mix-concrete, aggregates, and related building materials in more than 50 countries in all over the world. CEMEX has a rich history of improving the well-being of those it serves through its efforts to pursue innovative industry solutions and efficiency advances and to promote a sustainable future. CEMEX is recovering from the global economic recession and the loss that the company had in the last couple of years. The year 2011 compared with the year 2010, the company had a good impact.

Introduction Financial Statements

CEMEX is one of the largest building materials suppliers and cement producers in the world. The company produces, distributes and sells cement, mix-concrete, aggregates, and related building materials in more than 50 countries in all over the world. CEMEX has a rich history of improving the wellbeing of those it serves through its efforts to pursue innovative industry solutions and efficiency advances and to promote a sustainable future.

The aim of this paper is to evaluate the performance of CEMEX through a critical analysis of the financial statements of the last two years, the analysis of five aspects of performance evaluation which are profitability, efficiency, short and long term Solvency and market based ratios. In this analysis will include the information of the company CEMEX, and the analysis of the financial information.

CEMEX background

CEMEX is one of the largest cement companies in the world, was founded in Mexico in 1906, the company is based in Monterrey, Nuevo Leon, Mexico and has operations throughout the world with production facilities in 50 countries in North America, Caribbean, South America, Europe, Asia and Africa (Cemex, 2012).

CEMEX had an annual cement production of production capability of 82 million tons. One third of the sales come from Mexico operations, one quarter comes from the plants in USA, 15% from Spain operations and other small percentages from the other plants in the world (Cemex, 2012). The main competitors of CEMEX are Holcim, Lafarge and Heidelberg Cement. CEMEX is constantly evolving to become more flexible in their operations, more creative in the commercial offerings, more sustainable in the use of the resources, more innovative in their global business and more efficient in their capital allocation.

Interpretation of accounts: ratio analysis

In this analysis we review the financial statements (Balance Sheet, Cash flow and income statement) of the company CEMEX. These to evaluate the performance of the company in the different aspects.

  1. Profitability ratios. An expectation on making more income from sales of the good or service than they spend performing the services or making the goods.
  2. Efficiency ratios. A level of performance that describes a process that uses the lowest amount of inputs to create the greatest amount of outputs.
  3. Short-term solvency ratios. Measure a company’s ability to pay its current bills and operating costs – obligations coming due in the next fiscal year.
  4. Long-term solvency ratios. Measure a company’s ability to meet it’s long term obligations, such as it long term debts (bank loans) and to survive over a long period of time.
  5. Market indicators. These ratios relate the current market price of the company’s stock to earnings or dividends (Reimers, JL, 2008).
Financial Statements CEMEX
Financial Statements CEMEX

Analysis of Financial Statements

The year 2011 was an important year for CEMEX, after the global economic recession the company is facing a difficult situation with some of the markets, nevertheless CEMEX launched an accurate transformation designed to make the company more efficient, more agile and more customer focused. The changes made in the company, designed to position the company for a future of beneficial growth, are already showing results. The results of the ratios of the 2011 financial statements are the next ones:

2011 2010
Gross profit margin 28.5% 28%
Net profit margin -10.24% -9%
Operating margin 6.3% 2.5%
Return on assets -3.5% -3.1%
Return on equity -10% -8.2%

Table 4.1 Profitability ratios

2011 2010
Current ratio 1.04:1 0.98:1
Quick ratio 0.73:1 0.71:1

Table 4.2 Liquidity ratios

2011 2010
Inventory turnover 10.77 11.80
Assets turnover 34% 34%

Table 4.3 Efficiency ratios

2011 2010
Debt to equity 65% 62%
Total debt/total equity 1.25 1.04
Total debt / total capital 55.59% 51%

Table 4.4 Solvency ratios

After the global economic recession CEMEX is facing difficult situations, in table 4.1 the gross profit shows that the company has 28.5% in 2011, compared with 2010 is almost the same; in the table 4.1 shows the gross margin in 2010 was 28%, there was an increase of 0.5%. In the table 4.1 shows that the company had a loss in the net profit, the ROA and the ROE in the last two years but an increase on the operating margin compared with the year 2010, in year 2010 was 2.5% and the year 2011 increase to 6.3%. That means that the company is profitable, there were some difficult situations the last couple of years nevertheless the company is making a profit.

With the information of the financial statements we can determine that the company is facing some problems with the ability of paying current bills and operating costs, in the table 4.2 the current ratio of the year 2011 is 1.04 on the year 2010 was 0.98, there was an increase this year, although the ideal ratio is 2:1, this year the current and quick ratio were below the ideal ratio. In the table 4.2 the quick ratio in 2011 was 0.73 and in the year 2010 was 0.71, the ideal for the quick ratio is 1:1. Table 4.5 shows that the company has a debt to total capital of 55.59%.

The table 4.3 shows that the company is turning over the inventory 11 times in the year 2011, the year 2010 the turning over of the inventory was 12 times in a year. The average is 12 times. The assets turnover in the year 2011 is of 34%, this value is the same than the year 2010, and this means that the company is efficient.

The market indicators for CEMEX for the year 2011 are book value per share is 17.54 and the tangible book value per share is 2.94. The earning per share in 2011 is -11.13, that means that there were losses; the earnings per share excluding extraordinary items dropped 13.71% (Financial Times, 2012).

Comparing CEMEX in the last 4 years there was a significant deterioration on the operating margin and the EBITDA margin, from the year 2008 to the year 2011 year. Now the company is increasing the operating margin, this year have an improvement compared to year 2010, this deterioration was in the time of the global economic recession.

Conclusion and recommendations

CEMEX is recovering from the global economic recession and the loss that the company had in the last couple of years. The year 2011 compared with the year 2010, the company had a good impact on the operating margin and the gross profit margin it increases a 6.3% on operating margin. That means that the company is profitable but has some losses in the return on Assets and the return on equity, on the solvency part the current ratio and quick ratio are below the ideal, the company needs to keep an eye on the solvency of the company, the company has a little improvement on the efficiency on the inventory turnover, nevertheless the company has a debt of 55.59%. The company is doing better than last year and has some projects to increase the sales, improve operation, be more creative in the commercial offerings, more sustainable in the use of the resources, more innovative in their global business and more efficient in their capital allocation, the recommendations are to keep those projects and further expand them.

References

CEMEX, “CEMEX annual report” 2011 3. Financial Times “Strong sales boost CEMEX recovery”

Financial Times “CEMEX to meet all debt covenants”

Financial Times “Losses put CEMEX under pressure”

Financial Times “CEMEX to cut debt in stake sales”

Merrill lynch, “How to read a financial report” 2000

Pratt, J, “Financial accounting in an economic context” 2000, 4th edition, southwestern Thomson learning.

Reimers, JL, “Financial accounting a business approach” 2008, 2nd edition, Pearson education.

Appendixes

Profitability

GPM (2010) = GP/sales = 49953/178260 = 0.280 = 28%

GPM (2011) = 53871/188938= 0.285 = 28.5%

NPM (2010) = NIAT/sales = -16099/178260 = 0.090 = -9%

NPM (2011) = -19163/188938 = -.1014 = -10.14%

OM (2010) = OI/net sales = 4561/178260 = 0.025 = 2.5%

OM (2011) = 11984/188938 = 0.063 = 6.3%

ROA (2010) = net income/ total assets = -16126/515097 = -0.031 = –3.1%

ROA (2011) = -19127/548299 = -0.035 = -3.5%

ROE (2010) = IAT/SE = -16099/19176 = -0.082 = -8.2%

ROE (2011) = -19163/191016 = -0.10 = -10%

Solvency

CR (2010) = CA/CL = 54567/85119 = 0.98 = 0.98:1 ideal 2:1

CR (2011) = 58947/56670 = 1.04 = 1.04:1 ideal 2:1

QR (2010) = (CA-I)/CL = 39469/55119 = 0.71 = 0.71:1 ideal 1:1

QR (2011) = 41408/56670 = 0.73 = 0.73:1 ideal 1:1

TD/TE (2010) = 202819/194176 = 1.04

TD/TE (2011) = 239116/191016 = 1.25

Efficiency

Inventory Turnover (2010) = Sales/stock = 178260/15098 = 11.80 = 12 times/year

Inventory Turnover (2011) = 188938/17539 = 10.77 = 11 times/year

Assets Turnover (2010) = sales/total assets = 178260/515097 = 0.34 = 34%

Assets Turnover (2011) = 188938/548299 = 0.34 = 34%

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