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Six Sigma MBA Project

Six Sigma

Six Sigma is a statistical methodology which involves multi-faceted business driven approach and the ability to improve processes, reduce costs and experience increase in profits. This improvement tool is extensively utilized in manufacturing, industrial and services industry. The purpose of this paper is to discover the implications and evaluate critical success factors for successful six sigma implementation in Pakistan and India. This research will assist in focusing on the critical success factors which has allowed industries in these two countries for having a successful implementation without investing on expensive consultation fee. The methodology adopted is evaluation of some real life case studies of six sigma implementation in various industries of Pakistan, India, Malaysia and Turkey.

The analysis conducted revealed that this is a strategic-level cycle, which allows development of focused projects to generate maximum business advantage. Moreover at an operational-level applying Six Sigma and lean tools provides numerous benefits to fixed and variable supply chain improvements. The benefits which are obtained from such model are also discussed and it is concluded that management should conduct a thorough analysis in practice before implementing this technique on a particular department. However it is certain that cultural changes entail time and commitment before they are strongly implemented and practiced fully into the organization.

The purpose of this paper is to evaluate the success and failure rates of Six Sigma implementation in Pakistan and India in comparison with some international countries. The end result will assist in making a decision that every company whether it is small, medium or large scale organization should go for Six Sigma or Lean Six Sigma implementation in their businesses.

The six sigma technique which is a project-driven management approach aimed for improving the organization’s products, services, and processes by constantly reducing defects in the organization. It can be regarded as an improvement strategy which has the ability to deliver important business benefits in the longer run to all practitioner organizations (Guarraia, Carey, Corbett, & Neuhaus, 2008). However the debate is still underway which is in search of finding ways to have a successful model/procedure which can be applied to various fields of business. Six Sigma was originally introduced by Motorola, General Electric and Honeywell as an authoritative performance improvement tool (Pande, Neuman, & Cavanagh, 2006).The introduction of this technique has changed the face of modern industries today. It is basically a people focused management system that works by connecting all employees of a certain organization from top-to-bottom, in the form of a structured team (Thawani, 2002). It aims to persistently increase customer contentment by reducing real costs. The cost reduction is attained through attenuation in variation and focusing on the underlying reasons for poor quality or waste (Huesing, 2008).

The Six Sigma implementation requires cost and efforts in terms of training human resource and reformulation of business processes. This research is carried out for finding sustainability factors which will motivate multinational companies for investing in Six Sigma. The Six Sigma is regarded as a business management methodology which is designed for finding and eliminating the underlying causes of defects which will eventually improve the output. Six Sigma also looks for variations which are hidden in a particular process and then remove all those excessive variations (Antony, 2010).

Lean is an integrated approach which was developed by Toyota production system in Japan and their idea is to minimize waste between processes. Lean separates the value added process from the unnecessary steps which merely waste time and elongates a process from start to finish. In the year 2000 Michael George, a USA consultant proposed the idea of combining lean with six sigma as a single framework. He was of the opinion that this strategy will help in attaining better results with an integrated approach (George M. , 2002).

Methodology

This paper is aimed to find out “Six Sigma Success or Failure Experiences in Pakistan and India” for which we have conducted our research through online journals, articles and various case studies of companies which had implemented Six Sigma or are planning to implement in search of professionals who can assist them in applying this tool properly.

Research Methodology

This research paper is formulated with the core idea of having a critical review of real success or failure experiences of six sigma implementation in Pakistan and India. The observations were made on the basis of extensive literature review, case studies and real life instances. This phenomenon was followed for identifying the main factors which had made lean six sigma successful for small, medium and large scale enterprises. Eventually this research will assist other researchers to plan their direction from the recommendation offered by this study.

Research Questions

Q1: What is the success and failure rate of six sigma implementation in Pakistan and India considering small, medium and large scale organizations?

Q2: What can be the core success reasons for having a successful implementation of Lean Six Sigma in Pakistan and India?

Q3: How efficiently and effectively are the other international industries especially from Malaysia are able to integrate lean six sigma in their industries?

Q4: On the basis of national and international literature review which critical success factors have been deduced for having a successful implementation of Lean Six Sigma in Pakistani and Indian industries?

Q5: Which particular sector (manufacturing, service etc.) will be able to yield maximum benefit from lean six sigma implementation?

Research Framework

The approach which is taken for collecting data was mainly through case study observations which were made after analyzing various case studies and online research gathered from journals. The objectives were achieved by studying application of Six Sigma approach to various industries both in Pakistan and India which has give an insight of success or failure experiences. The objective of this research was to study the practical implementations of Six Sigma in Pakistan’s and India’s small, medium and large scale organizations. The basic philosophy of this research project is to put forward the positive approach towards Six Sigma implementation. However we will discuss both success and failures which are faced by these two countries during Six Sigma Implementation.

Hypothesis Development

The purpose of this paper was to present cases which depicts “Six Sigma Success or Failure Experiences in Pakistan and India – a comparison with, China etc. Moreover it has also discussed the business improvement methodology in relation to Six Sigma which has successfully applied across companies in Pakistan and India.

Research Hypothesis

Following hypothesis were developed keeping in view implementation of six sigma and lean methods in Pakistan and India:

H1: Management commitment and support is essential for having a successful implementation of Six Sigma and Lean in an organization.

H2: Prioritizing projects & assessing the organization for readiness for having a change in an organization.

H3: Following reward and recognition system is significant for having an ownership and cost accountability.

H4: Monitoring and managing organization performance is essential for guiding business units in an effective manner.

H5: The assessment of Small, Medium and Large Scale organization are significant for better Lean Six Sigma results.

H6: Bridging the gap between Six Sigma and Lean Six Sigma together with sustainability and well-established governance.

Literature Review

Six Sigma

Six Sigma is a well-organized process which helps in selection of a particular direction. Moreover it allows in developing set of rules and procedures for delivering results with error minimization up to zero percent(Snee & Hoerl, 2003 ). This is a statistical term which measures how a particular process deviates from standard (Tang, Goh, Yam, & Yoap, 2007). The main idea which underlies behind Six Sigma is to measure how many defects a particular process has and then systematically find out ways to eliminate them which consequently attain end-result with zero defects (Summers, 2007). In order to achieve Six Sigma level of quality, a process is required to give output not more than 3.4 defects per million opportunities. An opportunity is regarded as a prospect for non-conformance which is not able to meet the required specifications (Larson, 2003).

Six Sigma has recognized that business quality is regarded highest when the cost of providing a particular product or delivering a certain service, according to the customer requirements are at absolute lowest level. This level is defined not only for the producer but also for the consumer (Harry, Mann, Hodgins, Hulbert, & Lacke, 2011). Similarly if Six Sigma is applied in a construction sector that this tools is not only focused on removing or eliminating the errors and making it defect free, instead it is always in search of ways for designing processes and products which can be applied at Six Sigma levels of performance keeping in view the strategic importance and the associated cost (Tennant, 2001).

Six Sigma includes process which consists of five phases / steps for attaining a Breakthrough Improvement in the processes (goleansixsigma.com, 2012). These include the following;

  1. Define the issue, product characteristics that affect customer satisfaction
  2. Measure the response factors and baseline metrics, referred as (outputs/Ys)
  3. Analyze the process parameters that affect response factors, referred as (inputs/Xs)
  4. Improve the process response factors by design of experiments (Understand the nature of the function, f in Y = f (X) )
  5. Manage the gains through Control, robustness of the process response factors

Six Sigma process improvement model is defined with the notion that quality of a product, service or process must be regarded as the responsibility of all. If a person is working in an enterprise then maintaining quality levels can never be regarded as the responsibility of some specific personnel like QA staff only. Quality Assurance department cannot be regarded as responsible for the failures of new products at the stage of Research & Development, secondly when some defective parts are found by any department such as Manufacturing, quality of Sales & Distribution services, the identified errors effects the budget making process (Kumara & Khandujaa, 2013). Whenever there is a company each person of a certain department is required to take the responsibility of their work.

Six Sigma versus Lean Six Sigma

Lean Six Sigma is a technique which merges process speed with quality. In order to become an efficient and effective organization both in terms of business operations and processes it is required to have Lean and Six Sigma methodologies which will allow to execute every activity in an organized manner. It is worth mentioning that having one without the other will ultimately result in the lower process performance (Laureani, 2012).

Lean Six Sigma
Lean Six Sigma

Lean is a process which primarily focuses on speed and then directs towards reducing the amount of time between activities, events and cycles. Initially if we are able to reduce the cycle then eventually the amount of time between activities, cycles or even the events can be reduced easily. The shorter the cycle time then ultimately we will be able to complete more cycles in a given amount of time. Lean has the capability to identify areas where process wastes and bottlenecks can be detected and then removed from the associated processes (Byrne, Lubowe, & Blitz, 2011). There are around eight types of wastes which can be removed from business processes for reducing costs and the time required for completing a particular process.

Lean makes business processes to work rapidly but the problem of quality still remains. It does not make sense if the data or information collected is not of good quality. If the processes are just completed rapidly without having a proper check and balance then the complete environment will be filled with an error which requires rework at the end. At this stage there is a need of having Six Sigma business process management (Furterer, 2009).

The lean practitioners are of the opinion that waste arises from the unnecessary steps which are created in the production process. Six Sigma proponents state that waste is resulted from the variation added within the processes (Guarraia, Carey, Corbett, & Neuhaus, 2008). Practically there is a truth which lies in both of these assertions hence both of these methodologies are applied jointly for improving the overall business performance (Taner, 2013). In the end it can be deduce that lean reduce wastes, improves process flow which eventually streamlines working operations to a certain level while Six Sigma reduces process variations which consequently optimizes current business operations.

Six Sigma versus ISO 9000

Six Sigma and ISO 9000 are two methods which are established for companies for increasing the quality of their final product. Six Sigma is regarded as a management philosophy which is directed towards solving defects which are causes for improving quality, while ISO 9000 is a set of international standards which are applied in a quality management system (James R. Persse, 2006 ). Six Sigma is implemented, authorized and controlled internally whereas an ISO 9000 is an organized set of requirements and guidelines, the certification of which may be obtained from external auditing firms (Adams, Gupta, & Wilson, 2003).

ISO 9000 standards were developed in Europe which meant initially only for manufacturing processes but now this standard is being followed by various companies and industries. There are certain requirements which are essential for a company to fulfill in order to become an ISO certified company. These requirements include: monitoring individual processes, proper record keeping, scrutiny of all process outputs for the defects, corrective actions taken for removing defects and organizational commitment towards continual improvement of the quality system (Dirgo, 2005).

Six Sigma is a quality management strategy which focuses on process improvement by removing the defects to less than .00034 percent, meaning for every million production attempts. Hence Six Sigma is directed on process improvement through output variation reduction; removing the causes for defects and variation in the final product which in turn increases process efficiency and generates profit. ISO 9000 is appropriate for companies which are in search of obtaining competitive advantage through the implementation of a quality management system (Knapp, 2009). An ISO 9000 certification is a proof that a particular company has been audited and helps in improving public perception of the company’s quality standards. However ISO 9000 certification does not guarantee that the company is capable enough to sell high-quality products, it only approves that correct and formal business processes are being followed by the company for the development of a product or service (Hoyle, 2009).

Lean Six Sigma in Pakistan

China Mobile

China mobile is a Chinese owned telecommunication company which took a revolutionary step in 2011 for implementing Lean Six Sigma in their business operations. It is a big organization covering around 1500 employees and is the world’s largest phone operator having 650 million subscribers by January 2012. China Mobile implemented Lean Six Sigma in their Procurement, HR and Marketing divisions in which they devoted ten to thirteen employees completely with implementation of this new technique.

According to one of our hypothesis management commitment and support is essential for having a successful implementation of Six Sigma and Lean in an organization. Hence this organization is able to achieve Six Sigma with the help of commitment, management and leadership. At this point, role of line managers is comprehensible who have been able to successfully implement Lean Six Sigma. The management was able to bring readiness of change in the organization through prioritizing projects and was applied in small phases which was then eventually applied to all other department which were willing to implement this new tool in their operations. Moreover the company started the reward and recognition system which also gave a boost to the employees and they focused more on project completion (Zhang, Irfan, Khattak, Abbas, Zhu, & Shah, 2012).

Mobilink

Mobilink Pakistan is rated as the largest mobile phone service operator in Pakistan which has around 31.6 million subscribers. The company invested US$ 3.3 billion for implementing Lean Six Sigma Program in 2008 with 10 to 30 employees dedicated only for six sigma projects. Initially the company focused on Customer Care as their priority for Lean Six Sigma implementation but now other areas are also being targeted. The top management completely believed on the positive impacts of lean six sigma and finally as per our first hypothesis the company was able to save US $1.5 million which was a big achievement for a large scale project. Hence management commitment and support is essential for having a successful implementation of Six Sigma and Lean in an organization The company is still in the process of expanding Lean Six Sigma program to other departments. The attribute which made all these projects successful was the proper monitoring and organizational management which is essential for guiding business units in an effective manner. This feature is fully compatible with our fourth hypothesis. (Zhang, Irfan, Khattak, Abbas, Zhu, & Shah, 2012).

Telenor Pakistan

The other Pakistani telecommunication company which made entry into Lean Six Sigma is Telenor. Initially the company’s management conducted an assessment of their organization whether it falls in medium or large scale organization. This is according to our fifth hypothesis a significant point of assessment for successful lean six sigma implementation. The company implemented Lean Six Sigma in 2006 and their core areas were HR, Customer Service, Marketing, Technology and Finance. They have devoted 100 employees to work directly on Lean Six Sigma Projects. The management introduced reward and recognition system which is an essential aspect according to our fourth hypothesis, for attaining lean six sigma perfection. On the basis of this revolutionary technique the company was able to eliminate 30% waste which consequently reduced 30% of their cost. Moreover the company was able to gain 10% in quality and 15% in process improvements (Zhang, Irfan, Khattak, Abbas, Zhu, & Shah, 2012).

Pakistan International Airlines

Pakistan International Airlines (PIA) observed that they were experiencing problems and their engines have started declining. Hence they took an initiative to introduce Lean Six Sigma in their processes. Their objective was to reduce the cycle time from 25 days to average 15 days and bring the curtail value lower to 80%. The implemented model allowed the company to stay efficient which further reduced their day to day activities. Although the company was following six sigma in their business operation but still there was something which was missing from their system. Hence the management decided to implement Lean Six Sigma in their processes which will not only reduce errors present in the system but it will also remove the wastage or redundant steps occurring in the system. This is in accordance with our sixth hypothesis and the company was able to experience a change. According to the CEO of PIA they were able to comprehend the advantages of Six Sigma which further reduced the material wastage and improved their supply chain activities which lead to overall cost reduction (AlSagheer & Mohammed, 2011).

Pakistan State Oil

Pakistan State Oil (PSO) was also thinking on same lines of reducing errors and increasing company profits. Hence the management of PSO also decided to introduce Six Sigma in their business operations. As per our first hypothesis, the top management was fully committed with their decision and they gave their full support for successful implementation of Lean Six Sigma. As per COO of Pakistan State Oil they were able to reduce their our effective time to market which further increased their interest in this model implementation to other areas of the business. The company first applied this technique in parts for assessing its validity and results which is totally in line with our second hypothesis prioritizing projects and conducting organization assessment for experience a readiness of change (AlSagheer & Mohammed, 2011).

Lean Six Sigma in India

Tata Chemicals Limited

Tate Chemicals is a subsidiary of Tata Pvt Ltd. which is now turned into a global business entity. The company is focused towards manufacturing and delivery of chemicals, fertilizers, agricultural services and other food additives. Tata Chemicals is rated as India’s top food brand for more than five years. The management of this group decided to implement Lean Six Sigma as a common business language which will allow them to obtain high performance. Full support and commitment was shown by the top management which is a core point according to our first hypothesis. Moreover the introduction of this technique will also allow them to improve their internal processes and build their decision making. Reward and recognition system was introduced which created directions for employees to work in an efficient manner. More significantly it laid the foundation for developing future leaders across the organization. This is in accordance with our third hypothesis which was also combined with monitoring and managing organizational performance with the tools applied during Lean Six Sigma implementation (Grichnik, Winkler, & Rothfeder, 2008 ).

Whirlpool

Another renowned brand Whirlpool also investigated Six Sigma and decided to start with this initiate in 1997 which involves a blend of methodologies. Soon the management of the company decided to use a blend of two technologies, Six Sigma and Lean for removing the inefficiencies, redundancy and other associated errors. The introduction of Whirlpool allowed the company to save $175 million in the first year and also achieved operational excellence by reducing the cycle times. All this when combined produced increased quality and high productivity (Evans & Lindsay, 2011).

Maytag

Maytag from India also initiated the step of implementing Lean Six Sigma in their business operations. The introduction of Lean Six Sigma improved the business efficiency which resulted in cost reduction. First the assessment of the complete organization was done which is essential for achieving best lean six sigma results. This is in accordance with our fifth hypothesis and then the gap was bridged between six sigma and lean together with sustainability and well-established governance. Lean Six Sigma reorganized the workflow and the production cost was also cut down by 55% which eventually allowed the company to save $25 million. This was all achieved through prioritizing projects and after conducting a proper assessment as per our second hypothesis (Martin, 2007).

Lean Six Sigma in Turkey

According to (Taner, 2012) the Critical Success Factors (CSFs) are explored which lead towards the successful introduction of Six Sigma in Small and Medium Sized Turkish Textile Enterprises. A survey is carried out for identifying and understanding the current quality practices of Small and Medium Sized Enterprises (SMEs). Turkish SMEs are in the initial stages of implementing Six Sigma. The participation and commitment of top management, linking quality initiatives to workers and information technology and innovation are found to be important factors for having a successful Lean Six Sigma. The guidance and commitment of top management, strategic vision, and data collection and measurement, are found to be the most winning methods for having Lean Six Sigma, whereas the lack of association with the system to start the initiative and the attendance of ISO-certification in the company are originated to hinder its completion. The company first made an assessment, worked by prioritizing projects in sub-modules which was all achieved through commitment and top management involvement. All these

Analysis

The facts which have been presented by (Mehdi, Ahmed, & Rasheed, 2007) represents the successful implementation of Six Sigma and DMAIC projects which increases productivity, and profit margins, and above all reduces errors. These results can definitely be regarded as key indicators for any industry to follow Six Sigma Implementation.

According to (Sambhe & Dalu, 2011) thee is very little research available about automotive sector and the study also reveals that 25.64% of medium scale automobile sector has successfully implemented Six Sigma. Other automobile industries are also spending time and effort on the integration of quality management strategies in their business. Further it has been found that Six Sigma can be linked with rewarding employees or giving them recognition will encourage them in improving self satisfaction and their motivation level will also increase. In this way expensive consultation charges will also be saved through motivated and trained employees who will be willing to join in-house training sessions.

As per (Mehdi, Ahmed, & Rasheed, 2007) the application of six-sigma in SSI assisted them in improve Z-bench Sigma level from 2.21 sigma to5.64 sigma and cost saving of 0.01929 million/annum. The systematic integration of Six Sigma tools and procedures is regarded as a challenge but this technique is proven definite which has reduced expenses, cost of poor quality and the concerning labor expenses.

According to the findings of (Knowles, Whicker, Femat, & Canales, 2005) six sigma provides a thinking pattern for redefining the present approaches towards supply chain improvement. In such scenarios Six Sigma cannot be applied directly but it can be adjusted with variations for eliminating the waste and non-valued added activities. Six Sigma can be combined with some other tools which will link error reduction to storage strategy which will provide results of waste and variation reduction.

The findings obtained from (Taner, 2013) concluded that the majority (97.18%) of the large-scale Turkish construction companies have successfully implemented ISO. However, it is still difficult for them to integrate Six Sigma properly in their operational activities. Undoubtedly, Six Sigma can help Turkish large-scale construction companies to maintain the highest quality of quality. First it is required to integrate the existing management procedures with Six Sigma by controlling variation with the help of its tools such as DOE (Design of Experiments), regression, correlation and hypothesis testing.

Findings

H1: Management Commitment and Support

On the basis of cases discussed above, it is evident that management commitment and support is extremely essential for having a successful implementation of Lean Six Sigma in an enterprise. The organizations which are in search of continuous improvement programs always welcome transformations and good governance. First the management should check the temperature of the organization before bringing any major change. Secondly a clear distinction must be made between leaders and managers and upgrade their communication plan with employees working at various levels. Once the proper emotional tone is generated then it’s only a few steps away to have Lean Six Sigma.

H2: Prioritizing projects

Companies both at local and international level, which has been successful in implementing Six Sigma in their organizations, know the importance of prioritizing projects. They know how to assess the organization for readiness which will direct the path of change in an organization. The goal is to recognize when the selection of a particular lever will make biggest impact business priorities. The best technique for making this selection is performing a benefit/effort analysis and then defining and setting the scope of the project.

H3: Reward and Recognition

The management must line up their behaviors, protocols and rewards across the business units. The morale of employees must be boosted by offering rewards and following a proper recognition system which will be significant for having an ownership and cost accountability. The ideas coming from all levels must be comprehended and given due importance.

H4: Performance Management

All those organizations which have been successful in true implementation of Lean Six Sigma are successful due to proper monitoring and direction provided to them. Leaders who run an organization are able to yield maximum benefits which allow senior leadership for understanding the programs running in an organization. Hence monitoring and managing organization performance is essential for guiding business units in an effective manner.

H5: Assessment of SSO, MSO, LSO

For establishing a system which takes ownership at macro-level view assesses internal and distributed processes. The boundaries must be clearly defined, identified, and responsibility must be assigned for each segment, and interpret the specific responsibilities for those roles. Hence the assessment of Small Scale Organization (SSO), Medium Scale Organization (MSO) and Large Scale organization (LSO) are significant for better Lean Six Sigma results.

H6: Bridging the Gap

Managers and Leaders are responsible for bridging the gap between Six Sigma and Lean Six Sigma together with sustainability and well-established governance. If a certain company is not able to truly recognize the distinction and clarity between these two then the transformation would be a failure.

Barriers and Enablers in implementation a successful Lean Six Sigma

Barriers Enablers
Top Management Apathy Management Involvement
Employees averse to accept change Employees are willing to learn and be trained
Inability to change Accept Change and Willingness to Learn New
Bad Governance and Planning Proper guidance, planning, leadership & management
Lack of Training Regular Training and Workshops
Close ended environment Open to discuss and talk at all levels
Insulation across business units Culture of cross business communication
Lack of attention for customers Focus of customer satisfaction
Management lack ability to lead with tools Quality leaders know how to direct employees
Employees hesitate to be tracked in numbers No issues with tracking and reviewing at all levels
Less interaction and involvement of suppliers Suppliers are supported and introduced new technologies
Customer satisfaction is at nominal level Customer satisfaction is higher and tracked properly
Model is not effective for certain units Lean Six Sigma model easily applied to all business units

Research Limitations

Due to limited time constraints and the number of available real life cases of India and Pakistan the research was confined at some points. However it is ascertained to discuss two to three different industries who have implemented Six Sigma successfully in their organizations. It was not possible to conduct on-site analysis of the processes which are being followed in industries. Again this study can be extended to include various other industries and compare the results with other international companies who are working with Six Sigma and other prominent tools.

Six Sigma Dissertations
Six Sigma Dissertations

Figure 1: Conceptual Framework for Lean Six Sigma Research Model

Conclusion

This research and extensive analysis based on the implementation of six sigma in Indian and Pakistani companies have provided a framework. On the basis of this direction other similar companies can also participate in this race and experiment a new tools and techniques in business. Six Sigma has already come forward as one of the most effectual business strategies in the large organizations, internationally. From the time of its conception at Motorola and GE, many success stories were registered by a number of multinationals. India is one of the leading developing country who has recognized the importance and significance of Six Sigma. It has provided a breakthrough for Pakistani industries also, as they can also follow the same model and make some significant changes according to their environment. This can assist other industries, who have yet not experimented with Six Sigma, to have a clear focus regarding their expectations from this improvement drive. All in all it is a great tool which will reduce the scrap rate, improve sales and also the image of the company.

Six Sigma is primarily used as a tool and whenever any business integrates it into their processes it is bound to gain benefit. After combining this technique with lean methodology it is regarded as one of the key initiates for improving the management process than jut being remembered. Lean Six Sigma does not just pinpoint and count defects and errors, it presents real solutions and practices to existing management for yielding results. Various approaches are being applied by every industry for improving overall business performance and integration of Lean Six Sigma is regarded as a priority. Hence it is managements responsibility to ensure the long term sustainability of six sigma and lean for their organizations. This can only be obtained after analyzing and accepting the strength and weaknesses of both methods individually and in a combined form and then proceed towards proper utilization of six sigma principles, concepts and tools.

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Vanzant-Stern, T. (2012). Lean Six Sigm: International Standards and Global Guidelines. Fultus Corporation.

Yang, C.-C. (2010). Six sigma and Total Quality Management.

Zhang, Q., Irfan, M., Khattak, M. A., Abbas, J., Zhu, X., & Shah, M. S. (2012). Critical Success Factors for Successful Lean Six Sigma Implementation in Pakistan. Interdisciplinary Journal of Contemporary Research in Business , 117-124.

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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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MBA Project Globalization

MBA Project Globalization

Summary

Over the past few decades, the global scenario has changed considerably with increased interdependence amongst nations and economies. This intertwining amongst nations and sharing of ideas and technology has been termed as “Globalization”. Globalization has been a buzzword of late, with heated discussions about its pros and cons. Some consider it to be a blessing for mankind while others take it as a curse. For some it has brought about material prosperity while others have become unemployed due to it. This paper tries to analyse the effect of Increased International Trade and Globalisation on the US economy. The first section discusses the pros and cons of Globalization while the second section discusses how globalization has lead to increased foreign trade. Thereafter, it discusses the effect of globalisation and increased foreign trade on the American economy.

Introduction

Trade is believed to have taken place throughout much of recorded human history, whether as barter or in exchange of currency. Till the 1800’s, trade was limited due to difficulties in transportation, communication and restrictive trade policies. However, in the mid 19th century, with advent of free trade and nation advantage concepts, trade started to pick up (Daniels & Sullivan, International Business and Operation).  Although international trade has been present throughout much of history, for example Silk Route, its economic, social, and political importance have increased in recent centuries, mainly because of Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing. Worldwide, countries are doing away with trade restrictions and lowering trade tariffs, thereby supporting free trade and making the world a global village (Daniels & Sullivan, International Business and Operation).

Globalization – Boon or Bane

The global economy is no longer an individual event and USA no longer plays the dominating role. This is apparent from the fact that ten years ago the World Trade Organization had only 80 members whereas now it has 153 members (WTO Data, 2010). Also countries like China and India are getting more bargaining power day by day. Globalization is the deepening relationship and broadening interdependence amongst the different countries of the world. The World Bank defines globalization as “the growing integration of economies and societies around the world.” This integration of regional economies into a global village has lead to increased international trade, investment, capital flows and technological advancements. Technological advancements such as the internet and cell phones have literally reduced the world to a Global village. Globalization has both its critics and it supporters. Some interpret it as a way of countries losing their cultural identities and becoming “Americanized.” Others see it as a way to reduce costs and to increase profits and efficiency. The debate over globalization is perceptible in demonstrations against the WTO in Seattle in the fall of 1999, against the Summit meetings in Quebec and Genoa and against several annual meetings of the IMF and World Bank. While on the other hand, supporters of globalisation look forward to a global village, linked together by the Internet, and enjoy the ever-increasing material well being (Daniels & Sullivan, International Business and Operation). The United States is seen by much of the world as the strongest supporter of globalization – in fact, as pushing it on everyone else. Over the years, globalization has resulted in increased foreign trade and capital flows, thereby contributing immensely to the domestic economy. In the 1990s, globalization and free trade, resulted in integration of China and the former Soviet bloc into the trading system thereby lowering inflation and opening new markets. However, as the emerging markets got stronger, the prices of commodities started rising immensely and competition from foreign workers lowered the average US wage rates. Jeffrey Garten, professor of international trade and finance at the Yale School of Management, points out that in 2000, the world’s wealthiest countries accounted for about 70 percent of the global economy, compared with 30 percent for developing economies. These rates are slowly but surely reversing. Thus, USA has seen both the positives and the negatives of globalization.

International Trade

One important effect of globalization is the increased interdependence among nations which has demanded increased liberalization of markets, the dismantling of almost all trade barriers (Lee, 2005; Czinkota and Ronkainen, 2007). As a result, the forces of globalization have necessitated trade liberalization (Martin, 1993), leading to increased international trade, not only in good and services but also currency and capital. Ever since independence, America has been a supporter of Free Trade. In 1988, USA signed a Free Trade Agreement with Canada that progressively eliminated tariffs over a ten‐year period, thereby making Canada USA’s premier trading partner. Further, in 1994 the Mexican Government, in pursuit of market reforms, signed the North American Free Trade Agreement (NAFTA). The passage of the NAFTA agreement signalled the continuing support of U.S. policy‐makers for the worldwide march toward free markets and further economic globalization (Paul. S Boyer, 2001). The above agreements lead to immense increase in trade and greater market efficiency. However, by 1999 USA had a huge trade deficit of around USD 200 billion (Paul. S Boyer, 2001). The trade boom of the 1990’s had ended in a recession marked by serious job losses and the nations policy of “free trade” was being questioned. President George W. Bush insisted that America’s economic future lay with the global economy, but early in 2002 political pressures led him to slap import duties on cheap foreign steel. However, he was forced to withdraw it in 2003 due to retaliation against US exports and WTO sanctions (Paul. S Boyer, 2001)

Globalization MBA
Globalization MBA

Competition and Business Restructuring

International competition goes hand-in-hand with globalization. A company that has been very successful in the domestic market may suddenly find itself facing competition from a yet unheard of company from the other end of the globe. Survival in this new business environment calls for improved productivity, reduction in costs, up gradation in technology and advancements in supply chain management (O’Reilly, E., & Alfred, Diane., 1998). For example, In the 1980s American automobile manufacturers began losing market share to Japanese competitors who offered American consumers higher quality cars at lower prices (Brewer, G., Managerial Accounting). However, from the consumer’s point of view, increased competition promises greater quality, reduced prices and a greater variety of goods and services. China’s entrance into the global marketplace has proved that globalisation leads to competition and changes the business environment. For example, from 2000 to 2003, China’s wooden bedroom furniture exports to the United States increased by more than 233% to a total of $1.2 billion. During this same time, the number of workers employed by U.S. furniture manufacturers dropped by about a third, or a total of 35,000 workers (Fishman, T., 2005).

In a 2002 speech, the Economic counsellor to the US Embassy, Mr Lee Brudvig, said, “We have not resisted the free flow of money, goods, services, and ideas. Rather, we have subjected our companies to market competition and limited the role of government on the whole to that of facilitator, regulator and, when necessary, safety net provider. As a result, we have seen a massive reorganization of business structures. Whereas in 1960 manufacturing accounted for 27 percent of GNP, by 2001 it had dropped to below 15 percent.” The changes brought about by technology and productivity is causing both markets as well as organisations to undergo restructuring.

Labour Market Developments

An important trend in labour markets in the advanced economies has been a steady shift in demand away from the less skilled toward the more skilled (Slaughter, M., & Swagel, Philip., 1997). Studies have shown, for the advanced economies as a whole, that trade with developing countries has led to about a 20 percent decline in the demand for labour in manufacturing, with the decline concentrated among unskilled workers (Swagel, Philip., 1997). This trend has produced dramatic rises in wage and income inequality between the more and the less skilled. In the United   states, wages of less-skilled workers have fallen steeply since the late 1970s relative to those of the more skilled (Slaughter, M., & Swagel, Philip., 1997). According to a study conducted in 2007, the impact of trade flows in 2006 increased the inequality of earnings by roughly 7% (Bivens,J., 2007). The study goes on to prove that although “liberalized trade” is a win-win proposition for nations, it reduces the income of most workers. Workers employed in industries directly in competition with low-cost imports from abroad can expect to see immediate job dislocation and/or downward wage pressures.

The rise of labour abundant nations, like China and India, has increased the global labour pool. The price of labour-intensive commodities falls as a result of this increase in the global labour pool, and these falling prices harms the labour in professional-abundant nations like the United States. DVD Players, clothing and call centre operations, all provide examples of reduction in prices due to expansion in the global labour pool (Slaughter, M., & Swagel, Philip., 1997). Outsourcing and offshoring, has further increased unemployment and decreased national earnings. 22-29% of the U.S. workforce has been rated as potentially offshorable over the next one or two decades (Blinder, 2006). The implied loss due to offshoring would push these wages well below the 1979 levels, completely undoing the entire increase in these wages over the past three decades. The trade adjustment assistance (TAA) program has been formed as a way to compensate globalization’s victims in the United States. In 2006 TAA allocated $655 million in income supports for workers harmed by globalization, and, another $200 million for training. As quoted by Bradford, Grieco, and Hufbauer in their study, “While the gains from increased trade generate a permanent rise in income, the associated losses are temporary. Nevertheless, they are very real, and are concentrated on a small fraction of Americans”.

Financial Market Globalisation

Financial globalization has been one of the most important trends in the world economy in recent decades. Financial globalization has been one of the most important trends in the world economy in recent decades (Lane and Milesi-Ferretti 2003). International financial liberalization was also accompanied, in a

somewhat chicken-and-egg causal relationship, by the abandonment of the Bretton Woods system of adjustable exchange rate pegs and the shift to floating exchange rates among the major currencies or regional currency blocs (Eatwell 1996). When currency fluctuations are considered, it is the exchange rate between the US dollar and the euro that gets the most attention. This not only reflects the size of the respective economies using these two currencies, but also the fact that the US dollar is the most widely traded currency today. That’s because it effectively serves multiple roles: as an investment currency; as a reserve currency for many central banks. According to an IFSL research conducted in April 2007, the US dollar was involved in 86% of foreign exchange transactions, followed by the euro (37%), which proves its importance (Safar, L., 2008). The report further states that foreign currency trading increased by 70% in 2008 compared to 2004. This increase in currency trading makes it imperative for companies to learn to deal with exchange fluctuations and how to benefit from all situations. The US dollar has fallen since January 2004 against the euro as well as against most major European and Asian currencies. This has caused many companies to introduce a “fluctuation clause” in their contracts to protect themselves from losses due to exchange rate fluctuations and has also lead to the development of many financial instruments to help companies hedge their currency risks. However, times such as these when the dollar becomes weaker often works well for US producers with a larger proportion of their costs being in dollars but selling worldwide. International revenues not only translate to higher US-denominated revenues, but they also contribute to higher margins which can be achieved globally (Safar, L., 2008). For example, Q1 2008 for instance marked a milestone for Google, whose international revenues exceeded US revenues for the first time. Revenues from outside of the United States represented 51% of total revenues in the period, compared to 47% in the first quarter of 2007 and 48% in the fourth quarter of 2007. In Q2 2008, this had increased further to 52%. According to Google, “Had foreign exchange rates remained constant from the second quarter of 2007 through the second quarter of 2008, our revenues in the second quarter of 2008 would have been $249 million lower.” (Safar, L., 2008). Nothing can be predicted with 100% accuracy when it comes to exchange rates, and the only thing that can be safely said is that there will be no “business as usual” when it comes to currencies.

Political and Institutional Changes

According to CIA Global Trends 2015, 2000,” The rising tide of the global economy will create many economic winners, but it will not lift all boat. It will spawn conflicts at home and abroad, ensuring an even wider gap between regional winners and losers than exists today. Regions, countries and groups left behind will face deepening economic stagnation, political instability and cultural alienation. They will foster political, ethnic, ideological, and religious extremism, along with the violence that often accompanies it.” One of the most important and necessary features of the current process of globalization is the proliferation of international organizations. Scholars point to the emergence of expanding web of international treaties and institutions, which regulate and adjudicate on matters of interstate behaviour. The number of international organizations rose from 61 in 1940 to 260 by 1996 (Barnett 2002:110). Since 1995, when the World Trade Organization (WTO) was formed, transnational corporations have increasingly influenced political leaders to push international trade laws in the same direction of liberalization and deregulation. In addition, existing international organizations like the IMF, the World Bank and the GATT/WTO have transformed their roles substantively, gaining further powers and responsibilities (Camillery and Falk 1992:94-7; O’Brien et al. 2000). The United States has enjoyed a position of power among the world powers, in part because of its strong and wealthy economy. Due to this reason, the United States enjoys considerable bargaining powers in the WTO and World Bank. With the influence of globalization and with the help of The United States’ own economy, the People’s Republic of China has experienced some tremendous growth within the past decade, and now enjoys as much bargaining power, if not more, as USA. If China continues to grow at the rate projected by the trends, then it is very likely that in the next twenty years, there will be a major reallocation of power among the world leaders. China will have enough wealth, industry, and technology to rival the United   States for the position of leading world power (Fishman, T., 2005).

Crime and Terrorism

At the end of the 20th century, a new phenomenon appeared—the simultaneous globalization of crime, terror, and corruption, an “unholy trinity” that manifests itself all over the world. This unholy trinity is more complex, however, than terrorists simply turning to crime to support their activities or merely the increased flow of illicit goods internationally. Rather, it is a distinct phenomenon in which globalized crime networks work with terrorists and both are able to carry out their activities successfully, aided by endemic corruption. Crime groups and terrorists have exploited the enormous decline in regulations, the lessened border controls, and the resultant greater freedom, to expand their activities across borders and to new regions of the world. The United States has been one of the worst sufferers of this new “global” terrorism. Since September 11, 2001, numerous resources have been shifted in the United States and elsewhere from addressing trans-national crime to fighting terrorism. It has increasingly become clear, that for a nation to advance, it has to keep its crime and terror activities in check.

Cultural and Other Issues

The growth of cross-cultural contacts has helped the United States participate in a new World Culture. It has helped Hollywood reach remote corners of the world while at the same time Bollywood has reached out to the Americans. Globalization has also lead to greater international travel and tourism thus greatly benefiting the tourism industry. WHO estimates that up to 500,000 people are on planes at any one time. (WHO Data, 2009). In 2008, there were over 922 million international tourist arrivals, with a growth of 1.9% as compared to 2007 (UNTWO Data, 2009). Globalization has also increased the number of illegal immigrants entering USA. The Rockridge Institute argues that globalization and trade agreements affected international migration, as laborers moved to where they could find jobs. The Mexican government failed to make promised investments of billions of dollars in roads, schooling, sanitation, housing, and other infrastructure to accommodate the new maquiladoras (border factories) envisioned under NAFTA. The 1994 economic crisis in Mexico, which occurred the year NAFTA came into effect, resulted in a devaluation of the Mexican peso, decreasing the wages of Mexican workers relative to those in the United States. Unemployment, corruption, low wages and few opportunities cause Mexican laborers to look for greener pastures and migrate illegally to the United States.

Conclusion

Globalization leads to increased international trade and reduction in trade barriers, which is beneficial for all the trading nations. Increased globalizartion has increased competition in the global economy, making it tougher for organisations to survive, and leading to greater productivity, efficiency and quality. This has in turn lead to the rise of countries like China and India, which are rich in labour. Due to the rise of labour abundant nations, the US labour market has suffered with fewer jobs being available for unskilled workers and lowering of wages. Further, outsourcing and offshoring have lead to loss of jobs and unemployment. In order to establish a set of trade rules and monitor the trading nations, institutions like WTO, IMF and World Bank have gained in importance. The United States hold a very important place in all these institutes, due to its strong economy and political power. Thus, it has a huge bargaining power when it comes to trade regulations. Overall, globalisation has affected America both positively as well as negatively but it is primarily due to globalisation and increased trade that America has a strong economy today.

References

Bivens, J., 2007, Globalisation and American Wages: Today and Tomorrow,

The author examines the effect of globalisation on wages and predicts what the future is going to be, based on mathematical models.

Blinder, Alan. 2006. Off-shoring: The next Industrial Revolution. Foreign Affairs magazine.

Boyer, P., Foreign Trade, U.S., The Oxford Companion to United States History.2001.Encyclopedia.com.

Boyer, P., Global Economy, America and the., The Oxford Companion to United States History. 2001. Encyclopedia.com. Accessed on 22 Apr. 2010 at

Daniels & Sullivan, International Business and Operation, 11th Ed, Pearson Education

Eatwell, John. 1996, International Financial Liberalization: The Impact on World

Development, Office of Development Studies, Discussion Paper Series (September). New   York: United Nations Development Programme.

Fishman, T., 2005, How China Will Change Your Business, Inc. magazine,

O’Reilly, E., & Alfred, Diane., 1998, Innovations in Technology and Globalization,

Slaughter, M., & Swagel, Philip., 1997, Does Globalization lower wages and export jobs?, IMF Report,

UNWTO World Tourism Barometer (World Tourism Organization) 7 (2)

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Risk Management Alstom

Risk Management – A Case Study of Alstom

Risk Management at ALSTOM. The advantages of rail projects involve cheap shipment transport costs, increased in the mobility of passengers, greater economic addition and the environmental advantages from condensed road traffic or develop and improved urban transportation. But for the railways projects financiers needs to consider and keep in mind the risks factors that they can face throughout their projects and on the basis of that knowledge they should take some steps and start an awareness programs for those who relate to this project. Risks awareness programs should include the awareness about the hazards and controlled risks along with the steps that can reduce and almost decrease the risks which can be beneficial for the workers and for the rail projects as well.

Why the risk management department / function is an important function for a company

In the newly established private sector of railway, requests for contracts to offer railway services and rolling stick entirely relies on rewards and risk. Though ALSTOM has a massive share of market and substantial experience in the in business, each contract it creates divergence according to the specification of train, provisions of financing and spares, maintenance of various agreements (Quinn, & Strategy, 2013).

This consequently puts more stress on managers to obtain carefully whether every tender is value the risk and what the linked incentives are probably to be. From the suppliers of about two years British Rail will go to identify a short period of warranty after taking the train delivery. It will then renovate and maintain the trains, in addition to offer transport and rail services, like ticketing for passengers, facilities for station and maintenance of railway infrastructure. Financers are avoiding the risks of UK extreme environment and not having the feeling of urgency of Risk Management (Adger, 2010). And there is a lack of importance among firms that are being affected by the extreme weather.

And there is a lack of importance among firms that are being affected by the extreme weather. First of all we need to find out those steps that can reduce above discussed risks so that the railways project can be completed (Quinn, & Strategy, 2013). Investor should realize the risks of extreme environment that can affect the project.

ALSTOM refused the opportunity of business development in the secondary market. As an outcome, manufacturers of train like ALSTOM depend entirely on big contracts for manufacturing trains and experience from either scarcity or gorge that is they were either snowed under with commands and instructions or had to deny as commands rejects. Train manufacturing was a start or stop business and therefore each command was dissimilar, there were no retained technology and high capital cost.

To manage risk, ALSOTM was really concerned about it risk management department. And in order to manage the risk ALSTOM found a serious and vital change in focus for manufacturing  through moving from being merely a train manufacturer to a service provider. Late 1980s passenger transport were becoming more complicated system, integrating an increasing amount of equipment which are high value from suppliers which are specialist.

It was observed at ALSTOM that though these more complicated and sophisticated trains were a chance to increase and improve the product quality , the risk of late delivery and non-performance had raised. The main point was to incorporate the tasks of specialist suppliers so that those kind of risks can be easily managed (Reuter, Foerstl, Hartmann, & Blome, 2010).

Long Term cost risk for ALSTOM can be the major risk for the company. Now for a period of 20 years ALSTOM has a contract to supply their trains for the Northern Lines, it can no longer considers only of the manufacturing trains’ cost. As the company is not considering the long term cost of the company’s assets. So in ALSTOM ’s main interest is to maintain trains in immaculate circumstance and enhance and develop them throughout the lifetime of the company, if they continue this kind of attitude and apply risk management function this will lessen the cost of maintenance and generate more profits.

The project of Northern Line offered ALSTOM with major experience , not just in developing projects but also in capitalizing them. By taking the risk of asset for the scheme, ALSTOM unmitigated its rile as a train producer to act as a systematic stock firm. ALSTOM then went to the pecuniary markets to offer the capital for manufacturing the trains with capitalists who took the monetary risk for the project.

Assess how different departments/functions of a company such as ALSTOM can help the company manage its risks

The business strategy and the human resource management should be entirely incorporated so that they can effectively and efficiently play an active role within the risk management and its assessment. Whenever there is amalgamation activity, the Human Resource Department frequently has a huge responsibility to ensure that business operation transition go easily and smoothly. When firms amalgamate, some of the most important modification happens in treatment and in number of its workers. If in ALSTOM human resource department can successfully tackle with these significant matters, they can have massive effects on the success of the firm (Reuter, Foerstl, Hartmann, & Blome, 2010).

Major goal and role of ALSTOM is to establish and sustain trains until the end of era of franchise of Virgin. But the company is experiencing problem in maintain trains. The company is facing legal issues like accidents or suicides relating impostor, defect, and fire, electrical or mechanical failure caused by ALSTOM’s train or the company and especially workers’ strike which is due to the mismanagement of human resource, and it can cost a lot to ALSTOM.

The company hoped that they can carry on sustaining trains and can be able to manage their human resource after the franchise. Northern Line scheme’s financiers did not abridge risk whether it’s related to technicality or human resource mismanagement. Though the investors and the sponsors for the West Coast Main Line WCML project were signifying banks and other institutions of finance, are taking releasing risk, further than the date of primary franchise (Dimant, Lindner, Liu, Ruiz, & Tejpal, 2011). Till 2012, investors and sponsors have assured income flow from this project. But the risk comes after the year 2012, and the question raised that will the revenue generated for rest of the life of the advantages is enough to fund the financial make-up and produce a profit on the speculation of latest trains?

It is the sponsors and investors who having created the train manufacturing possible, who take the acclaim risk of supplying trains for the Virgin franchise (Narasimhan, & Talluri, 2009). Due to systematic finance management of ALSTOM the company was able to generate profit on the speculation of latest trains. But the major types of risks that must be consider by ALSTOM are strategic risk, for instance a competitor will going to pose serious threat on the business, compliance risk for instance the introduction of new safety and health rules and regulations, financial risk for instance increased interest rates or non-payment by customers charges on business credit, last is operational risks for instance theft or breakdown of main instrument.

How risks for a business such as Alstom are assessed

Assessment of risk is not about developing a massive amount of paperwork, but rather about recognizing appropriate measures to manage and control risks in the organization. Organizations like ALSTOM is already taking serious steps to guard its business operations and employees, but the company cannot deny the importance of risk management because it will aid ALSTOM to determine whether the company have covered all it requires to (Burstein, Sohal, Zyngier, & Sohal, 2010).

Think about how ill health and accidents could occur and focus on the actual risks, those that are most probably and will cause the most damage. For several risks, other rules need specific control actions. The risk assessment can facilitate ALSTOM to recognize where they require at assured and definite risk and these specific control measures in more specification. These control actions do not have to be examining separately but can be measured as an expansion of overall risk assessment.

Analysis of railway safety is very complex topic in ALSTOM where safety is indomitable by various elements including error of human. Many assessment of railway safety method currently employed are relatively mature instruments. In many situations the executions of those tools might not give suitable and adequate results because of the lack of safety risk information or the high level of vagueness and ambiguity present in the available safety risk data.

For many businesses, particularly ALSTOM, simple five step approach including all elements of risk would work efficiently (Narasimhan, & Talluri, 2009).

Identifying Risk

At ALSTOM looking for those factors at workplace that have the possibility to cause any kind of harm, and identifying employees who may be exposed to the dangers.

Evaluating and Prioritizing Risks

Evaluating the probability and the severity of the potential harm and the existing risks and prioritize them according to their classification of significance (Van Detta, 2013).

Deciding on Preventive Action

Identifying the suitable actions to control or eliminate the risks.

Taking Action

With the help of prioritization plan implementation of protective and preventive measures to eliminate the risk factors

Monitoring and Evaluation

The evaluation should be monitored at regular gaps to make sure that it stays up to date.

Risk Management
Risk Management

Evaluate approaches to managing risk

In business Enterprise risk management contains the procedures and the methods employed by the organization to manage and control risk and confiscate opportunities regarding to the attainment of their goals and objectives. It provides a framework for risk management, which naturally engross recognizing specific conditions or events related to the opportunities and risks of the organization, evaluating them in terms of magnitude and likelihood of impact, considering a strategy of response and progress observation (Wallin, Larsson, Isaksson, & Larsson, 2011).

COSO considers this ERM, incorporated framework fill up this requirement, and suppose it will become broadly adapted by the firms and other companies and meant all interested parties and stake holders. ERM’s incorporated framework extends on inner control, giving a more serious and widespread focus on the broader focus o ERM.

As it is not meant to and does not restore the inner control framework, but rather integrate the inner control framework within it, organizations might determine to look to this ERM framework both to satisfy their inner control requires and to move toward a risk management procedure.

Advantage

It is meant to aid promote new dialogue between senior executives and boards as they associate to more fully extend their resiliency of organization to risk and abilities of management to recognize opportunities to take appropriate risks for strategic and competitive benefits (Wallin, Larsson, Isaksson, & Larsson, 2011).

Disadvantages

As organization struggle to establish ERM procedure into models of more mature business operation, management and will require being tolerant. ERM should be observed as a long-term cultural modification as immediate achievement is exceptional. Unfortunately, no off the shelf explanations for firms looking to commence an effective and efficient enterprise, broad approach to risk management and lapse.

Analyze what causes various risks for Alstom transport

The P&O Nedlloyd Southampton encountered very rough climate in the Western advances to the English Channel. There was no proof that the transformer moved in stow on both ship but on entrance at the construction site of the power station at purpose, the transformer was found harmed to the degree of over 2 pound per meter (Reuter, Foerstl, Hartmann, & Blome, 2010). It had to be revisit to works of ASTLOM for repairs. ASTLOM was agreed that the harm to the transformer had been due to some strange and extraordinary event in the transit’s course and made a declaration under their insurance doctrine, which was entirely on the terms of all risks.

The insurers then believed that the harm to transformer resulted from the intrinsic incapability of the transformer to endure and survive and the common incidents of carriage by sea from United Kingdom to Malaysia throughout the cold seasons. They hence rejected the claim on the basis that the harm was caused by the intrinsic vice and then carried these proceedings looking for a statement that they were not accountable to cover ALSTOM under the doctrine.

The judge identifies that it was the general basis among the parties that directs the reasons for the harm to the transformer was the aggressive movement of the craft, specifically the Eliane Trader, due to the wind and sea actions. The action of wind and wavers obviously were a predictable incident of any journey and is therefore a danger to which all goods passed through sea are significantly exposed (Reuter, Foerstl, Hartmann, & Blome, 2010). Goods caring for shipment should therefore be able of enduring the forces that they can normally be normal to meet in the course of the journey and these might differ highly relying on the time and route.

According to the ASTLOM the employment of non-ASTLOM parts and sections without thorough design of industry and standards of safety, had caused in the sequence of failures in paths exchange machines, an unusual kind of structure and had resulted in the operational issues, together with a derailment of freight cars. ALSTOM warned against the integrated elements across all control system of trains.

Changes in government policies are also effecting the operations of the company. Increase in tax rates, duties on custom, import exports pricing policies are posing threats on the speed of business operations.

Risk Assessment Template

Risk Area

 Risk Identified

3- S

4- P

 Risk Impact 

Risk Severity
Non-ALSTOM Tools The particular risks linked with employing non-ALSTOM instrument are that it would need increasing the power level of device

8

9

 This is the high risk that can increase the probability for a single breakdown that could not save the system from noticing the trains on the track, which can cause accidents. The risk is high because it is harmful for the system, and it can cause severe accidents in present and future as well.
Safety of Railways In ALSTOM safety is indomitable by various elements including error of human.

10

8

 In many situations the executions of these tools might not give suitable and adequate results because of the lack of safety risk information or the high level of vagueness and ambiguity present in the available safety risk data. Again the severity is high because of human error and this can cost to the company a lot in future.

Identification and Assessment of the impact of risks: At ALSTOM looking for those factors at workplace that have the possibility to cause any kind of harm, and identifying employees who may be exposed to the dangers. It is very necessary to assess the impact of risk through evaluating the probability and the severity of the potential harm and the existing risks and prioritize them according to their classification of significance.

The Seriousness or Severity of the Risks: In October 2006 ALSTOM employee gave a verbal warning to another engineer of metro regarding the risks of combining instruments from various producers during a discussion. Illenberg said the particular risks linked with employing non-ALSTOM instrument are that it would need increasing the power level of device(Zavadskas, Turskis, & Tamošaitiene, 2010). This is the high risk that can increase the probability for a single breakdown that could not save the system from noticing the trains on the track, which can cause accidents.

Analyse the actions or strategies that Alstom can implement to manage the risks you have identified

All of the above risks can be controlled and managed. Well if talk about technical risks ALSTOM requires to consider few points that can develop the standards of technicality that can be very beneficial for the projects of railways, first of all the company should consider the importance of training its employees technically and conduct some sessions related to training sessions so that they can be able to technically equipped and skilled, and can be able to operate and construct the functions of the railway with the advanced and latest technologies (Zavadskas, Turskis, & Tamošaitiene, 2010). And for managing the economical and financial issues they require to have appropriate departments that can control, manage and reduce the economic and financial risks elements.

Analyse to what extent Alstom Transport, and other business, are vulnerable to major crisis

Due to extreme weather of UK, the temperatures become intolerable particularly in winters. But financiers are avoiding the risks of UK’s extreme environment and not having the feeling of urgency of Risk Management. And there is a lack of importance among firms that are being affected by the extreme weather. In the storm the winds most usually are strongest; even though they can arise at any time of year it can effects the projects which are underdeveloped and undersized. Other modes of transport are poorly effected by the UK’s extreme weather, it’s possibly the weather will be estimated extremely severe (Arena, Arnaboldi, & Azzone, 2010). The severe situations also stated that firms are going to consider extra claims in extraordinary situations.

Last but not the least heavy rain risks may affect the project. In winter there is a heavy rain in UK it all rely on the extent of rain that may be fail. Heavy rain can be the bigger hindrance in the completion of these rail projects. It becomes important for the financiers to take serious measures to handle these kinds of situations as all these factors are uncontrollable but we need to take those steps that can reduce the risks.

Control Risks involves technical, economic and financial, accidents, political and legal risks. All these factors can affect the railways project. While running the railway system technical standard are continuously coming across some problems. This might affect the railways projects. The distance need for the bridges cause more conflicts (Arena, Arnaboldi, & Azzone, 2010). Train accidents are increasing day by day due to miscommunication. The economic case for the ALSTOM railway comes out to be found on a supposition that there will be free movement of goods and people throughout the council area. The economic underpinnings for the line depend on continued economic growth and more trade between ALSTOM member states.

Critically evaluate in detail the approaches that Alstom Transport can use for crisis management and business continuity planning

First of all we need to find out those steps that can reduce above discussed risks so that the railways project can be completed. Investor should realize the risks of extreme environment that can affect the project. They should keep the gap between the railway tracks because in summers the tracks expand if there will be no proper gap between the tracks the train will be damage. Storms can increase the risks accidents (Renn, Klinke, & van Asselt, 2011). Because of storm and heavy snow fall the snow will cover the railway tracks and it will become difficult to drive over those tracks to avoid this kind of situation it is necessary to have air pumps in front of the train to blow the snow. Due to heavy rain in UK especially in winter season the aim to complete the project can be delayed. To handle this kind of situation there should have proper drainage system and canal system so that heavy rain cannot affect the ALSTOM railway project.

Control risks can be handling easily with having any kind of problem. Well if we will talk about technical risk we need to consider few steps that can increase the technical standards that can be beneficial for the railways project, first we should consider the urgency of training the workers technically and arrange some training sessions so that they can be technically skilled and equipped, and can be able to construct and operate the railway function with advance technologies. There are many rail projects which are on the ongoing stage and needs more financial investments to run the project smoothly. And for managing the financial and economical problems they need to have proper departments that can manage, reduces and control the financial and economic risks factors (Renn, Klinke, & van Asselt, 2011). Due to miscommunication lot of rail accidents have been occur to avoid this kind of problem they need to proper guide and train their workers how to communicate so that in future the risks of accidents can be reduce and almost vanished. Last is political and legal risk, for moving goods and passengers from railway is considering being free in future all over the council area but this needs a joint practices system for all states members to allow agree on a solitary point of entrance into the UK and have a similar tariff for the imported products.

Importance of Risk Management

Poor or lack of appropriate risk management strategies greatly affects the viability of any investment undertaken by anyone be it the government, a company or an individual business entity. In every investment that anyone undertakes, he or she must consider the issue of risk. Starting a business investment is taking a risk in itself. Time is what will tell if an investment will be successful or not. The future is uncertain and difficult to predict, due to this unavoidable fact, anyone starting a business venture has to come up with ways to mitigate risks involved in the business venture at hand.

Risk management can be defined as the process of identifying, analyzing and mitigating the uncertain state of any investment during the process of making decisions. Risk management comes to play whenever an investor tries to quantify the possibility or the potential for losses in an investment and then takes the necessary actions depending on his/her objectives in the investment and the nature of their investment’s risk tolerance potential (Satyajit, 36).

Poor risk management practices can cause severe consequences to any business entity be it a company or an individual business. A good example is the recession that began in 2008 which was caused by financial firms adopting loose credit risk management strategies. An investment without the consideration of risk management is like a vehicle travelling to no destination.

Research Findings

In my research of business risks and how to manage them, I came up with the different sources of business risks. A company cannot eliminate risk completely, but it can manage risk successfully. When it comes to financial issues, the management of a company has to make difficult decisions and choices pertaining the acceptable risk levels. If the risks are not acceptable and may yield losses then the management rules out the venture, but if the risk is acceptable and may yield high returns afterwards, they choose to undertake the venture at hand.

Successful risk management practice is based on the maintenance of a good balance between risks and rewards and ascertaining potential profits against potential threats in the operational stability of a business. Every company that operates any business venture must inevitably assume a certain level of risk so as to generate profits that will satisfy its stakeholders. Any business undertaking comes with some risks, the risks are diverse ranging from financial risks, risks from the market place and employee related risks (Satyajit, 56).

Risk management involves being aware of the potential risk and having an alternative plan to help deal with any problem that may arise in the course of an investment. A fitting illustration of this is when the management of a company realizes that the funds allocated to the company for a certain project will not be enough to complete the project. An appropriate risk management for the company will be having a backup financial plan that would fund the project and see its completion if the primary source of funding for the company is not willing to offer it additional credit.

The primary source of risk for a company is the market place that it operates in. It is very difficult to control the risks involved in the market and the best way to manage them is to directly deal with them in the best way possible. Among the major risks in the market is that the demand or preference of consumers may change over time, which would mean that the demand for a company’s product may decrease. Another risk can emerge when a competitor introduces a new product in the market that may be more desirable to the consumers than that of the company, or it may offer a competing product at a relatively low price and lure all the customers to consume its product. This poses to be a real danger to a company’s sales and it may adversely affect the operating profit of a company in a negative way.

Most risks in businesses emanate from financing and cash flow sectors. A company may fall short of finances when operating an expansion project or its customers may delay in paying their invoices in time creating delays which may disrupt the cash flow of a company. Also, the suppliers of a company may fail to supply or they may raise their prices all of a sudden with no prior notice creating cash flow problems to a company (Satyajit, 69).

Another major source of business risk is employee relations. Problems associated with labor pose a great impact to the production capabilities of a company. There are some personnel in the company that it cannot afford to lose and so it may incur increased wage costs so as to retain them. A company’s performance and profitability can dwindle due to the loss of important and essential personnel. This may happen when, for example, a key product designer moves to another competitive firm for a better pay.

A company may also have expanded its operations geographically to other countries; this means that it does business at international levels. Due to this, the company faces a variety of risks which include the risks of political problems. If a foreign country is politically unstable, it may bring a company’s operations to a standstill. Also, there may be changes in tariffs and the import/export laws may change thus affecting the company’s sales. The fluctuation of currency exchange rates may also pose a great risk to a company’s operations internationally.

The above mentioned risk sources affect every business entity and any investment that does not take into account the possibility of risk is suicidal. Poor risk management strategies have seen to the closure and collapse of many investments in the world. Just but to mention a few, about everyone knows about Hurricane Katrina and the destruction it brought to America. The government invests in protecting its citizens but in the case of the hurricane, poor risk management had been undertaken beforehand. Due to that, the hurricane caused unfathomable damage of property and loss of lives than anyone could comprehend. This were the results of poor risk management (Crouhy, 41). This is a catastrophic example of what poor risk management can cause.

Another good example of poor risk management strategy can be explained by Yahoo. It was the first company to offer mailing services to people using the internet in the world, due to this; it was charging people for the services it offered but not until the emergence of Google its greatest competitor. Google offered similar services but for free and so it attracted more customers than Yahoo. Yahoo did not see the risk of a competitor emerging and taking over its market share. Google is now the most used search engine in the world.

Knight Capital is another good example of a company that failed in its execution of a systematic risk management strategy in its undertaking. The company switched to a new software that it had not fully tested and entrusted all its undertaking to it without ascertaining the risks that may be involved. Upon putting its new software to the job, the company had recorded numerous erroneous trades in the New York Stock Exchange (NYSE). Even though the company immediately ceased its business transactions after realizing the problem, it had already committed itself to transactions worth billions of dollars. This resulted to an immediate pre-tax loss of more than 440 million US dollars. This financial company rushed for profits at the expense of risk management. If a financial company is pushing up technology and keeping its workforce on toes to extract the smallest value that is on offer in the ever competitive market, it should also make sure that its risk management systems keeps up with the same pace.

All companies in one way or another have faced risks and it all depends on how good their risk management skills are so as to pull trough. The following are the most common examples of risk management techniques that businesses employ so as to maneuver their way through risks.

Avoidance of risk- the easiest way that a business can manage risk is by avoiding it. This simply takes place when a business refuses to engage in any activity that it may perceive to carry any kind of risk. A good example of this is when a hospital avoids carrying out a procedure that involves a high degree of risk to the patient’s life. This method is simple in managing threats to a business entity but it also lowers the revenue potential of the business (Crouhy, 50).

Risk mitigation- some risks that businesses face is unavoidable and the only way to manage them is by trying to reduce their impact to the business. Risk mitigation is meant to lessen the negative consequence of a known risk to a business.

Transfer of risk- sometimes a business may choose to transfer risk away from itself. It does so by paying premiums to an insurance company in exchange for protection against any substantial loss. For example, a business may insure itself against fire so that in the event of any accidental fire that may cause financial loss, the insurance company will compensate it.

Risk acceptance- this is another way of managing risk in a business entity. A company may choose to accept a certain level of risk that may be brought about by a specific project if the expected profit is far much greater than the risk involved (Hopkin, 73).

Conclusion

I believe that risk management will become part of the management process of organizations in future. If the process of risk management had been put in place over the past two decades, a number of risks could not have taken place and more others could have been mitigated.

In the modern world, companies are beginning to see the advantages of protecting themselves against all types of potential risk exposures. By understanding risks, how severe and frequent they are; a company can now turn to viable solutions (Hopkin, 63).

From the research findings, it can be proven that poor or lack of appropriate risk management strategies greatly affects the viability of any kind of investment undertaken by anyone, be it the government, a company or an individual business entity. It is clearly evident that starting an investment without a clear plan on how to manage the risks involved will guarantee a very high chance of failure for the investment in question.

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