The most common definition of a contract stipulates that it is a legal binding form of an agreement; in other words a contract is an agreement that is enforceable by law (John A. Willes, 2009). On the other hand, under the sherman act an agreement defined as a fundamental ingredient or component of a contract (Turner, 1962). Thus, from these definitions, similarity between a contract and an agreement can be concluded. However, there are few elements separate between them, and identify the term contract as inclusive and legally binding form of agreement (Humphries, 2004). In order to form a contract an agreement must be reached between the involved parties. Thus, an agreement is the most essential component of a formal contract; consequently in that sense, any contract is basically an agreement between specific involved parties (Turner, 1962). On the contrary, individuals may reach agreements between them every day, but not in all circumstances these agreement can be considered as legal contracts enforced by law. To be regarded as a contract, an agreement must fulfil the requirements and conditions necessary to form a legal contract (John A. Willes, 2009).
In order to critically analyse the statement “all Contracts are agreement but not all agreements are contracts,” it must be discussed in the light of the main elements of a valid contract. The essential elements of a valid contract respectively are: offer, acceptance, consideration, intention to contract, capacity to contract, consent to contract, legality of form and legality of purpose (John A. Willes, 2009). An offer is a proposal presented by one party to buy or sell goods or provide a service. In more general terms it is a proposal to do or to give something. To be regarded as an agreement, an offer must be accepted by the second party; consequently the second element of a valid contract is acceptance. Acceptance is agreement of the second party or the offeree to the specific terms of the offer (John A. Willes, 2009). Once the offer is accepted it can be considered as an agreement; however to be considered as a contract, it must fulfil the remaining conditions of a legally binding contract which will be discussed respectively.
Legal Contract Law
While offer and acceptance might be inferred from the conduct or the words of the involved parties, the conduct or words must conform to particular rules that have been formed before acceptance could be considered as legally valid (John A. Willes, 2009). These rules have been formed by the courts over time, and they are the remaining elements of a valid contract which must be fulfilled for an agreement to be considered as a contract. These are: consideration, intention to contract, capacity to contract, consent to contract, legality of form and legality of purpose (John A. Willes, 2009).
Consideration means that the goods or services exchanged between the involved parties must be real, adequate and legal (John A. Willes, 2009). Intention to contract refers to involved parties’ willingness to be a part of a legal contract. Therefore, involved parties must know that they are about to form legal relations which cannot be broken or violated (John A. Willes, 2012). Capacity to contract condition states the cases and conditions required for a specific person to be entitled to enter a legal contract. These conditions include but aren’t limited to sanity and maturity (John A. Willes, 2009). A person who is under the age of eighteen is not allowed to be involved into a legal relation (John A. Willes, 2009). For, example, an agreement can be reached between two parties which both or one of them is a minor, but in this case a legal contract doesn’t exist. In this circumstance, the statement under discussion is explicitly applicable. Consent to contract means that a person cannot be enforced to enter a contract, and it should be subject the free will of involved parties. For instance, if a marriage contract is created by forcing or threatening the groom to marry the pregnant pride, it is not considered as a valid contract (Humphries, 2004).
The last two elements are legality of form and legality of purpose; Legality of form means that a valid contract must be formed in accordance with specific legal roles. For instance, Rules specify that a valid house buying contract must be written and cannot be oral. Legality of purpose means that the contact would only be considered as valid and legally binding if it only was made for legal transactions specified by law (John A. Willes, 2012). To illustrate, an agreement could be reached between two parties for the exchange of illegal product; however, a legal contract cannot be established because legality of purpose rule was not fulfilled. Under the previous circumstances, the statement “all Contracts are agreement but not all agreements are contracts,” is valid.
Bibliography
Humphries, A. (2004) Essential Features of a Valid Contract.
John A. Willes, J. H. (2012) Contemporary Canadian Business Law-10th Edition. Mcgrow-Hill.
John A. Willes, J. H. (2009) Fundamentals of Canadian Business Law-2nd Edition. Mcgrow-Hill.
Turner, D. F. (1962) Definition of Agreement under the Sherman Act: Conscious Parallelism and Refusals to Deal.
This philosophical essay intends to identify and explore the key features of Maurice Merleau-Ponty’s approach to the question of perception in “Phenomenology of Perception” by him and discusses the problems or weaknesses if there are any. This philosophy essay expresses argued position on a subject. It presents consideration to be good reasons for the claims that are made and the views defended in this literary piece of work. Furthermore, the essay intends to clearly, distinguishes the philosophical problems addressed in it, and strictly sticks to the reflections upon the issues that are raised by this topic. In order to clarify and develop a point to examine more precisely the common background in the theory of perception in Merleau-Ponty’s work the essay discusses views of others who also have written on the topic (perception).
Analysis
“Phenomenology of Perception” (1945) is the major work of philosopher Maurice Merleau-Ponty, one of the founders of phenomenology. The author criticized in this book design Cartesian mentalist and the language, which would make the simple words representations of concepts mentally or objects outside (Merleau-Ponty, 2004, pp.01-589).
Perception is a faculty biophysical or phenomenon physio-sychological and cultural links to the action of living worlds and the environment through the senses and ideologies individual or collective. In humans, perception is also related to the mechanisms of cognition by the abstraction inherent in the idea and concepts learned in thought. The word therefore means perception or sensory ability (the instinct for example), is the process of collecting and processing the information or sensitive sensory (in cognitive psychology, for example), or awareness resulting. In experimental psychology, in the human being, there are scales of perception conscious perception and unconscious, also known as implicit or subliminal (Baldwin, 2007, 33-41). This distinction has been extended to other animals insofar as it is known, or in another measure, can be trained and conditioned to give or not they have received or not a stimulus. The perception of a situation involves senses, the mind, and the ideas at the moment and time.
Fortunately, a close analysis of the overlap between “Phenomenology of Perception” by Merleau-Ponty not only allows us to understand the benefit of hindsight but also to assess the consistency of the analysis of perception. In “Phenomenology of Perception”, Merleau-Ponty (1962, pp.01-589) develops more fully theories of perception, he tries to describe our first experience of living and the world as it is given before any interpretation and scientific knowledge.
Author rejects both empiricism to its choice of atomization and failures to report in general terms of structural models of our experience and rationalism (01-589). Because it separates conscience of the world and proposes an existential perspective that can establish dialectical relationship between the subject and the world, it recognizes the nature of consciousness, mainly due to the situation and the life of the body. Consciousness is consciousness of something and is directed toward the world. “Phenomenology of Perception” “goes further by seeking to discover intentionality operative or pre-reflexive links and predicative that underlie our existence in the world. The first examination of the relationship between man and intentional and the world is through reductions phenomenological method and the first is to put all preconceived outstanding about reality and the natural attitude of everyday life that is “bracketed” and examined in a philosophical or transcendental perspective for understanding the essential dialogue between consciousness and the world.
The precise description of pre-reflective experiences, such as especial articulation, movement, time perception, sensation and sexuality, are one approach. The analysis of pathological cases in which the normal conditions of being in the world are suspended and intentionality weakened and it allows further research. Correspondingly, the human mind has not a pure perceptual function. It is inseparable from the physical data that put thoughts into motion, thus this is the novel form, and more concretely in a modern world, it introduces relativity, which can best grasp this entry in a situation. In short, as the work of Merleau-Ponty keep a referential dimension intrinsic, it is characterized by an effort unrewarding to realism but by the manner of reporting a particular phenomenological point of view (Merleau-Ponty, 1962, pp. 01-589).
Perception is what gives the material concept of the understanding, the “union” forming the sensible object. Perception is reality, which is external, and it is not even given in perception. This perception is a sensation that applies to an object general and not to a specific object. In this sense, the “perceptual judgment” remains purely subjective, opposes “judgment of experience” that is subject to the conditions of necessity and universality. If perception is subjective, so you do not consider as true or as false as it is the understanding that one is able to make a judgment that will have a truth value. When we speak of illusion or appearance is therefore refers not to despise but to perceptions of the mind that makes the mistake of taking subjective mode of representation, perception, an objective mode. The perception, whether sharp or not, shows the registration of rights in a “horizon” which cannot escape, in a space where it is enclosed. The view is thus limited to a certain distance, as well as hearing and touch has their own limitations.
Merleau-Ponty Philosophy
Perception is always wrong because it is too human. Until then, it had always been regarded either as an image or as a sign of external things. In all cases, it was thought as a representation of the thing. I believe that the perception gives something “in the flesh” in his bodily presence unlike the experiences of consciousness (e.g., imagination) that represent things missing. This design is based on the intentionality of consciousness shows that it is by no means a receptacle containing a set of images, but acts of sight. For example, the perception of a cube has nothing to do with the imagination of the same cube, as it is a case of the other “targeted” different kind though their object is the same. Perception is never isolated. We have a perceptual field in which ordered a series of perceptions, what is called perceptual sketches that complement each other in building activity of the meaning of things (Webster, Werner & Field, 2005, pp.241–277).
Based on the reflections of Husserl, Merleau-Ponty (1962, pp.01-589) seeks to demonstrate the first perception. This, he says, is by no means the result of an arrangement of sensations but rather an activity of s open to the world of life. He wants to show that the distinction Husserl between the act of sight and the target object is not primitive and that below it there is a reciprocal implication of subject and object. The experience of perception is the location of this co-belonging of consciousness and the world and that is why perception is a primary experience and precedes speech (301-315).
The suspension of classes and hierarchies that we submit our impressions are often accompanied by a relaxation of the functional perspective on individual objects of our world and a higher prevalence of incongruous detail in the perception of our environment. Such a bet is pending is seen more strongly in times of crisis, when the loss of conscious control over the body and the environment produces a hypersensitivity impressions we reflect normally as trivial and irrelevant. It draws our attention to the operation of pre-reflective and overwhelming our senses, independent of an individual’s personal trauma (LaRock, 2002, pp.231–258).
If knowledge was based entirely on the sensation then it should share the properties of the latter. However, the sensation is a snapshot, not a state but an event that remains vanishes (Merleau-Ponty, 2004, pp.88-136). Sensation is more “mobile” unstable and always singular, it is the result of the encounter between an external object and the ability of sensitive man; meeting takes a different form each time. Thus, knowledge is nothing more than a cluster of sensations that it would be impossible to organize because its elements are incomparable with each other. It is in this sense that we must break away from sense perception to reach true knowledge (Casarett, 1999, pp.125–139).
I agree that sensation is equal to knowledge but it seeks to demonstrate the utility value it for life. For life, it does not mean only that of man but that of any organization. Sensation and movement are the two properties shared by all living beings. The feeling gives access to the outside world and its changes and allows the body to adapt to it and thus to ensure its own survival. Merleau-Ponty (1962, pp. 01-589) gives rise to a true science of sensitive, distinguishing the “sensitive clean” which refers to one of the five senses and not others, and “common sensible” seized all the senses (e.g. movement). He hangs up the existence of a sixth sense, “common sense” that allows the unification of sensitive data from the various sensory organs. In a way, we can say that sensation becomes a real object of knowledge even if it is still not the subject in the sense that it would be knowledge.
I believe sensation is not a reliable source of knowledge. For this, I use the famous example of the “piece of wax.” Initially it presents a set of sensible qualities: it is hard, cold, smells of flowers makes a particular sound when hit etc… Suppose we approach this piece of wax fire, then all of these qualities disappear and replaced by others. However, it does not say much for this thing, which is come before me, is something that I perceived the wax before. This is the same wax that before and after exposure is to fire so this is not what I perceived with the senses that can explain what the wax. However, the imagination, which conceives of something changes, cannot do more because these variations are endless. Only the mind can. Thus, I come to consider the perception rather than as a “vision” but as “an inspection of the mind.” Perception is an act of intellection, producing an idea that can be “imperfect and confused” or “clear and distinct”. In the latter case, there is identification of perception and truth. It is found again in the early 20th century with Alain, which makes perception a “function of understanding.”
The problem of perception has been a central concern of classical philosophy about the origin of knowledge, as evidenced by the famous “Molyneux problem” that looks like this: Suppose a man born blind who has been learned to distinguish by touch a cube and a sphere of the same metal and of equivalent size, find the sense of sight. However, it is noted that the response was generally negative (Webster, Werner & Field, 2005, pp.241–277). Note further that the issue was the assessment of the powers of the senses of sight, often seen as primordial sense, compared to the other senses. The outside world is a construction from sense impressions. One thing, it is the meeting by intelligence, various sensations under the same name, so there is nothing that exists outside of what is perceived. Somehow, the chair I am sitting over there as soon as I left the room. This doctrine is called immaterialism (Casarett, 1999, pp.125–139).
We can also mention the skeptics who do not have little involvement in the devaluation of “knowledge” sensitive. Indeed, a compiled list of cases demonstrates that the perception is sometimes an illusion, an error and in that sense, we should not be proud. Let two of their examples: a square tower we look from a distant point seems round, and a stick dipped in part in water seems twisted (LaRock, 2002, pp.231–258). The list of examples, however, does not answer the question of whether these errors are due to a perception that is itself misleading or judgment that accompanies it. Note finally that the Epicurean Lucretius says it is impossible to demonstrate that the senses deceive us and more importantly, the state would condemn this reason (LaRock, 2002, pp.231–258).
The feeling does not correspond to the coincidence between the subject and the feeling quality (e.g. red) collected. Consciousness is perceptual consciousness. On the contrary, the feeling is embodied in a “horizon of meaning” and is from the perceived meaning that there may be associations with similar experiences (and not vice versa). Printing cannot “wake others”: the perception is not made of sensitive data supplemented by a “projection of memories “in effect, seek to memories presupposes precisely that sensitive data will be formatted and have acquired a sense, then that is what meaning the “projection of memories” was supposed to return (Casarett, 1999, pp.125–139).
Merleau-Ponty (1962, pp. 101-622) explicitly rejects then design Cartesian or mentalist language, which would make the simple phrase of representations mental. The words are not, for him, a reflection of the thought: “the word is not the” sign “of thought”. It cannot be severed from the speech and thought: both are “wrapped in one another, meaning is made in the word and the word is the existence of external sign. He focuses on a conception of the word and the word, which does not reduce to simple signs of thought or the external object, but become the presence of this idea in the sensible world, not the garment (22). He discovered in the conceptual meaning of words an existential meaning emotional (33).
The expression does not that translate well meaning, but realizes or actualizes. The language implies an activity first intentional, which passes through the body itself. Thought is nothing inside; it does not exist outside the world and out of words. There is therefore no thought precedes speech thought is already language (“this inner life is an inner language”) and the language is already thinking.
Conclusion
This philosophy essay explored the key features of Merleau-Ponty’s approach to the question of perception in Phenomenology of Perception problems or weaknesses in of the topic and it found that the body is not a potential object of study for science and an inherence of consciousness and body with the analysis of perception must consider. The primacy of perception signifies a primacy of experience, insofar as perception assumes an active constituent. Maurice Merleau-Ponty analyzes the notion of sensation, despite apparent evidence in the natural attitude and rejects the notion of pure sensation. He then refutes and prejudices the objective world because the perception is rooted in subjectivity that actually produces the indeterminate and confusion. We can conclude with following words that psychology has failed to define the sensation, but the physiology has not been more capable, as the problem of “objective world” arises again and enters in contradiction with the experience to understand what it means to “feel”, we must return to the pre-objective internal experience.
References
Casarett, D.J., 1999 Moral perception and the pursuit of medical philosophy. Theoretical Medicine and Bioethics, 20(2), pp.125–139
LaRock, E.F., 2002 Against the Functionalist Reading of Aristotle’s Philosophy of Perception and Emotion. International Philosophical Quarterly, 42(2), pp.231–258
Merleau-Ponty, M., 2004 The World of Perception O. Davis, ed., Routledge
Merleau-Ponty, M., 1962 The Phenomenology of Perception, Routledge
Webster, M.A., Werner, J.S. & Field, D.J., 2005 Adaptation and the phenomenology of perception. In C. Clifford & G. Rhodes, eds. Fitting the Mind to the World Adaptation and Aftereffects in High-level Vision Advances in Visual Cognition. Oxford University Press, pp.241–277
Baldwin, T., 2007 Reading Merleau-Ponty : on Phenomenology of perception, Routledge
Financial Investment – To know how to invest, first it is necessary to understand the basics of investment. To learn an investment art is more like to study a new language. A fundamental thing any successful investor needs to do is to allow his earnings to run on for a long time. Before consideration of some advance theories and practical investment, there is a need to understand the fundamental concepts and terms of investment. Money Investing is a complex thing; moreover, people often feel themselves confused due to sufficient knowledge and poor experience in this field. In this article, we will try to make main basic investment theories clear. Moreover, people should thoroughly study the investment concepts before their attempt to understand the mechanism of investment.
Risk and Return
Risk and return are the most fundamental concepts of investment. Risk and return are directly proportional data. It means, taking a high risk, investors will receive a high return and the vice versa. There is an example for comparison. Some people use to dive in the water knowing nothing about its depth. Others prefer first to measure water depth, to calculate its indicators, and then to find out about diving safety. This example proves extremely high benefits for investors to predict a possible investing risk and to imagine its future effect.
In some books on the investing theme, they consider a risk as “a chance to the actual rate of Return on Investment can differ from expected”. In other books, the risk refers to “probability of negative outcome on your investment.” Thus, people use a risk concept to calculate the level of uncertainty. To take a low risk means to expect low return, and the vice versa.
The investors stay always in a search for a right solution that will help them to achieve the best high return with the best low risk. This is an ideal situation, hard-to-finding in the current uncertain economic environment. As discussed, high risks lead investors to high returns, whereas low risk normally leads them to low returns. The rate of return on investment mainly depends on the level of risk associated with investment. It is easy graphically to explain the relation between risk and return as the figure below illustrates.
Financial Investment 01
Often people misunderstand the risk concept because of assuming that the high-risk level leads the high-return rate in any case. A high risk actually means only a possibility to provide an investor a high return, but there are no guaranties. Analogically, low-risk taking does not always lead to low return-earnings, because it is just a possibility to get low returns. Another concept necessary to understand is a risk-free rate. The risk-free rate is the rate of return on investment, achieved by investors through taking no risk.
As an example, it could be a rate of return on United States Government Bond. If the U.S. Government provided an 8% return on its bond investment, the risk-free rate would be 8%. Afterwards, the question arises: “Does investor aim to earn more than 8%?” The more he aims to benefit from the investment, the higher risk involved. Taking into account an acceptable scope of investing risk, the investor can accept a reasonable decision about his interest in the investment process. Benefits from investments can extremely vary investor to investor. There are a number of factors, affecting investors’ decisions, for example, an objective, personal situation, income level, etc.
Financial Investment Diversification
Diversification is one of vital investment basics. It is important to understand this concept to get to know why investors diversify their portfolio. Most investors cannot resist the short-term economic fluctuations, increasing as well as decreasing earnings from investments. To avoid a negative effect from economy uncertainty, investors need to diversify their investments. Diversification means managing and minimizing the risk by investing money in different sectors. As a complex concept, diversification needs its explanation through the example below.
There are two companies in a coastal area. One company sells sunscreen creams, and the other one sells umbrellas. As you can find out, the economic situation both of them depends on a season. If there were a rainy season, the umbrella company would operate with higher financial result. It is because of increase in demand for umbrellas. However, in sunny weather, the umbrella company most likely would have nothing to earn. In this situation, we have to invest a part of your investment in both the companies so that we are able to survive in both seasons.”
Diversifying investments Investors should abide by two main rules described below.
It is necessary to invest money in different sectors allocating savings to stocks, cash, bonds, and in real estate. To avoid industry related risks, it is better to invest in different industrial sectors.
It is necessary to invest money in companies with a variable risk. Before that, investor should choose an entity with different risk levels; moreover, blue chip shares should be not always preferred.
Diversification helps to achieve the long-term goals and makes us able to stand in short-term fluctuations. Diversifying their investment portfolios investors only minimizes the risk; however, there is no guarantee of high earnings. There is always a certain amount of risk involved no matter how much investor diversifies his investment.
Often investors wonder how many items they should use to achieve an optimum level of diversification. Experts suggest that 20 different stocks added in the portfolio are the most reasonable decision to avoid all individual risks attached with investment. Diversification means to buy the shares of the companies, variable in a size and type of industry.
Dollar Cost Averaging
The most difficult task while understanding the investment basics is picking the tops and bottoms of the stock market. Every investor aims to buy the stock at the lowest level and sell at record high level. Dollar cost averaging is a concept of buying shares for a particular amount regardless of their price. If an investor wants to buy the stocks of XYZ Company for $500 every week, we will buy the shares regardless of their price. If the price is higher, it is rather reasonable to buy fewer shares, and vice versa. The cost of the shares will be average out in the end. This technique helps to reduce the level of risk involved by purchasing shares at different prices.
Asset Allocation
Asset allocation is primarily decision about where to invest money. People, which want to invest their savings for a longer term, should invest in stocks. However, if people wish to invest for a short or medium term they should put their money in securities of different sectors and industries. Asset allocation is a technique that provides a balance in your investment and helps to diversify investments in a safe way. In asset management, it is actually necessary to divide the investment between cash, bonds, real estate, and stocks. Each of these investing directions provides its own level of risks and returns; therefore, the behavior of each sector is mainly different.
The asset allocation concept has a relation to an age of a person. Investing their money, the older people prefer to take lower risk. It is because of their savings, which in retirement generally come from the only source of income. To preserve their assets, it is safer for retirees to invest money in more conservative manner.
Another important aspect of asset allocation is to choose proper portfolio items for investment. The question arises: “How much money should we put on stocks and other securities such as bonds, securities?” Older and retired persons need more to invest in the items in which less risk is involved such as bonds and securities.
Random Walk Theory and Financial Investment
In 1973, Burton Malkiel first developed Random Walk Theory. The book titled “A Random Walk Down Wall Street” is now considered a classic investment theory. This theory states that the previous performance of any company in the stock market cannot be used to predict with precision its future performance. In 1953, this theory was first examined by Maurice Kendall stated that the fluctuations of stock prices were independent of each other.
Random Walk Theory says that the stock market always takes a random walk. People are able precisely to predict almost nothing about stock changes in the future. The chances of going the stock prices both upward and downward are equal. The followers of this theory assume a possibility to achieve high returns due to the correct calculations. Burton Malkiel stated that all types of analysis worked out to predict volatility of stock prices in the future make investors just waste their time. Malkiel supposed that only the long-term shareholding allows achieving high returns on your investment.
There are many followers of the Random Walk Theory. The others consider Investment a complex science, and they cannot invest their money based on a book written 40 years back. Today, investment basics changed as compare to 1973; moreover, nowadays people have a great access to the market news and ways to exchange views.
Hypothesis of Efficient Market
In 1960s, Eugene Fama first developed the idea of Efficient Market Hypothesis This theory states that it is not possible to beat the market as prices reflect all information. Disputed theory creates many controversies. Followers of this theory suggest futility of all types of technical and fundamental analysis.
In Efficient Market Hypothesis, investor can buy and sell shares anytime he wants. The return on investment mainly depends on a chance rather than investor’s skills. According this theory, if the stock market is efficient, the prices always go up. That is why it is useless to look for low-price shares.
Technical analysts always resist this theory due to their assumption that there is no logic in that old theory of financial investment. There are many arguments against the Efficient Market Hypothesis. As an instance, people invest their money because of the expectations, based on analysis of the company’s past performance and logical assumption about future prices.
Optimal Portfolio
The Optimal Portfolio concept is based on Modern Portfolio Theory. Harry Markowitz first introduced this concept. He stated that different portfolios provide different levels of risks as well as return. The investors should accept a right decision about how much high risk they can manage. Then, on a base of that decision, they diversify their portfolios. The figure below explains what the optimal portfolio means.
Financial Investment 02
If we look at the figure, we can see the optimal portfolio is always in the middle of the curve. Going up the straight line, portfolio reaches higher risk involved. Investors also have to think how volatile portfolio he should choose. Certainly, volatile financial investment is the one that provides investors with high returns; however, at the same time, risk involved is also higher.
Capital Asset Pricing Model
In 1952, Harry Markowitz developed Capital Asset Pricing Model, known also as a model for risky securities pricing. Some others have overhauled this concept during 60s. The model reflects the relation between risk and return. Its main idea manifests that expected return on security is equal to a sum of the security’s risk-free rate and a risk premium. If the result is lower than the required return, then it is not reasonable to invest in that option. The formula below describes Capital Asset Pricing Model.
In formula above, the result largely depends on the Beta value of the security. Stock’s beta measures the sensitivity of a stock relative to the overall market or an index. The trend is that the higher Beta’s value the higher expected market return. The sensitivity of stock usually is compared to the S&P 500 Index. However, this is just a theory, and there is no guarantee that this theory gives us 100% results in a practice case.
This article is aimed to help people to understand the basic concepts of investment and give readers some ideas about how the investment theories work.
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.
Who uses a strategic plan?
What are the key elements or features?
Why use a strategic plan? What are the benefits?
When to use strategic planning?
How to use strategic planning effectively?
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
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.
The popularity of the issue of sustainability has been growing in the past several decades and it now represents a priority point for the strategic planning and operations of companies, organizations, but also for communities and whole countries (Bell and Morse, 2008). This report addresses one particular area of sustainability from a business perspective and that is the area of monitoring and evaluation.
In order to enable this, the report refers to the theory behind the concept of monitoring systems, indicators and most importantly, the characteristics and features that these systems and indicators need to possess in order to be successful and effective.
To enable a more detailed analysis, this specific sustainability area has been overviewed by applying the selected theory to practice. IKEA has been chosen as the company of interest of this report, and its sustainability efforts, accomplishments and plans have been considered from the perspective of the three sustainability dimensions.
To furthermore focus the research and analysis conducted in this report, one specific dimension of sustainability, the environmental one, has been chosen and reviewed in more depth. In relation to this, an identification and selection of relevant indicators has been conducted and these indicators have been analyzed in terms of their measurement and limitations. The purpose of this was to ensure the tangibility of the indicators and to identify the potential problems that the company may encounter while pursuing the set objectives and goals.
Monitoring Systems
Over the last three decades, sustainable development has become priority for a large number of countries, communities and organizations. All of these expect one thing from their various development programs and projects and that is to deliver results (Bossink, 2012). This is why the ideas and actions that are implemented in these projects and programs have begun to be evaluated form one perspective – whether or not they promote, enable, improve sustainability. But, in order to answer this question, countries, communities and organization in fact have to provide the answers to two other questions – what will success mean and how do we know that this success have been achieved (Gorgen & Kusek, 2009).
Sustainability IKEA
Monitoring systems are what makes the answers to these questions possible. By definition, monitoring stands for the periodic and repetitive measurement of specific values of variables, and represents one of the crucial factors in the actual achievement of sustainability (Chai, 2009). The sustainability monitoring systems are designed to gather information, cross reference it in regards to a set scale and support the decision making process. The data that is received as a result from the monitoring systems enables the decision makers to assess whether or not they are on the track with sustainability progress and helps them to quickly identify if something has diverted the organization from the planned path and how to quickly move back to it (Devuyst, Hens & De Lannoy, 2001).
In order for monitoring systems to achieve the objectives they have been designed to achieve, they need to be well defined, optimized and tested continuously to ensure their adequacy. But, what they need the most is a good set of indicators that will be used for the actual measuring (Dalal-Clayton & Bass, 2002).
Sustainability Indicators
Indicators related to various aspects of the society have become increasingly popular after World War II. Economic and social indicators have been introduced during the second half of the twentieth century, even though some of them did not manage to capture the political acceptance that they aimed for. In addition to these indicators, the environmental ones began to take up a significant portion of the public attention with the strengthening of the global environmental movement (Lawn, 2006).
After the emergence of all these indicators, sustainability became the No. 1 topic during the 1990’s making sustainability indicators as important as the issue itself. These indicators were first developed by the United Nations, but they have been continually developed and widened with the use of various different approaches (Zoeteman, 2012). The greatest improvements of the sustainability indicators were introduced by a number of non-governmental agencies, and mostly the United Nations, the OECD, the European Union and the World Bank, who have been investing significant resources and efforts into the development of these indicators (Patterson, 2002).
However, their efforts did not end there, which leads to the next most important trend in the development of sustainability indicators. Namely, after setting up the base of indicators, the aforementioned agencies and organizations have attempted to standardize this set across different countries in order to enable the tracking and comparing of the achieved progress in relation to one another. Today, this set of basic sustainability indicators numbers about 200 indicators, about 50 of which are considered as core sustainability indicators (UN, 2013). And even though they have been primarily intended for use by countries, today they are widely accepted and used not only by countries, but also by communities, companies and various organizations (Hak, Moldan & Dahl, 2007).
What Makes Good Monitoring Systems And Indicators?
According to Espinosa and Walker (2011), it is essential that the monitoring system used is well defined and relevant. In addition to a base set of indicators, every monitoring system needs to integrate four crucial elements in order to be successful and efficient. These four elements are ownership, management, maintenance and credibility. Here, ownership stands for and comes from all of those who use the system in every level, or represents the stakeholder of the system. Kusek and Rist (2004) argue that if people who do not recognize the need of such a system or do not have any use of the data collected with the monitoring system, than there will be issues related to the control of the quality.
Management answers the questions of who, where and how will manage the system, which is crucial as it ensures timely collection and distribution of data in order to support the decision making process. Maintenance ensures that the system used will not crash or decay. This means that updates, improvements and control continuously undertakes to enable the renewal, rebuilding and strengthening of the system. Finally, credibility ensures that reliable and valid data are collected with the system, which means that the data will be realistic or not tempered with, and also that both bad and good data will be displayed and used by the system (Kusek & Rist, 2004).
The selection and use of indicators is also one of the main factors that define the quality of the monitoring system in general. When selecting these indicators, it must be taken into consideration that their number should be relatively small and that they should be chosen in accordance with the following criteria (Gosling & Edwards, 2006):
Data collected will clearly show whether set objectives have been achieved or not
The problems to which the indicators refer are of priority for the organization
The data needed is available and it can also be gathered accurately and effectively
The data gathered will be used for evaluation and reporting
In addition to these criteria, sustainability indicators should also have a number of other qualities including tangibility, regardless of whether qualitative or quantitative indicators are used, linkage to the set objectives, relevancy for various stakeholders of the monitoring system, they need to be specific, need to reflect different situations, to reflect changes and to have a well-defined and specific baseline data that will clearly show whether results are good or bad (Gebremedhin, Getachew & Amha, 2010).
The Company
The history of IKEA which spread across 6 decades of success actually began in the 1920’s in a farm in southern Sweden where the IKEA’s founder Ingvar Kamprad was born. He pursued the idea of having his own business ever since he was a little boy, and at the age of five, he began his first trading attempts by selling matches to his neighbors. He soon found out that he could buy matches in greater amounts for cheaper price from Stockholm and then sell them with good profits. His matching endeavor was so successful that he expanded his business to selling greeting cards, flower seeds, Christmas ornaments, pencils and pens (IKEA, 2013).
In 1947, Kamprad introduced furniture into his business. He used local manufacturers, enabling him to lower the costs of the items he sold, which led this branch of his company to become very successful. In fact, it became so successful that he soon turned out all of his other products and decided to focus solely on furniture. IKEA opened up its first showroom for the furniture in 1953 (IKEA, 2013).
During the following several years, IKEA began to sell more and more furniture, which soon led it to come into direct confrontation with its main competitor and soon entered into a price war. In order to minimize the expenses as much as possible, and thus make the price war endurable, IKEA started implementing some of the concepts that will eventually make it one of the world’s greatest companies. These concepts refer mainly to stylish and innovative design which enabled flat packaging. This in turn, enabled a minimization of the transportation costs, reduced the damaged acquired during transport, increased the capacity of IKEA’s inventory, and made it easier for customers to take their own furniture home (Parker, 2012).
According to Haig, the innovative approach to packaging and the main focus of IKEA to producing stylish and good quality products at affordable prices is not the only reason why IKEA is being referred to as a concept company. Namely, the spirit of the company, in the words of Kamprad himself, consists of thrift, enthusiasm, humbleness, responsibility and simplicity. These are the very qualities that the company does not implement only in the design of its products, but also in all of its operational practices (Haig, 2007).
The Three Dimensions of Sustainability in IKEA
The extent to which IKEA is committed to sustainable development is evident from several perspectives. Primarily, IKEA has created a sustainable strategy that is systematic and well defined, but has also been upgraded and improved continually. Besides from setting short-term objectives in its annual strategies, IKEA has also constructed a long-term strategy setting its goals and priorities for achievement of sustainable development by the year of 2020. This strategic plan offers concepts and guidelines that the company follows in the achievement of its goals of environmental, societal and economic nature, thus addressing the three dimensions of sustainability (IKEAa, 2013).
The environmental dimension in the IKEA’s sustainability strategy is represented through a number of initiatives and programs which include supply of the wood used for the production of furniture from preferred sources. In 2012, over 22 per cent of the total wood used came from FSC – Forest Stewardship Council certified forests. It is also projected in the long-term strategy that this percentage will be over 50 per cent by the end of 2017. Furthermore, the cotton used in the production of furniture is produced in alignment with the Better Cotton Initiative, and it is planned that 100 per cent of all the cotton used should be such by the end of 2017 (IKEAa, 2013).
The company also invests in the sustainability training of farmers and foresters to ensure that the issues are addressed at the very source. Other environmental initiatives include production and use of renewable energy from the wind, the sun and biomass. In 2012, the company has produced 34% of the total energy it consumed from renewable resources, enabled through the quarter of a million solar panels placed on the company’s facilities and 83 wind turbines that have operated during 2012 (IKEAa, 2013).
The social dimension of sustainability is also addressed in IKEA. Not only that the company is committed to designing and production of furniture that will improve the quality of life for all of its consumers, but also the company makes significant efforts to ensure the rights and well-being of all of its workers. The company also requires that all of its suppliers also be compliant with the people strategy of IKEA. This strategy is based on the UN Guiding Principles on Business and Human Rights that have been implemented. Furthermore, the company also supports the best interests of all children, and implements the Children’s Rights and Business Principles all throughout its operations to ensure the protection of their rights. Finally, it must be stated that part of the sustainable strategy of the company is to ensure that 95 per cent of employees and suppliers as well as 70 per cent of all the consumers consider the company as a company that is highly environmentally and socially responsible (IKEAa, 2013).
The economic dimension of sustainability is represented in both the short and long-term strategy of the company. In fact, in terms of economic performance and growth, IKEA has set a series of goals which include the increase of production and sales volumes of its products to four times by 2020. In the meantime, IKEA is focused on achievement of short-term goals, sales and growth. In 2011, for example, these goals were both achieved as the company has opened up stores in several new countries, finishing the year with 287 stores in 26 different countries, and has managed to increase its global net profits by almost 7 per cent, amounting to a total of 24, 7 billion Euros (The Local, 2012). This indicates that the economic dimension of sustainability still remains to be an important focus of the company.
The Environmental Sustainability Dimension in IKEA
In accordance with what has been stated above about the three sustainability dimensions applied to the operations of IKEA, it is clear that the company is dedicated to all three dimensions equally, and is investing serious resources and efforts to achieve positive financial goals and positive social impact, while reducing the damage and negative influence on the environment, and this is, in fact, the true purpose and goal of sustainability. Considering the nature of business that IKEA runs, and its great impact on the environment in particular, which is due to the use of natural resources as production materials, this dimension of sustainability is especially interesting for IKEA. Indeed, the company needs to employ additional efforts to ensure that the negative impact of its operations on the environment are minimized and/or diminished. This is why this dimension has been selected for further exploration.
List and Assessment of Sustainability Indicators
The importance of the environmental dimension for IKEA is so great that it is necessary for indicators for monitoring this dimension to be very carefully selected. In order to enable this, the criteria for selection of indicators stated above were used. Also, the key features of effective indicators were also considered during the selection. Consequently, a list of several indicators for monitoring environmental sustainability has been created and is given in detail below:
Indicator
Definition
Measuring
Limitations
Increase of FSC certified wood used
Ensure that all the wood is certified and comes from companies – suppliers that are also committed to sustainability
Percentage of FSC certified wood used in the production of furniture (goal – 100 per cent).
Lack of FSC certified companies – suppliers present and operational locally, which may increase total cost of expenditure due to transport and import costs
Increase of Better Cotton Initiative cotton used
Ensure that all of the cotton used in the production of the furniture is in compliance with the Better Cotton Initiative
Percentage of Better Cotton Initiative cotton used in the production of furniture (goal – 100 per cent)
Lack of suppliers aligned with the Better Cotton Initiative present and operational locally, which may increase total cost of expenditure due to transport and import costs
Increase of main furnishing materials used for the production of the furniture that are made from renewable, recycled or recyclable materials
Ensure that all of the materials used in the production are renewable, recycled or recyclable
Percentage of renewable, recycled or recyclable materials used in comparison to total materials used
None
Production of renewable energy
Production of as much renewable energy as it is consumed by the company
Percentage of renewable energy produced in comparison with the consumption
None
Use of electric vehicles and environmentally safe transport solutions
Use of electric vehicles and environmentally safe transport solutions to and from the store to ensure that all aspects of the company related to energy used are from renewable sources
Percentage of used electric vehicles from the car parks of IKEA and the proximity – availability of environmentally safe public transport to the IKEA stores
Local level of sustainability, government policies
If this list of indicators is analyzed, it shows that all of the indicators selected are very realistic, in line with the priority problems of the company in relation to the environmental dimension of sustainability, and above all measurable. Indeed, for each of this indicator a good base line is identified and it is easy to assess what the progress of the company actually is in its achievement of the set goals and objectives. However, the analysis also shows that there are two types of factors that influence the limitations or challenges related to these indicators. The internal factors are related to the company and refer mostly to the increase of costs of production which is not considered to be a serious problem. The external factors, on the other hand, refer to forces that are outside of the influence of the company. These are mainly related to the existence of suppliers with the desired sustainable operations in terms of certification or compliance. Given that the company acquires its materials and products made by other supplier locally in order to reduce the expenses, this can be considered as a serious problem. However, the demand that IKEA sets on its suppliers may influence setup of such companies due to economies of scale.
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