PBL 4 Global business environment 20.9.16

This week's trigger is about Venezuela, talking about Venezuela's crisis. What caused it? And what can the government do to save the country?

Main learning objectives of the week:

Why is Venezuela's economy failing?

High levels of corruption in the public and private sectors, leading to a massive leakage of public revenue, purportedly reaching hundreds of billions of US dollars

Corruption represents a major obstacle for businesses operating or planning to invest in Venezuela. Most sectors of the Venezuelan economy suffer from endemic corruption, due to the highly politicized and ineffective judiciary that is inefficient in cracking down on corruption and impunity. 

The destablizing actions of the opposition and US government

The opposition has openly and repeatedly pushed for regime change by any means necessary. In addition to fostering a politically toxic climate, the opposition’s actions over the past three years—its refusal to recognize President Nicolás Maduro’s April 2013 victory, despite absolutely no evidence of electoral fraud; ensuing violence that targeted state-run health clinics and left at least seven civilians dead; another wave of violence beginning in February 2014 that left 43 dead, approximately half of them due to opposition actions; and recent and repeated calls for military and foreign intervention—have also had a very damaging economic effect.

The US government has not only cheered, and funded, these anti-democratic actions. By absurdly declaring that Venezuela is an “unusual and extraordinary threat” to US national security and pressuring investors and bankers to steer clear of the Maduro administration, the White House has prevented Venezuela from obtaining much-needed foreign financing and investment.

Mismanaging the currency--- High inflatation rate

The cost of foreign goods has soared in Venezuela, which is importing far less as part of Mr. Maduro’s effort to conserve dwindling central bank reserves.

The government has sought to soften the impact by raising wages and printing more bolívars, the national currency. But that is a recipe for inflation, creating too much money chasing too few goods. By some estimates, the inflation rate could reach nearly 500 percent this year and 1,600 percent in 2017.

While the official exchange rate is about 10 bolívars to the dollar, the black-market rate, which is regarded as more accurate, is about 1,100 bolívars to the dollar, though it shifts around. Many economists say this disparity is unsustainable.

(Source: http://www.nytimes.com/2016/05/28/world/americas/venezuela-crisis-what-next.html?_r=0 

https://www.thenation.com/article/why-is-venezuela-in-crisis/

http://www.business-anti-corruption.com/country-profiles/venezuela)

What can the Venezuela government do to save the economy?

Make living affordable

Setting up a system under which people are protected from price increases, and shortages are eliminated to make sure that food, medicine, and other essentials are available at affordable prices. e.g. food-stamp-type system

Stablize the currency

Unify the exchange rate to break the inflation-depreciation spiral and put an end to the black market, as well as most of the corruption that stems from the overvalued official exchange rates.

Eliminate dysfunctional price controls (discontinue oil subsudies)

Once these measures are taken, and consumers are protected from rising prices for essential goods, the government can begin to lift some of the dysfunctional price controls. This week’s announcement of a gasoline price increase is step in the right direction, but there are other price controls on food and household items that will need to be relaxed in order to eliminate shortages. This will save billions of dollars of foreign exchange lost to smuggling, although  consumers would have to be protected from price increases.

Adjust to lower international oil price

Adjusting to lower oil prices over the intermediate and longer run will mean diversifying the economy away from oil. In 2011, Venezuela imported about 24% of its food; the country could become nearly self-sufficient in food production and pursue other import-substitution and diversification strategies, which would become more feasible with a lower-valued currency.

(Source: http://fortune.com/2016/02/20/venezuela-oil-bolivar/)

What can Venezuela do to diversify the economy?

With oil revenues accounting for about 95% of its export earnings, Venezuela’s economy has been among the hardest hit as the global oil price has fallen almost 20% over the past 12 months.

1.  Set up an oil fund (like Norway), where tax revenues are saved and invested and not spent on current income. 
2.  Invest in education, training, infrastructure – supply side policies which will help small and medium sized business do well in the long-term and make the economy more diversified.
3. Access new markets in renewable energy and natural gas, take advantage of the economic opportunity—and environmental benefits—of renewable energy. Other large oil producers such as Saudi Arabia, Iran, Kuwait, and the United Arab Emirates have already taken measures to diversify their energy dynamics by encouraging homeowners to install solar energy panels. Kuwait, Qatar, Jordan, and Egypt aim to source between 15-30% of their electricity from renewable sources, particularly wind and solar, by 2030.

(Source:Venezuela economy and oil dependency Hungry Venezuela Needs a New Economic Pathway)

PBL3 Business Functions 12.9.16

      This week we are talking about value chain, what kind of challenges the company will be facing when the company is growing? Why does it have anything to do with value chain?

      Main learning objectives of the week:

     

    Why do companies need to restructure their operations when the company size changes?

    

      Restructuring is about making sure you have the right roles to deliver to your customers and your strategy, when a company facing size changing, it usually comes with role changing.

      Restructuring can involve:

• adding new roles
• merging two or more existing roles
• losing roles that are surplus to requirements
• a combination of these things.

      Restructuring should result in smoother, more economically sound business operations. After employees adjust to the new environment, the company should be better equipped for achieving its goals through greater efficiency in production.

(Source: Restructuring Definition | Investopedia http://www.business.govt.nz/staff-and-hr/employee-and-team-performance/team-structure-and-restructuring)

    

    What steps does a founder need to take to restructure the company?

   Step 1. Document your proposal

You need to document your proposal, so you can communicate it to your team.

     Your proposal needs to talk about roles, not people. It needs to clearly state the reason for

     the restructure, and the expected benefit — though you can keep the details high level.   

   Step 2. Invite people to a meeting

       Email or write to your employees, letting them know that you’re proposing a restructure and inviting them to a meeting to hear about it.

You must:

• Advise and invite people whose roles might be affected (but you might want to include your whole team).
• Let people bring a support person or representative to the meeting, and tell them they can in the invitation.
• Leave enough time between the invitation and the meeting date that they can digest the news and get support in place, but not so much time that it leaves them hanging. Two or three working days is about right.

Step 3. Hold the meeting

  The meeting can be with everyone at once. It can be informal.

In the meeting, you must talk through your proposal and give your expectations on timeframes. You must:

• Talk them through the proposal document, and provide the proposal as a handout.
• Outline the process that you’ll be going through to determine the restructure, and provide the process in a handout.
• Set expectations regarding timeframes for the process, and provide timeframes in a handout
• Be clear on the roles that are affected under your proposal.
• State that anyone can provide written feedback to you, or request a private meeting to give feedback, and that they may bring a support person or representative to that meeting (they’ll need to tell you that they want a meeting, so you can schedule it in).

Step 4. Gather feedback

  Your employees can submit feedback in written form or in meetings with you. It’s important that you consider what they have to say about your proposal.

Give them enough time after the proposal meeting to digest your proposal, think of suggestions and get support, before you close feedback — but not so much time that it leaves them hanging.

The feedback process usually needs about a week.

Step 5. Genuinely consider the feedback

  You must genuinely consider the feedback that you’ve received, and whether you’d benefit from a different structure than you proposed. This process takes time — leave yourself at least a couple of days after closing feedback for consideration.

If you still think your original proposal is best, go to Step 6.

If you want to change your proposal, you should go back to Step 1. This is particularly important if your new proposed structure affects different roles.

Step 6. Confirm the structure

  This step assumes you’re happy with your proposed structure — if you’ve made changes to your original proposal, you need to go back to Step 1.

You must provide the outcome of your consideration in writing, to the affected people. You need to:

• confirm that the proposed structure will be the new structure
• outline the feedback you considered, and what your decision is regarding that feedback
• be clear about the roles that are affected and what this means, including details of follow-up meetings and a notice period if relevant
• offer to have individual meetings to discuss the outcome.

(source: http://www.business.govt.nz/staff-and-hr/employee-and-team-performance/team-structure-and-restructuring#principles)

What is value chain?

      A value chain is a set of activities that an organization carries out to create value for its customers. Porter proposed a general-purpose value chain that companies can use to examine all of their activities, and see how they're connected. The way in which value chain activities are performed determines costs and affects profits, so this tool can help you understand the sources of value for your organization.      

                            

(source: https://www.mindtools.com/pages/article/newSTR_66.htm)

                                      

    What impacts does value chain have on a company?
       Value Created and Captured – Cost of Creating that Value = Margin      
        Businesses aim at enhancing their margins and thus work to change input into an output which is of a greater value than what it was at the time of entering the process (the difference between the two being the company’s profit margin). Thus the logic behind it is simple; the more value a company creates, the more profitable it is. When more value is created, the same is passed on to the customers and thus further helps in consolidating a competitive edge.

      (Source: Starbucks As An Example Of The Value Chain Model | Investopedia )

PBL 2 Mission, Vision and Strategy 1.9.16

  This Thursday we are talking about two big Japanese photographic-film companies--- Fujifilm and Kodak. How did they react to the new age--- digitalization? What led to Fujifilm's successful postdigital transition while Kodak failed to keep pace?

Main learning objectives of the week:


What is the purpose of determining company's business strategies?

Q: What is business strategy?
A: A business strategy is the means by which it sets out to achieve its desired ends (objectives). It can simply be described as a long-term business planning. Typically a business strategy will cover a period of about 3-5 years (sometimes even longer).

A business strategy is concerned with major resource issues e.g. raising the finance to build a new factory or plant. Strategies are also concerned with deciding on what products to allocate major resources to - for example when Coca-Cola launched Pooh Roo Juice in this country.

Strategies are concerned with the scope of a business' activities i.e. what and where they produce. For example, BIC's scope is focused on three main product areas - lighters, pens, and razors, and they have developed superfactories in key geographical locations to produce these items.

Two main categories of strategies can be identified:

1. Generic (general) strategies, and

2. Competitive strategies.

 (Source: http://businesscasestudies.co.uk/business-theory/strategy/business-strategy.html#ixzz4JxRWNP1E 

“Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stockholder expectations” Johnson et al (2008)

Without a strategy an existing business can drift away from its customers and become uncompetitive within its environment and eventually stops making profit, this is known as Strategic Drift. Therefore having a strategy is a way to remain competitive or a way of forcing a strategic change when an organisation has drifted away from its environment and is starting to fail.

How do companies form strategies to tackle the challenges?

There are arguably three ways to create a strategy:

Entrepreneurial

This method is very much the gut feeling by either an individual or small group, who decides on the direction of an organisation.  Strategy tools are mostly used for validating the gut feeling of the Entrepreneur and to communicate this to the stakeholders. 

Emergent Orientated

The strategy becomes the obvious choice and emerges from day to day activities and from what has succeeded in the past.  Again strategy tools if they are used will be to validate and communicate the strategy.  As opportunities are spotted they are seized, maybe using some SWOT analysis or financial planning to underpin these obvious strategic moves.

Intended Strategy

Intended strategy consists of strategies which are deliberately created through some process for example a number of leaders within an organisation, who use their combined creativeness and strategic tools to generate new strategies for the organisation.  Using the tools to generate the strategy and validate and communicate it.  As such this approach looks at the organisations capabilities, at the environment the organisation sits in and creates and validates a strategic ‘position’.  This type of strategy tends to be a once yearly task that is done at a strategy conference with maybe quarterly updates.

(Source: http://aiconsortia.com/2011/05/ac/three-ways-to-create-a-strategy/)


STRATEGIC MANAGEMENT

Steps in Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps. Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order.

1. Setting Organizations’ objectives - The key component of any strategy statement is to set the long-term objectives of the organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives.While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.
2. Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses.
   After identifying its strengths and weaknesses, an organization must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources.
3. Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments.
   
4. Aiming in context with the divisional plans - In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends.
5. Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist.
6. Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.

What are the factors that are affecting the choice of strategies?

  Organizational goals, organizational strengths, potential and limitations as well as the external opportunities, cultural and ethical issue.