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December 16, 2012

Detailed Example Accounting Modules

12:59 PM

Module 1 - Case
Ford Motor Company
“Ford Motor Company (NYSE:F) is the automotive manufacturer by production volume. The company sells vehicles under the Ford, Mercury (discontinued), Lincoln, and Volvo (to be sold) brands. Since the mid-1990s, Ford has been steadily losing market share in the US car market, from 25% in FY1995 to 5.5% in FY2009. At the same time, Ford's European operations have increased share by producing many critically acclaimed vehicles well known for quality. This difference between Ford's domestic and international operations is a result of costly US manufacturing facilities caused by high wages and expensive healthcare and retirement obligations for union labor. Therefore, improving operational efficiency and developing a more fuel efficient product offering are the centerpieces of Ford's turnaround plan. For example, Ford has cut 40,000 jobs in the past three years and closed seven factories in the past five years. Meanwhile the company has unveiled plans to bring six of its fuel efficient models (average fuel economy of over 30 mpg) currently sold in Europe to the U.S. market”. ("Money," 2010)
Following are the selected key figures that provide an insight about the Ford and its financial growth.
Above mnetiond figures depict the over-all reasonable picture about the growth as its net operating income is surging while the difference between the curresnt assets and current liabiltites are narrowing. However, the total assets are decreasing but the working and  invetsed capital both are showing upward movements, that are the predictin of overall good picture.
Google Inc.
“Google Inc., incorporated in September 1998, maintains an index of Websites and other online content, and makes this information freely available through its search engine to anyone with an Internet connection. The Company’s automated search technology helps people obtain nearly instant access to relevant information from its online index. The Company generates revenue primarily by delivering online advertising.” ("Forbes," 2010)
In contrast the Ford, the google financial figures are portraying the overall good upward trends (as selected above). Its, overall net operatin income’s trend is outstanding while its other figures as showing in the graphs following the upward trends as well. However, there is slight gap in the differences between the current assets and current liablities but it is not so much big as compared with the other positive trends. ("Forbes," 2010)
The Whole Foods Market
The market is registered in NADAQ and trades as a WFMI. It is the chain of supermarket that started its journey in 1978 by college dropout John Mackey and Rene Lawson Hardy, the two young boys who borrowed $45,000 from family and friends to open the doors of a small natural foods store called SaferWay in Austin, Texas. Two years later, John and Rene partnered with Craig Weller and Mark Skiles to merge SaferWay with their Clarksville Natural Grocery, resulting in the opening of the original Whole Foods Market on September 20, 1980. (Wholefoodsmarket, 2010)
If the above mentioned selected figures compared with the Ford and Google, the Whole foods figures are some what portraying dangling trends but these trends are somewhat better than the ford. However, both compnaies belong to the different domains, that is the key reason of differences in there volumes but in simple word, overall The whole food market trends are comparatively better than the Ford. ("Forbes," 2010) After, reviweing the above selected financial figures, the rating of those three organizations are following:
Google Inc. = A,  Ford Compnay = C,   The Whole Food Market = B.
Module 1 – SLP
Ford Motor Company is the automotive manufacturer and producer that are well-known because if it’s diverse varieties of products including car, trucks and agriculture vehicles etc.  The Company is listed in the New York stock exchange and its stocks are traded under the symbol of “(NYSE:F)”. The Ford Company is involved in the production and sells of the different vehicles such as Lincoln, Ford tractors and Volvo etc. However, the Ford Company had to face the challenges since the middle of time period of 1990s, the company followed the downward trend in the domain of its share, this decline rate was 25% to 5.5% during the time period of FY 1995 and 2009.
 However, at the same period, Ford increased its operation in the Europe by creating, producing and selling the innovative and advanced vehicles that are the buzzword because of their quality and efficiency. The reason behind this transformation of operational activities from USA to Europe is the increasing production cost and obligatory USA legislations that were inversely affecting the Ford’s overall Production cost. Therefore, enhancing the operational competences, Ford has to modify its strategy by cutting the unnecessary jobs and shifting their focus to the Europe. Now, the Ford has unmasked its strategy to introduce some of its fuel-efficient brands in USA that are currently being sold in the Europe. Most of the Ford products are not only good in performance and competitiveness but also famous because of its innovative designs. These innovation and Competitiveness provided the edged to standstill among the tense rivalry including the market giant, the General Motors. Majority of the People prefer Ford because of the luxury, economy and innovation that made the Ford a market leader especially in the United States Economy. ("Money," 2010)
Module 2
Generally Accepted Accounting Principles (GAAP)
GAAP are the set of rules or principles that is provided to the accountants by the Financial Standards Accounting Board for the preparation of different financial statements like balance sheets, income statements etc. GAAP rule or standards are used in order to ensure that figures given in the financial statements are not manipulated. Financial statements are the best mean to determine the financial health of the company; that is why it is necessary for the accountants to stick to certain specific rules or standards.
Although, it is also possible to hide important but negative information about the company without deviating from GAAP guidelines; nevertheless, any financial statement prepared according to GAAP rules are more reliable than reports which are prepared without considering GAAP guidelines.
Accounting Standards Codification
Accounting Standards Codification’s major purpose is to make the financial statements easier to understand for non-technical people. It is designed to explain the meaning of different figure in plain English instead of technical jargon.
Accounting Standards Codification is the sole source of authoritative GAAP for all entities when it is fully implemented and enforced. Any accounting literature which is not according to Accounting Standards Codification becomes non- authoritative. Thus, it has to be considered while preparing the financial statements and reports of the company.
Historical Cost
Historical cost is the measure of actual cost of the assets when it is acquired by the company. Historical costs are used mainly for the purpose of certainty and simplicity because it does not calculate the adjustment for inflation; however, it has to make some adjustment calculations like impairment, depreciation and depletion (Wolk, James and Michael, 2004)
Disadvantage of using historical cost is that the financial statements may have out of date costs which prove to be during when the inflation rate is high.
Accrual Basis vs. Cash Basis Accounting
Accrual basis accounting is entirely different from cash basis accounting. Accrual basis of accounting deals with exact reporting of income in the fiscal period when it is earned instead of hen they are received (Donaldson, 2007). The expenses in accrual basis of accounting are also deducted in the fiscal period when they are incurred regardless of their payment. Thus, in a nutshell, in accrual basis of accounting both income and expenses are recorded when they occur.
On the other hand, in cash basis of accounting, income and expenses are recorded when they are actually done. It means that cash is recorded when it is received and expenses are recorded when they are paid. In most of the companies, accountants use accrual basis of accounting because it provides the actual and most accurate picture of the financial health of the company.
Double Entry Accounting
Double entry system was introduced in the fifteenth century. Double entry accounting system is now used in every financial statement (Lee, 1977). It is the principle of recording any financial entry and transaction which based on the notion that every transaction affects two accounts. This double entry accounting system is done, in modern accounting by using debit and credit entries. 
            This system is important and useful because it provides the error detection system. If the sum of the debit is not equal to the sum of credit then it means that an error has occurred. However, it does not mean that double entry system is an error free system because there are several other sources of error in a financial statement.
Module 2 - Case
  
Particulars
 2009
2009
The Balance Sheet  
Page # 76
Page # 58
Page # 114
The Income Statement
Page # 74
Page # 57
Page # 112
The Statement of Cash Flows
Page # 78
Page # 59
Page # 115

   3. Describe the general organization of each of the three sets of financial statements. Which is more useful in your opinion for each of the three companies:  Net Income or Cash from Operating Activities?

General Financial Information

             BP Group
Profits
Profit statement disclosed by British petroleum for the year ended 31 December2009 was $16,578 million. These included inventory holding gains and net of taxes amounting to $2,623 million which after taxes was reduced to $1,067 million. Additionally the performance of accounting also had an auspicious effect on the overall performance of the organization with net taxes amounting to $445 million relative to management’s measure of performance. Similarly in the year 2008 was $21,157 million with the net of taxes expanding to $4,436 million.
Along with this a positive accounting impact was manifested in which the net tax amounted to $146 million relative to management’s measure of performance. Likewise in the year 2007 the financial accounts of the organization were $20,845 million. This included the tax net of $2,475 million.
Some of the factors that need to be considered when the profits of different years of the organization are assessed it can be figured out that in the year 2009 the company comprised of lower realizations and was undergoing the process through which its profit margins were being refined, it also included the lowering of costs and greater stress on operational costs and expenditures.
It was primarily an accumulation of these factors that resulted in generating greater revenues. It is also important to mention here that during the year 2009 1, 908 million barrels of oil and natural gas were purchased by the company and at the end of the year the reserves of the company were 18,292 mmboe.
In addition to this the total hydrocarbon production and usage made by the company on an average were 3,998mboe/d which is basically a 4% increase as compared to the figures of 2008. On an aggregate basis the production of the company was 5% higher than that it was in 2008.     
Dividends paid per ordinary share
         The Dividend paid per share in 2009 increased by 2% compared with 2008. BP determine the dividend in US dollars as it is the economic currency of BP.

Total shareholders return (%)
         Total shareholder returns in 2009 proves that BP’s improving competitive performance as well as a general recovery of global stock markets compared with the low levels seen at the end of 2008.
Acquisitions and disposals
            There were no significant acquisitions in 2009. Disposal proceeds in 2009 were $2,681million, principally from the sale of our interests in BP West Java Limited, Kazakhstan Pipeline Ventures LLC and LukArco, andthe sale of our ground fuels marketing business in Greece and retailchurn in the US, Europe and Australasia. Disposal proceeds were $4,267 million, which included $1,903million from the sale of the Coryton refinery and $605 million from the sale of our exploration and production gas infrastructure business in the Netherlands.

Lockheed Martin Corporation
In 2009 LMC sales of $ 45.2 billion represented a 6% increase over 2008, and LMC generated $3.2 billion in operating cash after making discretionary pension contribution of $1.5 billion. LMC also repurchased 24.9 million shares of their own common stock and paid dividend of $908 million during the year, marking the seventh consecutive year that they increased dividend payment by more than 10%. They made great progress on programs of future global security including the critical Joint Strike Fighter/ F-35 and Littoral Combat Ship program. In 2009 LMC completed critical design review for the Airborne and Maritime/Fixed Station Joint Technical Radio System.

Ford Motor Company
Ford worldwide net income attributable to Ford Motor Company was $2.7 billion in 2009, an improvement of $17.5 billion from a net loss attributable to Ford of $14.8 billion. Primarily related to Ford Europe's consolidated 41% owned affiliate, Ford Otosan. The pre-tax results for Ford Otosan were $307 million in 2009. Formerly labeled "Net income/(loss)," reflects new presentation under the ISA for non-controlling interests, effective January 1, 2009
The first category includes items related to Fords efforts to match production capacity and cost structure to market demand and changing model mix, which help investors track amounts related to those activities. The second category includes non-indicative items of their ongoing operating activities, and therefore allows investors analyzing Fords pre-tax results to identify certain infrequent significant items that they may wish to exclude when considering the trend of ongoing operating results.
Net Income or Cash from operating activities
Particulars
 2009
2009
In million $
Net Income
2,717
3,024
16,759
Cash Flow from operating activities
16,042
3,173
27,716
Earnings per share
0.91
7.86
88.49

Ford Motor Company
Cash from operating activities is more important as the company is heavily indebted in borrowings.

Lockheed Martin Corporation
Net income is more important as the company has good earnings per share.

Net income is more important as the company has excellent earnings per share.

Future trends of Companies

Ford Motor Company

Particulars
 2009
 2008
 2007
                                                In million $                      In million $                    In million $
Net Income
2,717
(14766)
(2,795)
Operating expenses
121,132
160,211
177,862
Earning per share
0.91
(6.50)
(1.41)
Earnings per share is one of the most important measures of a company’s strength. Obviously, the higher this number, the more money the company is making. According to the above 3 year statement of Ford Motor Company it is clearly seen that company is moving towards the success and getting control over its expenses.
Ford intense focus on improving their cost structure and strengthening their balance sheet that will continue going forward. Among other actions, they also anticipate completing the sale of Volvo Cars to Zhejiang Geely Holding Group Co. Ltd. in the second quarter of 2010.
BP ANNUAL REPORT
Particulars
 2009
 2008
 2007
                                                In million $                      In million $                    In million $
Net Income
16,759
21,666
21,169
Operating expenses
219,712
331,814
256,086
Earning per share
87.54
111.56
107.84

BP Historical information shows that the income of the company has declined from the $21.66 billion to $16.759 billion as a result of which EPS has been reduced. Companies’ future trend shows a declining if it does not increase its income it will be difficult for the company to survive in the future.  
Profit attributable to BP shareholders for the year ended 31 December 2009 was $16,578 million, including inventory holding gains, net of tax, of $ 2,623 million and a net charge for non-operating items, after tax, of $1,067 million. The primary additional factors reflected in profit for 2008 compared with 2007, were higher realizations, a higher contribution from the gas marketing and trading business, improved oil supply and trading performance, improved marketing performance and strong cost management; however, these positive effects were partly offset by weaker refining margins, particularly in the US, higher production taxes, higher depreciation, and adverse foreign exchange impacts. Profits and margins for the group and for individual business segments can vary significantly from period to period as a result of changes in such factors as oil prices, natural gas prices and refining margins. Accordingly, the results for the current and prior periods do not necessarily reflect trends, nor do they provide indicators of results for future periods.
Lockheed Martin Corporation
Particulars
 2009
 2008
 2007
                                                In million $                      In million $                    In million $
Net Income
3,024
3,217
3,033
Operating expenses
40,965
38,082
37,628
Earning per share
7.86
8.05
7.29

The above trend shows that the income is increased in 2008 but it is slightly declined in 2009 as a result of which EPS of the company has been declined from $8.05 to $7.86 which is not favorable to the company. Although expenses of the company has reduced by the same amount as of revenue, which indicates a positive trend for future. If the company increases its revenue then it will be able secure high profits.

Module 2 – SLP
A LIMITED
B LIMITED
C LIMITED
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
PROFIT AND LOSS ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31, 2009
FOR THE YEAR ENDED  DECEMBER 31, 2009
FOR THE YEAR ENDED  DECEMBER 31, 2009
Rupees
Rupees
Rupees
Income
Sales
                                     -
173,456,000
16,000,000
Return on financing and placements
                    5,008,467
                                        -
                                        -
Return on securities
                  75,425,494
                                        -
                                        -
Profit on deposit with banks
                    1,221,138
                                        -
                           500,000
Other income
                    2,120,389
                           300,000
                           908,794
                  83,775,488
                   173,756,000
                     17,408,794
Cost of sales

                   230,000,000
                     14,630,000
Return on deposits and borrowings
                  50,439,094
                                        -
                                        -
Administrative and operating expenses
                  30,153,572
                      15,374,000
                     17,399,426
                  80,592,666
                   245,374,000
                     32,029,426

(Loss) / profit for the year before taxation
                    3,182,822
                    (71,618,000)
                    (14,620,632)
Financial charges
                                     -
                      23,000,000
                       1,000,000
(Loss) / profit before taxation
                    3,182,822
                    (94,618,000)
                    (15,620,632)
Taxation
                        590,215
                                        -
                         (208,586)
(Loss) / profit after taxation
                    3,773,037
                    (94,618,000)
                    (15,829,218)
Basic (loss) / earning per share
                              0.12
                                (1.64)
                                (3.95)
Explanation

The company performs well and has successful in securing profit of Rs. 3.77 million as compared to other two companies. The company has performed well due to increase in come and reduction in expenses. B Ltd has incurred a loss of Rs. 94.61 million which is on the higher side. Th ecompany's will not be ale to continue as a going concern if it incurs that extent of losses. C Ltd has also incurred a loss of Rs. 15.829 million which is a cause of concern on the managements ability to run the company. The revenue of the company is also on the lower side which seems that the company is in the beginning of its operations and will require 2 to 3 years to reach a reasonable levels of sales.  

Module 2 – Case
            Strategic planning of an organization is setting the path for future direction. In strategic planning, organizations decide their goals and targets, strategy to achieve these targets and how to improve their position. The company has financial, customer related, internal and learning related strategic goals. However the primary goals for the company to achieve are:
  • Enhance profit by giving good and quality services to the customers
  • Invest in the development of the employees which ultimately lead towards the development and growth of the organization
The objectives mentioned above are all in the pursuit of these two main goals. There are no such goals which do not support the attainment of our primary goals. All the above mentioned goals are important for the ultimate attainment of the final goals hence, no objective or goal can be eliminated from the company’s objective.
The Hershey Company is the largest chocolate manufacturing in the United States which has not only established its reputation in terms of the taste but has also proved to be a cultural icon of innovation and development all over the world.
Over the couple of years there are a couple of changes that have taken place in the restructuring of the strategic goals and objectives of the organization by bringing necessary changes in the external as well as internal factors governing the different operations and mechanisms of the organization.
The corporate level strategy that has been designed by the organization is purely based and focused on the capitalization of maximizing the benefits that the organization can extract from the diversification ventures that it is conducting or intends to conduct in future. This form of progress is also important in the sense that the company has been suffering from a kind of managerial crisis which has been adversely affecting the reputation of the client which have for long invested their confidence in the taste and the pleasure that they receive by having the chocolates provided by Hershey.
The matter became of greater urgency after the company experienced a downward spiral of 66% in its profit share in the 2007 crunch that invaded the market. The measures that have been taken by the company are based on its internal as well as external growth factors.
On an internal level the organization intends to reduce the production as well as other miscellaneous costs that are proving to be harmful to the balance sheets of the company. In February 2007 the company announced of retrenching over 1500 employees in order to cut the costs of expenses and thus bring operations towards normalcy. (Confectionary news)
According to the President of the company Richard Lenny “This effort remains on track and is scheduled to deliver savings of about $15m by the end of the year with a significant step-up in 2008,” (Hershey Company) in another sequence of events over $150 million were also lost by the company which proved to be a financial blow to the organization as the loss resulted in the drop of 19% of its profits.
On the other hand the external strategies of the company are primarily focused upon the ventures and projects through which they can actually introduce themselves into the global arena with a completely new image and explore greater economic frontiers. It has already been decided and finalized by the organization that very soon the company will be launching itself in Asian countries in which India is their most eyed market. Conducting the project in collaboration with Godrej India, it has already been said by Lenny that the project will come as a “significant step in Hershey’s global growth strategy” it is also worth mentioning here that Hershey’s has paid over $60 million for getting the controlling stake of the two factories that have been provided to them by Godrej. (IHT)
Along with this the organization has also turned to be a major stakeholder in other Asian market economies as well in which Korea and China are also prominent. Hershey has formed a joint venture with the Korean confectionary company Lotte. According to the statement that has been released by the company Lotte will own over 51% of the stake in the venture which has brought a whooping $38 million investment for the organization.
The collaboration project which has been conducted in help of China is already in the process of working and production also. The organization after this successful venture is also looking forward towards exploring the market of Japan in accordance with its feasibility and strategic options.

Module 3
Pappadeaux Restaurants
Static budget is not an appropriate tool to assess the performance of a business. It only measures a single level of activity and does not consider all the other circumstances that happen in the company. A manager’s responsibility is to control only the variable controllable costs and not the entire costs of the organization.
On the other hand, Flexible budget is used to calculate and assess the performance of a department, supervisor or the manager of the organization. In the given scenario all the variable amounts are recalculated with the help of actual activity. Thus, the Income statement of Pappadeaux Restaurants can now be explained in the following manner.
Note A
The Sales has shown favorable variance result. The national advertising has decreased 20% which means that the new forecasted sales amount would be $80,000 less than the actual results which is positive sales performance.
Note B
Sales of the restaurant is directly related with Food expense. The actual results show that 10 % increase happened in food which makes the flexible budget of food $290, 400 and the favorable variance of food expense become $40,400
Note C
The labor payment is also proportional to the sales at 20%. This means that flexible budget becomes $160,000 and the actual labor cost is $10,000 favorable.
Note D
Supplies expense is also 2% related with sales. Thus, if sales are at $800,000 level, the expense would become $16,000 makes it $1,000 favorable.
Notes E, F, G and H
These all are fixed expenses and so it cannot be controlled by a manager or supervisor. The following table gives  a comprehensive sales and expense analysis
Table 1. Facts Given/ Projected Budget and Actual Results on Gregory’s Performance
Item
Budgeted
Actual
Variance
Sales
$ 900,000
$ 800,000
$ (100,000)
Expense
Food
300,000
250,000
50,000
Supervisory Labor
90,000
95,000
(5000)
Hourly Labor
180,000
150,000
30,000
Utilities
40,000
47,000
(7,000)
Insurance and Taxes
30,000
32,000
(2,000)
Rent
50,000
60,000
(10,000)
Supplies
18,000
14,000
4,000
Corporate Overhead
90,000
120,000
30,000
Total Expenses
798,000
768,000
30,000
Net Income
$ 102,000
$ 32,000
$ (70,000)

Table 2. Flexible Budget
Item
Flexible Budget
Actual
Variance
Sales
A $ 800,000
$ 800,000
$ 0.00
Expense
--
--
--
Food
B 290,400
250,000
40,400
Supervisory Labor
E
Hourly Labor
C 160,000
150,000
10,000
Utilities
F
Insurance and Taxes
G
Rent
H
Supplies
D 16,000
14,000
2,000
Corporate Overhead
I
Variable Expenses
466,400
414,000
52,400
Contribution Margin
$ 333,600
$ 386,000
$ 52,400
Hence, in these circumstances, it looks quite obvious that expenses of Pappadeaux San Diego is under manager’s control and the operations are quite profitable. According to the flexible budget the favorable variance is $52,400.
            Moreover, with regards to the issue of lesser contribution margin which is still below the projected amount, I would like to reiterate that the level of sales has tremendously decreased due to the cross cutting in advertisement. If advertisements would have remained, the sales would stay at its original which is 1.25% (1.00/ 0.8 of original advertisement) of the actual results amounting to $ 1,000,000 ($800, 000 x 1.25).
Table 3. Flexible Budget at $1,000,000 Sales Level
Item
Flexible Budget
Static
Variance
Sales
$ 1,000,000
$ 900,000
$ 100,000
Expense
--
--
--
Food
(no price increase assumption) 333,000
300,000
(33,000)
Supervisory Labor
Hourly Labor
200,000
180,000
(20,000)
Utilities
--
--
--
Insurance and Taxes
--
--
--
Rent
--
--
--
Supplies
20,000
18,000
(2,000)
Corporate Overhead
--
--
--
Variable Expenses
553,000
498,000
Contribution Margin
$ 447,000
$ 402,000
$ 45,000

The above table shows $45,000 favorable result as compared to $70,000 negative which is a profitable performance. Thus, it can easily be concluded that Pappadeaux San Diego operations showed a profitable performance.
Relevance of Sunk Costs
In economics and business decision-making, sunk costs are known as retrospective past costs that cannot be recovered once they are incurred. 
At times Sunk costs become quite opposite to prospective costs. Prospective costs can be incurred or changed only if timely action is taken. Both these retrospective and prospective costs are fixed costs because they do not rely on the volume of economic activity even if they are measured through variable dependent on volume.
In traditional microeconomic theory, only prospective future costs are pertinent to an investment-related decision. According to traditional economics, an economic actor does not want sunk costs to influence his important business decisions because it will most likely not be a rational decision in its own right.  The decision-maker may make rational and sane decisions keeping their own incentives in mind. To be sure, these incentives have an ability to influence and dictate several decisions which should rather be influenced and dictated on the basis of their efficiency and profitability. This is thought of as a separate incentive problem from that of sunk cost. 
The study of behavioral economics suggests this theory fails to predict and correspond to the real-world behaviour. Sunk costs greatly affect actors' decisions, because many humans are loss-averse and therefore normally act irrationally when making economic decisions.
Logically speaking, sunk costs need not affect the decision-makers’ best choice. Nevertheless, until a decision-maker irrevocably becomes dependent upon resources, the prospective cost is an avoidable future cost and is appropriately incorporated in any decision-making process. For instance, if one takes into account pre ordering movie tickets, but has not actually purchased them as yet, the cost still remains avoidable. If the price of the tickets go up to an amount that requires him to pay more than the value he places on them, he must shape up the change in prospective cost into the decision-making and re-evaluate his decision.

Sunk-Cost Decision Making

Both hierarchical and consensus-based decision making is costly. The cost of consensus decision making is palpable because it comes about evidently and all at once; nonetheless, when it does happen everyone is preoccupied with the decision right away.
Hierarchical decision making is misleading.  It seems like one person is making the decision so it's efficient, but then the decision must flow through the hierarchy, gaining buy-in or dealing with resistance.

In both cases, the cost of the decision is significant, so our fear-of-loss mechanism (which is quite dominant) compels us slot in sunk-cost decision making: once that decision is made, we are extremely unwilling to revise the decision. Most decisions made in this regard go futile.  Consequently, we end up doing things we know are counterproductive or using systems that are bad simply because we "paid good money for them."

There are two massive problems with sunk-cost decision making:
  1. We hardly ever get things right the first time. However, it's very alluring to believe that, if we just push harder, we can somehow develop our chances of getting it right the first time. This results in the cult of leadership.
  2. The longer you spend with an issue -- especially experimenting rather than just mulling it over -- the more data points you get. This means it's essential that decision making be lightweight (the exact opposite of sunk-cost decision-making), because that allows decisions to improve over time. Front-loading the decision effort maximizes the probability that you are investing in -- and casting in stone -- a bad decision.
Today management hierarchies emphasize this wilful refusal to change -- not due to the cost of making the first decision, but to the loss of power status associated with not getting it right the first time. The most glaring expensive example is Carly Fiorina's snub to mull over any information signifying that the HP acquisition of Compaq was not a fine idea, and George W. Bush's refusal to reconsider the decision of going at war on Iraq once it became clear that weapons of mass destruction did not exist. Despite enormous costs, the exhilarating upshot of power is too great to agree to those in such positions to reconsider the decision making process.


Module 3 – SLP
Responsibility Accounting
Responsibility accounting also said to be the profitability accounting or activity accounting. Financial information for the all decision or accountability centers is collected then reviewed and finally reported in the responsibility accounting.
Responsibility accounting helps managers in different ways in calculating costs, revenues and incomes for individual managers. All the revenues, costs and profits are distributed individually to the managers responsible for that cost, revenue and profit and the management divides authority of decision making to other persons.
It has been seen that responsibility accounting is appropriate for the small businesses because responsibility can easily hand over and controlled. It is a quality accounting system to calculate and evaluate the performance for each manager. Each manager has some authority and responsibility and they are responsible for every decision related to cost, revenue and profits. Reports are prepared according to the responsibility. Since the standards of revenue recognition are same in both the accountings, revenue would be recognized only when realized.
Controllability Concept in responsibility accounting
Controllability is the fundamental concept referred in the responsibility accounting. The idea behind this concept is that a manager should be accountable and answerable for the performances for which he/ she is able to assess and control. Efforts to relate the controllability concept produce responsibility reports where all the level managers from each layer are supposed to be responsible for all secondary management layers. The illustration of this concept of responsibility accounting is given below.
http://maaw.info/images/ResponsibilityAccGraphic.gif
Responsibility Accounting: case study of a Toy company: Milton Bradley
Allocation of the tasks is the solution of micromanaging and with that delegation the need of the managers who are responsible for their decisions arises. Here works the responsibility accounting which fulfills these needs. The responsibility accounting is practiced in many successful organizations. Here we are presenting the case study of Milton Bradley where the responsibility accounting is practiced.
 In the process of responsibility accounting once true cost has been established, after that the next stage is accountability of the managers. If the managers have done up to the expectations, they would be given increase in the salary or rewarded in any other different way  else given a show cause notice or warned for enhancement in their  recent performance. In order to achieve the targets and to do so, the major activities of any organization are distributed. Milton Bradley is a famous company who deal with the educational toys. These toys are sold almost in all the areas of the country.
Problems recognized and communicated
In a recent meeting, the board expressed its disappointment over the revenue results in the end of the year. It was observed that the educational Toys Unit has continued an in commission loss which may increase when necessary adjustments are made for $820,000 shown as un-allocated expenses. The management board inquired for a report on the product and the areas of sale. The organization accountant was asked to prepare required excel sheets containing income statements both on product lines and regions.
Information for Reports
Meanwhile, the accountant manager, with the help of subordinates researched and gathered some more information to prepare the report and research of income statements both on product and the area it is sold. . after completing the statements on an excel sheet, these would be presented to the management committee with necessary proposals for the final decisions which may have the strategy of  reducing a product line or closing of some stores  in some states which are not given much profit..
Feedback on the performance
The contribution margin by all products is in positive. However, contribution by educational Toys making unit was rather short and may result to the failure when a part of the fixed costs ($2,060,000) is allocated to this unit.
Currently, the administration should look meticulously into the prospect of increase prices of toys or possibility of increase volume even if there is a requirement of reducing the price of toys
Cross tabulation - operating profit
When a cross-tab of profitability is researched specifically, it is noticed that the sale of the educational toys is very low and it is continuing near to the ground. There is one state where there is almost no sale.  Here, the management should investigate:
·         Cutting changeable costs in toys by re-engineering and bringing the visible changes in the outlook of the toys.
·         The management may discontinue dealing in the particular state for selling their toys and focus on other good sale areas that are money-making.
This should be researched if take on Activity Based Cost would demonstrate better result in case of toys part. The distribution is based on volume or value and may not present a true picture. The income statement by area shows a specific state as a loser. It is indispensable for the management to investigate behavior of S&A operating cost in this area as well increasing sale of other lines which make high contribution to profit.
Module 3 - Case
             For CASE3, I am asked if, in terms of store hours and delivery, does one retail format have a sustainable advantage relative to other retail formats and to explain my answer.
   What this case question is asking me to do is to explore the possibility of high competitive advantage and service quality a retail format may have over others by because of its store hours and delivery methods. This will require a thorough analysis of the store hours and delivery procedures of the different retail formats currently working in the market. 
              The different retail formats that are being successfully used are the Click & Ship which does business entirely on internet, Bricks & Mortar which are the traditional physically apparent businesses, Clicks & Bricks which is works both online and in the physical world, Click, Pick & Take in which the customers choose the items online and come and pick it from the outlets and   the Click & Take format in which the customers are required to use the web while in the outlet to choose an item and they can take it immediately with them.
              With all these different types of businesses formats in the market, some enjoy more competitive advantage than others. The formats of some businesses have no choice but to give up certain advantages. Similarly, the advantage of businesses to provide their service to the majority of their customers any time of the day, or night is an advantage that cannot be taken by all kinds of business setup. These multiple formats of businesses have challenged retailers to cater to the customers’ needs as much as possible. As it happens, the some formats like brick and mortar may not be ideal when it comes to providing services 24/7 but the customers get their deliveries on the spot, hence there is no need to wait for it. On the other hand online businesses have the advantage of providing services 24/7 but the time they take in delivering is not usually ideal.
             The following table gives a brief and general understanding of how the different formats handle the store hours and delivery
Formats

Store hours
Delivery
Click & Ship
24/7

Not immediate
Wholetail
24/7

Not immediate
Bricks & Mortar
Not 24/7

Immediate
Clicks & Bricks
24/7

Immediate as well as dependence
 on delivery services.
Click, Pick & Take
24/7

Not immediate
Click & Take
Not 24/7

Immediate

             The first format to be discussed is the department store format. The brick and mortar department stores are usually located in a shopping mall or in a shopping center. Their hours of operation are usually from 10 am to 8 pm. For all the Clothing/Apparel, home garden and such businesses this time management is reasonable as customers do not need these items all time round. So these stores think it is better not to start these longer operating hours and lose money on staffing the store for the extra hours. So even if these physical stores decide to open late into the night they will have to spend more money in employee hours as well as on security. In short these brick and mortar department stores do not have an advantage over other retail formats as far as hours of operation is concerned, but when it comes to having competitive advantage in delivery time, they have the best advantage since they deliver the product on the spot. But some Bricks and Mortar businesses like the Wal-Mart not only delivers on spot but also works all night long in almost all their branches. But some brick and mortar businesses have opened online services as well so the customers have the option to choose the items any time they want and then they can go and pick the item from the nearest retailer mentioned. This business format is called click and bricks. Another format that provides on spot delivery but limited store hours is Click & Take format. The main difference between this format and the brick and mortar format is that the former uses internet services to choose and pay for the items within the premises while the later format uses check out points for payments.

  Other business formats are purely e-commerce formats in which they have the biggest advantage as far as hours of operation are concerned, but their services are worst in delivery time. These businesses can be operated 24 hours a day, 7 days a week, no matter the weather conditions, holidays, nothing closes these stores down unless they don't handle their business and their servers go down. These stores have no location issues, no rent, and no worries about being open and paying employees. However these online businesses mostly have a great disadvantage in the delivery of their products. But the local businesses that deliver items within an hour or two are at an advantage in both store time and delivery time. In addition to that the shipping firms can attract customers by charging no costs on shipping or delivery. This strategy can incite customers and give a competitive advantage to the firm as not all firms provide free shipping.
  So we can say that the firms in the cyberspace have more advantage in terms of the store hours because their services are available 24/7 irrespective of the weather or holidays. But their late delivery is a disadvantage to this business as the customers have to wait at least for a day for the delivery to take place. On the other hand bricks and mortar and other on spot delivering formats makes it possible for the customers to take the products home immediately, thus giving a good competitive advantage to these formats. Hence we can say that the firms that use both business formats, that is bricks and mortar and click and ship, give both choices to the customers and have relatively more competitive advantage.
            As we, at The Whole Foods Market, emphasize on maintaining the quality and taste of the food by providing fresh unadulterated food to our customer, we have decided to keep the market open 24/7. This makes it easier for the customers to get their fresh food any time of the day. Apart from bricks and mortar format, wed also use the Clicks & Bricks format in which the local customers can order the food items online and get the delivery within hours of the order.  This has given us a sustainable competitive advantage as other food markets in the area do not provide the click and brick format. This has especially been designed to have a relative competitive advantage in the market as other firms are not using this Clicks & Bricks format yet.
As we know that sales by the electronic based retailers depend on the confidence consumers place on the retailers.  This trust is to a certain extent a function of the hope that the retailer will deliver the product so that the buyer receives it in a timely fashion.  Trust also depends on how personal information given to the seller is stored and shared. Thus keeping these things in mind we try our best to keep this level of trust and this expansion of our business to the cyberspace is also the result of the trust shown by our customers.   
Module 4 – Case & SLP
Product Costing
ABC (Activity-Based Costing) is a costing version that identifies activities in an organization assigning the cost of each activity to products and service. As opposed to traditional methods of cost-accounting, ABC mainly focuses on indirect costs such as manufacturing, over-head, administrative, and general costs. ABC helps companies reclassify most of the above indirect costs which in turn enhances the accuracy of costs to a great extent.
Through the use ABC, the organization can precisely estimate the indirect cost of each products and services. It helps companies in determining the unprofitable cost and services and dealing with overpricing. The ABC assigns more indirect costs into direct costs. All in all, ABA has largely been used to make strategic decisions regarding pricing, outsourcing, identification and measurement of enhancement-oriented initiatives.
ABC will improve cost and services estimates of the companies who sell a variety of products.  For the purpose of ABC analysis, we will use the company Candy Biz as an example. The company distributes dairy goods, eggs and other items such as creams and cosmetics. Some products are hard to manufacture, store, package and ship thereby increasing overhead costs. Candy Biz, being a manufacturer and distribution Company, ships items to various stores such as Wal-Mart and Whole Foods and thus its greatest cost is overhead cost. According to traditional methods, cost is assigned on what it costs to purchase an item for resale. Therefore, items like cream have more overhead costs as compared to cheaper items like eggs. However, eggs may also increase distributor’s overhead cost because it requires recurrent shipment.
In such a situation, the use of ABC would facilitate the managers in coming up with better decisions for matters such as pricing and reduction in storage space. ABC is very instrumental in making a company low-cost producer and seller.
In case of Candy Biz, its chief accountant Thomas Jackson has been assigned the task to calculate the cost of product unit by computing one overhead rate to the cost pool. He will apply that rate to the direct labor hours consumed to produce simple candies and nut candy bars. Meanwhile, company’s CEO Mathew is very much concerned about the cost of each product because rival candy companies have made the competition in terms of prices and cost even stiffer.
Jackson has also been asked to come up with his estimate. In the first place, Jackson estimates the cost of labor and indirect materials necessarily used to make and maintain machines for the production of given products. His second step includes estimation of salaries, costs of indirect material, labor and equipment depreciation. In the final phase he take into account cost of building operations including the overhead cost of building maintenance, janitorial, property taxes, security, wages and all other indirect cost not linked to the major spending for the production of candies.
Having reviewed costs of abovementioned factors, he goes on to select a cost driver in order to estimate the cost driver level for each activity which can be summed up as followed:
   Cost Driver                                    Nut                   Plain                        Total
    Number of Setups                        300                   400                            700
   Number of Inspection                   150                   350                            500
  Packaging hours                             600                   14, 00                         2,000
  Machine hours                               4,000                 6,000                          10,000
  In the next phase, Jackson applies overhead costs to both products using cost driver level and then multiplies it by the activity cost of company. For example, Jackson applies $3,000 in setup costs ($10 x 300 setups) to plain candy and similarly $4000($10 x 400 setups) to nut candy. He then estimates that total overhead costs of $7,100 or $0.7 per bar ($7,100/1000, 000 units are to be applied to the plain candy bar and $12,900 or $.26 per bar to the nut candy line.
   Jackson provides the following to his CEO
                                                                                                                    Plain           Nut
Product Unit cost: Traditional approach with one overhead cost pool      $45              $52 

Product Unit Cost: ABC with four activity pools                                       .39               .63
  Difference: Decrease (Increase)                                                                 $.06             ($.11)                                                                
              Now, given the fact that ABc assigns more costs to the product line which has used more resources, it gives more accurate estimate of the cost of product unit. Jackson’s cost calculation based on ABC also provides CEO an insight into making significant strategic decisions about the pricing, outsourcing and the current state of business productivity. CEO is now able to analyze more clearly the customer profitability of the product and allocate and manage indirect cost to products. ABC is also useful in determining the cost behavior. Simply put, ABC helps companies ascertain the indirect cost that affect productivity and profitability in an indirect manner.
Leadership & Human resources (Succession)
Carly Fiorina was hired in Hewlett-Packard as Chairwoman, CEO and President of Hewlett-Packard in 1999. But before that, her performance in Lucent and AT T had earned her recognition of being one of the most powerful women in America. Her career in H-P was a combination of various controversies and ups and downs. This controversial performance of Carly Fiorina at HP caught the attention of the people in America and the world over.

Carly Fiorina's appointment in Hewlett-Packard is an example of external succession because she was not a former H-P employee or member of the board. Rather it was her expertise and renowned popularity in Lucent and AT T that made the H-P Board hire her services. As by the late 1990s, HP was drifting and in late 1997, employees were “crying out” for stronger direction. During this drifting period, a poll of the 300 top staffers revealed that HP’s workers thought the company needed an infusion of new thinking and more customer focus.( Burrows and Elstrom, 1999) During this time Carly Fiorina's direct, authoritative reputation impressed the executives of H-P and they thought that Fiorina could bring ``drastic action and new leadership to shake things up. ibid
As her fame suggested, Carly Fiorina was really smart and innovative. She was direct, driven, articulate and most of all customer focused. However, her true ability was tested in Hewlett-Packard and she found herself surrounded by various controversies. She succeeded in some ways and failed in some aspects.
Nevertheless, Fiorina made some significant changes in HP in her six-year term that greatly affected the HP. She changed the entire way the company operated and did what was expected of her; to turn the sluggish company into a competitive one. To achieve that Fiorina changed HP’s culture of compassion and consideration into one valuing performance, self motivation and high achievement. She expected the very best from her employees. When she first arrived HP was a decentralized organization, she turned it into a top-down company with centralized power. For that she reduced the number of business units and consolidated the executive authority.
This top-down authoritative style discouraged feedback and discouraged the input of employees. Until the end, she seemed to think that the fate of HP rested on her. She focused instead on other priorities like increasing earnings and stock price, which made her appear unconcerned about traditional HP values like concern for people, respect, trust, and cooperation. Fiorina put HP at ethical risk through her obsession with making the numbers as it encouraged Salespeople to engage in "channel stuffing", which operates by offering discounts or other incentives to get a buyer to purchase more of the product than they had originally planned, hence increasing the earnings albeit the wrong way.
Apart from that unlike the traditional HP management Carly put significant distance between herself and the workforce. Whereas previously Bill Hewlett and Dave Packard popularized the concept Management by Wandering Around (MBWA). They used t roam the halls and made sure to talk to the engineers regularly. Any employee at any level had immediate access to the founders. In contrast, Fiorina rarely mixed with employees and expected to be treated not like everyone else but as the CEO of a major corporation (Burrows, 2003).
Apart from that Fiorina changed HP’s policy of concentration on innovation and product development into one concentrating on customer needs. This led to the policy of customers first, technology second. And the employees started to get rewards and promotions on the basis of their performance as Fiorina started to rank them accordingly. As she believed that the employees should be rewarded according to their performance not their seniority or what they know. 
      Following months of reviewing her performance, on February 9, 2005, Ms.Fiorina was forced out of her positions CEO and Chairwoman of HP. Apparently, the reason for her departure was the “failure of the company’s board and Ms. Fiorina to agree on how to execute HP’s strategy.” (Hackett, 2006) Directors pondered over the matter for some time and even consulted with lawyers, venture capitalists and academics. In short, HP shares were not performing as well as they had historically.
   The reason for Fiorina’s dismissal was a significant decline in tangible book value, cash flow, earnings and price-earnings ratios. However, it can be said that the overall corporate performance showed mixed results. Revenues, operating income, cash, assets and liabilities increased. Net income varied from a high of $3.56 billion in 2000 to a low of -$923 million in 2002, the year of the Compaq takeover, and a rebound to $3.5 billion in 2004.
   Mr. Hurd, the succeeding CEO of HP, was credited with being an operations-oriented manager who “knows where he is going and how to get there” (McCarthy, 2006). “Mr. Hurd kept a low profile throughout 2005 as he worked with a senior management team to redefine HP’s business strategy.” (McCarthy, 2006,)
   Mark Hurd had cancelled some the higher profile, lower return ventures approved by his predecessor. One of the notable cancellations was a digital entertainment hub that had been introduced with great fanfare at the 2005 Consumer Electronic Show. Clearly, he led the review of HP’s huge organization.
Module 4 - Case
Management and leadership are the two core principles that dictate the rules or success or failure of any task, project or assignment irrespective of the platform or scale on which it being conducted. The two core qualities undoubtedly share a symbiotic nature but in some situations may act as completely exclusive to each other in a number of ways. Interestingly, the presence of either of the components can help in achieving success in any of the assigned tasks.
The momentous trade and industry global change, which none organization has ever been gone through before, is identifying some major steps should be taken by organization to survive. When the vital forces of competitiveness strikes the organization that eroded the company’s existence at stake the executives and CEO have to take some measures by some modern growth techniques and belligerent cost reduction procedures. But it also has some significant dilemmas like ethical issues, supply risks, political risks, security risks, and cost compared to existing cost.
The organization employed a collective approach in making an assessment, depending on rectifying the issue instead of conflicting thinking, which will help to get creative methods to see issues and fresh alternatives. The extra alertness of CEO or other authorities will need at the time of decision making is essential as alertness is the careful and assiduous implementation of all factors in the process of decision making.
Klaus Kleinfield who took the charge of CEO of Siemens was the corporate leader who changed the entire business scenario and environment of Siemens and boosted the sales of company by 16% and profit by 35% in 2006. 
The major issues which he dealt and changed in the company are:
·         Internal Operation
·         Business
·         Strategic and Tactical
·         Technical
·         External Operation
·         Product
·         Market 
·         Ethical Issues
Leadership Style
The art of leadership is practiced and executed in various ways and perspectives (Stogdill, 1974). Kleinfield’s leadership style is charismatic as well as transformational.  His leadership is based on the potential and capability of his personality and the charm he carries rather than on any form external power gathering or authoritarian display.
Some of the major characteristics of his leadership include proper observation and scanning of the environment, he is addressing to and while talking to a person, he provides the speaker the perception as if he or she is the most important person in the world for him. Some of the tactics that are used by him to germinate and mature this quality in his disposition include the engendering and integration of trust and credibility among his followers through visible and manifested efforts of self-sacrifice and showing great susceptibility towards the potential of taking risks and challenges to demonstrate his adherence and implementation of the ideology and doctrines that he follows. In addition to this, he is highly persuasive and does possess the quality of convincing others easily with the help of his impactful verbal communication.
Kleinfield is also considered as a transformational leader. The transformational style of leadership depends upon the charisma of the leader. In this style, the leader encourages their employees and can easily obtain the performance, which is beyond imagination by setting high goals and then inspired their employees to pursue and achieve such goals (Doherty and Danylchuk, 1996). Transformational leaders provide a plan for getting the goals and attaining their vision. Actually they provide a big picture to their employees and then the employees relate their individual activities to the work as a whole.
Kleinfield accentuates and sheds greater light on his vision aiming to incorporate a change in the status quo. In such kind of a leadership the role and contribution of the leader is much more profound as being the initiator of the vision and idea he is the undeclared captain of the ship. The management of Siemens became skeptic, primarily because in one way or the other it became a one-man show where a single person is held accountable and answerable. However, in a short span of two years has completely restructured and transformed the organization. He not only motivated the employees to take quick decision to emphasize more on their customers but also simplified the organizational structure of the company. In a nutshell, he is a tough, resilient and independent leader.
The most prominent and significant achievement of Kleinfield was the launch of Siemens One. It amalgamated all the services and subsidiaries into one and the customers are allowed to share the company’s economies. Nevertheless, the decision was taken back later in 40 countries.
During Kleinfield’s tenure the suitable and satisfied activities should be in place which rules the manner of ethics.  He took necessary steps which clearly stated the directions of maintaining the relations with customers, employees, vendors and even also with the competitors.
Corporate Culture
Kleinfield also maintained the corporate culture more effectively to ease the working environment to improve the employee satisfaction. He improved the customer care and after sales services in order to take the organizations’ distinction and performance to achieve the most of the market share. This l not only helped to catch the customer confidence but also gave the assurance to the shareholders too.
The fresh hiring was done more carefully as the organization can go notorious in firing the existing employees and fresh candidates has the fear of laying-off and have no job security.
The perspective of customer is usually focused on stability of their association and service with organization. The customers expect new technological advancement, without any further possibility which could change the method, of their business transaction with the organization. The value plan of the organization should attract the customer interest in business association. Otherwise there are many other entities available to get the services easily. The honesty of the organization with its customers is added an extra value to the business and helpful to add other customers on business clientele.
Conclusion
Change is necessary for retaining or developing competitive advantage.  Leaders are crucial for any change effort.  They also need to be seen as transformational leaders for bringing about effective change.  More open communications at all level are called for and the leader must establish this to motivate the sub-ordinates to obtain their commitment to the vision and mission of the company.  Suitable intervention programmes under change management are to be devised and supervised by such leaders.  The charismatic leader will be able to motivate his followers to improved quality and better their performance.  It is also important to have an agile organization that will empower the workers and motivate them to raise their standards. This too can be brought about by a visionary leadership.
   Module 5                            
Own Manufacturing
Revised No. of units due to 2% normal loss on production
          80,000
           =81,633units
   98%

Rate per unit
No. of units/ cost per month
No. of months
Total Cost





Direct materials (purchased locally)
$165
              8,163
24
      32,325,480
Direct labor (6 hours @ $28 per hour)
168
              8,163
24
      32,913,216
Factory Floor Space Charges (16,000 sq. ft. at $2.50 per sq. ft. per month allocated over 8,000 units per month)
$40,000
24
            960,000
Supervisory labor (monthly cost of $56,000 allocated over 8,000 units per month)
$56,000
24
        1,334,000
General company overhead ($640,000 per month assigned to GPSN allocated over 8,000 units per month)
80
              8,163
24
      15,360,000
Total Cost on Manufacturing (A)
$431.73
192,000
      $82,892,696





Outsourcing cost- Relevant costs









Cost
395
              8,000
24
      75,840,000
Penalty on laid off of labour
1.67
           64,000
5 years
            320,000
Saving in general company overhead
-0.5
              4,000
24
            (96,000)
Total cost on outsourcing (B)
          $396.17
192,000
      $76,064,000





Savings on outsourcing (A-B)
$35.56
192,000
        $6,828,296

                                            Recommendation
From the above calculations it is revealed that outsourcing of Global Positioning System Navigator (GPSN) will save $ 35.56 on each unit. It is recommended to the company to outsource the manufacturing of Global Positioning System Navigator (GPSN) to Far East Enterprises (FEE) as it will save the cost of $ 6.828 million.

Module 5 - SLP
Special Relevant Costs in Multinational Decision –Making Process
The phenomenon of outsourcing emerged on the global financial arena during the 1980s and has since then been mushrooming in various forms. With the passage of time, this process began to proliferate in all major economies of the world. This process of outsourcing proliferation was further catalyzed with the process of globalization which provided a new dimension leading to the consolidation of resources, expertise and labor specializations all over the world.
The process of outsourcing is defined as using the expertise and potentials of a third-party on contractual basis. The procedure is believed to accommodate various facets of societies on the basis of labor division as outlined by the doctrines of a free market economy and principles of globalization. As stated earlier, it was during the 1980s that the process kicked off mainly due to the efforts of transnational corporations when they initiated to hire labor force across national boundaries. Even though the process of outsourcing has managed to come out from its embryonic stages, there are still a number of dos and don’ts that are associated with the entire process (Bragg, 2006).
Recent surveys conducted by Forrester Research Center disclosed that in the current fiscal year 1.59 million people are anticipated to lose their job and this figure is expected to reach 3.32 million by the year 2015. In another survey that was conducted by the same institute on a wide scale encompassing opinions of over 73,000 executives globally, only 58% of American executives said that outsourcing could explore new ways of economic progress whereas in India 97% of business executives believed that it is indeed beneficial, in China the figure was 86% and in Europe 70% favoured policies for outsourcing development. In addition to this when 1,019 adults when inquired about outsourcing, 60% of them straight forwardly polled in negative, whereas only 23% said that it was important for financial rejuvenation. Even though it is a substantiated fact that many prominent organizations belonging to either manufacturing or service providing category have shifted their businesses overseas stranding local labor market, but they have ultimately put at stake the revenues that were being generated from their local market. (Prywes, 2000; pg 79)
Another aspect of outsourcing that needs to be addressed here is that not all people or labourers that are outsourced to different locations are provided a very cooperative or economically friendly environment in the country they are outsourced. Most of the companies that deploy their labor force in different countries are not dedicated to provide benevolent working conditions and therefore they are coerced to carry out their job responsibilities in extremely inhumane conditions. In many countries outsourced work are performed by children and many organizations have also faced legal actions on the conduction of such activities. If solutions to such problems are not addressed at appropriate platforms effectively then outsourcing might not play the role of a benefactor bird for the US economy as it is being anticipated by many pro-outsourcing activists.
Prominent economist and Nobel Prize Winner Paul Samuelson argues that the advantages registered of outsourcing will become almost non-existent and negligible when its disadvantages are contemplated. According to Samuelson jobs are lost and lost forever once victimized by the process of outsourcing. He supports his statement by stating the statistics of a research conducted by University of California-Santa Cruz which stated that people in manufacturing sector such as textile, clothing and footwear felt the greatest pinch due to outsourcing mantra and about one-third of the labor force that was retrenched due to outsourcing exercise were unable to find suitable employment for themselves for the next three years. Even if they somehow managed to get work they were paid 15% less than what was initially being given to them. In addition to this the pinch of getting unemployed is not only being faced by low level labor force but also by a substantial portion of 57 million white-collar employees who are constantly confronted with the challenge that their jobs can be outsourced any time as disclosed by a report published in Business Week.
Relevance of Sunk Cost
In the above mentioned cases, we have experienced that the cost of decision making is considerable so the company is engaged in sunk-cost decision making and once the decision is made it never revisit or reconsider it. Thus, companies often engage in such decisions which are counterproductive just because they do not want to spend more money to revise the decisions. The disadvantages of this approach are as follows:
  1. Companies often do not get the right things at first time. However, if the leadership is competent there is a chance of getting right decisions at the first attempt. This is called the cult of leadership
  2. the companies get as much more data points as much it spends the time with the decision
Module 5– Case
            An organizational stakeholder in corporate terminology is defined as the group of people whose activity and financial decisions can affect the entire organization. Moreover when the terminology was first introduced it was said that stakeholders actually have a key position in an organization primarily because without the presence of these people the organizational setup would cease to exist. During the course of our discussion we would be restricting our scope of ideas to the influence and role of organizational stakeholders as it can be applied to the situation of Home Depot Inc and the subsequent actions that were taken by the then Chief Executive Officer of the company Robert Nardelli.
Before we move on to the different modes of actions and strategies that were formulated by the CEO it is important to first develop an understanding regarding the different type of stakeholders that exist in the organization. The leadership of the organization is mainly handled by the board of directors which also encompasses the major stakeholders of the company which include F. Duane Ackerman, Ari Bousbib and Armando Codina to mention a few. Nevertheless the key hierarchy of the organization consists of three prime components which comprise of the CEO, Senior Leadership Team and the Board of Directors.
Once we have looked at the different stakeholders of the company it is then important to consider how Robert L. Nardelli was able to compensate the assortment of the demands that were being made by the stakeholders. Concomitantly, it is also important to consider that Robert joined Home Depot in the year 2000 and improved the condition of the organization to a substantial extent so much so that it was able to register whopping revenues and an overwhelmingly stable financial position among all other competitor organizations. Nardelli is usually accredited for almost doubling the sales of the organization and bringing a subsequent improvement in its competitive position. It has been estimated that under his leadership and management skills the revenue generated by the organization increased to $81.51 billion in 2005 from $45.74 billion in 2000.
In addition to this he also introduced a couple of other measures that intensified the alliance of the groups working against him. These measures included the decentralization of the management to a freewheeling style of entrepreneurship and the consolidation of executive position. In addition to this many of his measures also produced disturbing effects which were pointed out by the stakeholders as not being in the direct interest of the organization.
For example he replaced many full time experienced employees with inexperienced and half-time staff, even though the step brought a reduction in the expenses being afforded initially by the company, it posed a serious threat to the area of customer satisfaction especially at a time when the company was looking towards spreading its network on national basis. (Patrick, 2007)
Nevertheless even at the time of his resignation he negotiated with the stakeholders to set his severance and retirement package at $210 million which once again brought the contentious CEO within the range of criticism. Before that he was ready to provide the guarantee of receiving an annual bonus of $3million and even after his mutually decided resignation he did not settle for anything less.
Robert was replaced by former Deputy Energy Secretary and GE veteran, Frank Blake. According to analysts and economic specialists it seems unlikely that the management style and operation methodologies that have been incorporated by Robert will undergo much alteration as even Blake belongs to the much similar category and group of Nardelli. It also remains a worth mentioning fact that Blake played a key role in determining the retail chain strategy applied by Home Depot, but only a handful of people are aware about the situation that is looming ahead primarily because they know Blake much better than other members and shareholders of the company.  (Grow, 2007) 

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