tag:blogger.com,1999:blog-49369917797394082422024-03-13T20:11:48.071+01:00 Russell DavisonRussell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.comBlogger66125tag:blogger.com,1999:blog-4936991779739408242.post-46602065180598685582009-07-27T22:37:00.001+02:002014-01-12T20:03:25.868+01:00Span of control<div class="separator" style="clear: both; text-align: left;">
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From my experience, an optimal span of control is seven sub-ordinates. At lower levels of the organization, <br />
however, where there is less interlocking, or where responsibility is concerned more with the performance of specific tasks, the span of control may be larger. It varies widely in different organizations from three to twenty.<br />
<br />
A number factors influence the limit of span of control and these include:<br />
- Technology (Cell phones, email, and other forms of technology that facilitate communication and the exchange of information make it possible for managers to increase their spans of management over managers who do not have access to or who are unable to use the technology)<br />
- organization level<br />
- job complexity (Subordinate jobs that are complex, ambiguous, dynamic or otherwise complicated will likely require more management involvement and a narrower span of management).<br />
- job similarity (The more similar and routine the tasks that subordinates are performing, the easier it is for a manager to supervise employees and the wider the span of management that will likely be effective.)<br />
- supervisory specialities<br />
- measure of overall organization effectiveness<br />
- the nature of the organisation<br />
- the ability and personal qualities of the manager including the capacity to cope with interruptions (Some managers are better organized, better at explaining things to subordinates, and more efficient in performing their jobs. Such managers can function effectively with a wider span of management than a less skilled manager)<br />
- the amount of time the manager has available from other activities to spend with subordinates<br />
- the ability and training of subordinate staff (Managers who supervise employees that lack ability, motivation, or confidence will have to spend more time with each employee. The result will be that the manager cannot supervise as many employees and would be most effective with a narrower span of management)<br />
- the effectiveness of co-ordination and the nature of communication and control systems<br />
- the physical location or geographical spread of subordinates (The more geographically dispersed a group of subordinates the more difficult it is for a manager to be in regular contact with them and the fewer employees a manager could reasonably oversee, resulting in a narrower span of management)<br />
- the length of the scalar chain<br />
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If the span of control is too wide, it becomes difficult to supervise subordinates effectively and this places stress on the manager. With larger groupings, informal leaders and sub-groups or cliques are more likely to develop, and these may operate contrary to the policy of management. There may be lack of time to carry out all activities properly. Planning and development, training, inspection and control may suffer in particular, leading to poor job performance. A wide span of control may limit opportunities for promotion. Too wide a span of control may also result in a slowness to adapt to change or to the introduction of new methods or procedures.<br />
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If the span of control is too narrow, this may present a problem of co-ordination and consistency in decision-making, and hinder effective communications across the organisation structure. Morale and initiative of subordinates may suffer as a result of too close a level of supervision. Narrow spans of control increase administrative costs and can prevent the best use being made of the limited resource of managerial talent. They can lead to additional levels of authority in the organisation creating an unnecessarily long scalar chain.<br />
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Downsizing, in which firms attempt to cut costs by eliminating positions, has become popular among major corporations in recent years. This strategy has had an impact on decentralization and span of control. Employees who used to report to managers whose positions were eliminated have been assigned additional responsibilities. Span of control has become wider in downsized companies, and workers have become less specialized as they have taken on additional duties.Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-18499261275620652252009-07-22T12:00:00.000+02:002009-07-22T12:58:33.638+02:00Renewable energy growthAnnual renewable energy investment has increased from $63 billion in 2006 to $104 billion in 2007 and $120 billion in 2008. In the four years from end-2004 to end-2008, solar photovoltaic (PV) capacity increased sixfold to more than 16 gigawatts (GW), wind power capacity increased 250 percent to 121 GW, and total power capacity from new renewables increased 75 percent to 280 GW, including significant gains in small hydro, geothermal, and biomass power generation. During the same period, solar heating capacity doubled to 145 gigawatts-thermal (GWth), while biodiesel production increased sixfold to 12 billion litres per year and ethanol production doubled to 67 billion litres per year.<br /><br />Annual percentage gains for 2008 were even more dramatic and wind power grew by 29 percent and grid-tied solar PV by 70 percent. The capacity of utility-scale solar PV plants (larger than 200 kilowatts) tripled during 2008, to 3 GW. Solar hot water grew by 15 percent, and annual ethanol and biodiesel production both grew by 34 percent. Heat and power from biomass and geothermal sources continued to grow, and small hydro increased by about 8 percent.<br /><br />During 2008, the United States became the leader in new capacity investment with $24 billion invested, or 20 percent of global total investment. The United States also led in added and total wind power capacity, surpassing long-time wind power leader Germany. Spain added 2.6 GW of solar PV, representing a full half of global grid-tied installations and a fivefold increase over Spain’s 2007 additions. China doubled its wind power capacity for the fifth year in a row, moving into fourth place worldwide. Another significant milestone was that for the first time, both the United States and the European Union added more power capacity from renewables than from conventional sources (including gas, coal, oil, and nuclear).<br /><br />It’s impossible to separate the ‘technical’ and ‘financial’ aspects of the subject of renewable energy from the ‘politics’ which surround it. This is because the technical/financial/political aspects are intertwined; an available energy supply is the cornerstone of any economy and politicians are extremely interested in how economies perform. Politicians like short-term solutions and are reluctant to introduce measures which will make them unpopular.<br /><br />Power generation using fossil fuels creates many economic externalities that are not taxed or banned by governments to control their use. For example, coal-fired power generation creates the negative externalities of emissions of mercury, NOx, SOx and COx. Many governments don’t limit these negative externalities, created by the power producers, for fear of impact upon the cost of electricity. Consequently, power generation using fossil fuels will always cost less than renewable energy until governments protect their citizens and the planet from the adverse effects of the emissions of mercury, NOx, SOx and COx.<br /><br />Obviously, people do prefer renewable technologies. It is up to governments to use legislation and fiscal measures to create a level playing field where renewable energy cleanliness is rewarded and fossil fuel negative externalities like emissions of mercury, NOx, SOx and COx are penalized at the correct scale. By this method, renewable energy costs from sources like; solar, wind, tidal and hydro would be equal to those costs achieved with ‘clean’ fossil fuel power generation.Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-53396022583124957292009-07-21T14:10:00.000+02:002009-07-21T14:11:25.778+02:00Wind power productionThe success of wind power production depends on wind speed and the actual energy of the wind varies with a multiple power of the wind speed. Double the wind speed, and the wind energy increases more than eightfold.<br /><br />A 2 kW wind turbine at a site with a wind speed of 12 mph may generate around 1300 kWh/year for a constant wind location, i.e. 150 watts for 8760 hours. At a wind speed of 19 mph, the output could rise to 6000 kWh/year and, at 23 mph, the annual output could be 15,000 kWh. Other factors limit turbine output at very high wind speeds. However, these figures show that good site selection is important for wind power project economics. If the wind only blows for part of the day or week then the number of kWh per year are reduced.<br /><br />A windy site is starting point for any wind turbine project, but there are other factors too. Wind speed varies with height; the higher a turbine is raised above the ground, the better the wind regime. This benefits larger wind turbines that are placed on higher towers, but larger turbines tend to be more efficient anyway, so additional advantages accrue.<br /><br />Depending on the efficiency of a wind turbine, there is a cut-off wind speed below which wind power generation is not considered economical. This figure depends on the efficiency of wind turbine design as well as on the turbine cost. With the turbines available at the moment, a wind speed as low as 10 mph is considered economically exploitable at an onshore site. Since offshore costs are higher, an offshore wind speed of 15 mph is needed to make a site economically attractive.<br /><br />Once a potential site has been identified, it must be studied in more detail to confirm that it is suitable. Long- and short-term wind speed measurements will normally be needed to ascertain the wind regime. Figures for at least one full year will normally be required, longer if possible.<br /><br />When wind passes over land, the unevenness of the ground and interference to wind flow from trees or undergrowth cause a significant amount of turbulence. Turbulent air creates an additional strain on a wind turbine blade, accelerating the onset of fatigue damage. In order to limit this damage as much as possible, wind turbines are normally placed on a tower, which is tall enough to raise the blades above this turbulent layer of air.<br /><br />Most wind turbines have blades attached perpendicularly to a horizontal shaft and this arrangement imposes restrictions on the wind turbine design because the turbine must be raised on a tower for the blades to clear the ground and the turbulent layer of air next to it. Additionally, a yawing system is needed so that the rotor and generator enclosure can be rotated as the wind direction changes.<br /><br />Alternatively, a vertical axis machine has all its weight supported by a ground-level bearing. However, the vertical configuration has not yet achieved significant commercial success.Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-52676968833870672662009-07-21T11:43:00.000+02:002014-06-09T09:42:35.232+02:00Turbine working principleA turbine is a means of extracting work from a fluid as it changes from a high pressure to a low pressure. A turbine consists of a shaft carrying a number of vanes or blades, and there is a transfer of energy between the fluid and the rotor. In a turbine, the fluid does work on the rotor.<br />
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For gas, steam or water turbines, the fluid is accelerated in a set of fixed nozzles, and the resulting high-speed jets of fluid then change their direction as they pass over a row of curved blades attached to a shaft. A force is exerted on the blades equal to the rate of change of momentum of the fluid, and this produces a torque at the rotor shaft. The momentum of the fluid in the tangential direction is changed and so a tangential force on the rotor is produced. The rotor therefore rotates and performs useful work, while the fluid leaves it with reduced energy. The velocity of the fluid is reduced to somewhere near the value it possessed before entering the nozzles.<br />
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For any turbine, the energy held by the fluid is initially in the form of pressure. For a turbine in a hydro-electric scheme, water comes from a high-level reservoir: in a mountainous region, several hundred metres head may thus be available, although water turbines are in operation in other situations where the available head is as low as three metres or less. For a steam turbine, the pressure of the working fluid is produced by the addition of heat in a boiler; in a gas turbine, pressure is produced by the chemical reaction of fuel and air in a combustion chamber.<br />
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The impulse (or constant pressure) turbine has one or more fixed nozzles, in each of which the pressure is converted to the kinetic energy of an unconfined jet. The jets of fluid then impinge on the moving blades of the rotor, where they lose practically all their kinetic energy and, ideally, the velocity of the fluid at discharge is only just sufficient to enable it to move clear of the rotor.<br />
<br />
In a reaction turbine, the change from pressure to kinetic energy takes place gradually as the fluid moves through the rotor and, for this gradual change of pressure to be possible, the rotor must be completely enclosed and the passages in it entirely full of the working fluid.<br />
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It was during the oil crisis of the early 1970s that modern interest in wind turbines took form. From this period, the basic wind energy conversion system for power generation has gradually taken shape. Today, the basic system starts with a large rotor comprising two, three or four blades mounted on a horizontal shaft at the top of a tall tower. The blades interest the wind and capture the energy it contains, energy which causes them to rotate in a vertical plane about the shaft axis. The slow rotation of the shaft is normally increased by use of a gearbox, from which the rotational motion is delivered to a generator.Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-89593690952924112842009-07-17T13:55:00.000+02:002014-06-09T09:41:30.776+02:00Lowest ammonia pricesThe production of ammonia (NH3) is an energy intensive process. The Haber-Bosch process uses natural gas and air to create ammonia. It takes about 750 kg of natural gas and 30,000 MJ of energy to produce 1 tonne of ammonia. Hydrocarbon gas (CH4) is now used to create ammonia because hydrocarbon gas is cheap. A byproduct of this Haber-Bosch process is carbon dioxide, but other methods of ammonia production have been used in the past that don’t use hydrocarbons and don’t create carbon dioxide.<br />
<br />
Currently, the Nymex (New York Mercantile Exchange) price of natural gas is near the 52-week low of $3.50 per million BTU.<br />
<br />
Average ammonia prices today are less than half of those a year ago, and profits of ammonia producers are more than 50% down, due to the decrease in international ammonia prices. For example, Saudi Fertilizers Company reported last week that net profits of $128M for the 3 months to June were 60% down on a year ago.<br />
<br />
The price of Gulf of Mexico anhydrous ammonia was $800 per ton in September 2008 but, by January 2009, the price had fallen to below $200 per ton. Anhydrous ammonia is now trading at around $160.00 per ton from the Gulf of Mexico and the Black Sea. The current price of ammonia is within the price range experienced during the 10-year period from 1998 to 2007 of $140 to $170 per short US ton.<br />
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The high proportion of natural gas used in ammonia manufacture means that, under most market conditions, a strong correlation exists between the price of natural gas and the price of ammonia. Historically, natural gas accounts for 70% to 90% of the cost of ammonia production. Additionally, the current low price is due to the global financial crisis, large remaining distribution stocks, and a late North American harvest season.<br />
<br />
The non-functioning of credit markets constrained ammonia consumers in advance purchases, reducing demand. Ammonia suppliers overproduced, in anticipation of a high demand due to high commodity prices. Consequently, the current supply of ammonia greatly exceeds the demand and ammonia producers are curtailing production.<br />
<br />
Ammonia supply is a complex issue and involves; ammonia prices, natural gas contract prices, opportunity costs of using natural gas to produce ammonia, ammonia production and inventory, production technology and capacity, and global competition with ammonia imports and exports.<br />
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Annual US production of ammonia has steadily declined over the last decade, whilst imports have more than doubled to satisfy the increasing demand and North America is the world’s largest ammonia importer. North America accounts for more than one-third of world ammonia trade and much of the US imported ammonia is from Trinidad. China consumes one-third of the world’s ammonia production but doesn’t have much impact on trading because it consumes almost all of the ammonia that it produces.<br />
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Production of ammonia in Western Europe had substantially decreased within the last decade, with the exception of Belgium and Germany, whilst Russian ammonia production has increased, due to the availability of cheap natural gas, the major ingredient of ammonia using the Haber-Bosch process.Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-82051725432208476932009-07-07T22:17:00.000+02:002009-07-07T22:34:30.156+02:00Everyday ammonia leaks<span style="color: rgb(102, 102, 102);font-size:130%;" ><span style="font-family:georgia;">After an ammonia gas leak, and for the second day, fire crews tackle a blaze at a food processing plant in Cudahy, Wisconsin. Residents near the plant had previously been evacuated.</span><br /><br /><span style="font-family:georgia;">This ammonia leak is the most recent in a catalogue of worldwide accidents involving this pollutant of key environmental concern that can cause serious or even fatal respiratory injuries …</span><br /><br /><b style="font-family: georgia;">6 July Belleville, Illinois</b><br /><span style="font-family:georgia;">Residents in the immediate vicinity of a food processing plant were confined indoors after the St Clair County HAZMAT team found an ammonia leak.</span><br /><br /><b style="font-family: georgia;">6 July Waggaman, Louisiana</b><br /><span style="font-family:georgia;">Residents reported burning eyes and strong odors following a release of ammonia when a heavy thunderstorm resulted in a power outage at a manufacturing facility.</span><br /><br /><b style="font-family: georgia;">5 July Cotswold Dene, UK</b><br /><span style="font-family:georgia;">A factory had to be evacuated when a large ammonia leak needed firefighters with breathing apparatus to stem the leak in a refrigeration unit.</span><br /><br /><b style="font-family: georgia;">1 July Dallas, Texas</b><br /><span style="font-family:georgia;">An ammonia leak prompted the evacuation of 70 workers from a food packaging company.</span><br /><br /><b style="font-family: georgia;">27 June Tertre, Belgium</b><br /><span style="font-family:georgia;">Two people were injured when an explosion caused substantial damage to a fertilizer plant, caused by plant design weaknesses and operating procedure deficiencies.</span><br /><br /><b style="font-family: georgia;">27 June Alberta, Canada</b><br /><span style="font-family:georgia;">Police closed off streets whilst HAZMAT units investigated an ammonia leak from three 682 kg ammonia tanks and paramedics checked workers evacuated from the facility.</span><br /><br /><b style="font-family: georgia;">25 June Lawrence, Indianapolis</b><br /><span style="font-family:georgia;">An ammonia leak forced a few homes and a Wal-mart to evacuate when 4 cubic meters of ammonia leaked out of a tank in just 40 minutes, sending a cloud of ammonia into the air.</span><br /><br /><b style="font-family: georgia;">24 June Aurora, Illinois</b><br /><span style="font-family:georgia;">An ammonia leak at a carbon dioxide liquefaction plant was caused by a sticking valve and a potentially serious situation was averted.</span><br /><br /><b style="font-family: georgia;">22 June Jefferson City, Missouri</b><br /><span style="font-family:georgia;">A damaged regulator caused an ammonia leak, prompting the evacuation of a business whilst firefighters wearing HAZMAT suits investigated.</span><br /><br /><b style="font-family: georgia;">21 June Bayou La Batre, Alabama</b><br /><span style="font-family:georgia;">Residents in the immediate vicinity of a food processing plant were confined indoors and an officer was transported to USA Medical Center after suffering from ammonia inhalation.</span><br /><br /><b style="font-family: georgia;">20 June Lumber Bridge, North Carolina</b><br /><span style="font-family:georgia;">One person was killed and three people were injured when ammonia leaked at a food processing plant.</span><br /><br /><b style="font-family: georgia;">9 June Garner, North Carolina</b><br /><span style="font-family:georgia;">38 people were injured and three fire fighters were treated for ammonia inhalation when a 130 cubic meter refrigeration system ruptured in the aftermath of an explosion.</span><br /><br /><span style="font-family:georgia;">The above incidents are only the ones that have been reported and I’d suggest that they are only a fraction of the total number of daily global accidental ammonia leaks.</span><br /><br /><span style="font-family:georgia;">Ammonia emissions produce environmental problems, from acid soil to biodiversity reductions and dust, which cause health problems such as asthma. Biomass burning creates ammonia and global ammonia emissions have more than doubled since pre-industrial times.</span><br /><br /><span style="font-family:georgia;">Exposure to high concentrations of ammonia can result in lung damage and death to humans, whilst ammonia in even dilute concentrations is highly toxic to aquatic animals.</span></span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-62439098841438177242007-01-24T14:41:00.000+01:002014-06-09T09:43:13.625+02:00Plastics technology<b>INJECTION MOULDING</b><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s1600-h/Russell+Davison.jpg" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img alt="Russell Davison" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s400/Russell+Davison.jpg" id="BLOGGER_PHOTO_ID_5340435687158148082" style="cursor: pointer; float: left; height: 100px; margin: 0pt 10px 10px 0pt; width: 100px;" /></a><br />
Injection moulded parts can be produced with; ribs, varying thicknessand good surface finishes using all thermoplastic materials. Theorientation of molecules and reinforcement occurs during theprocess. High pressure, nonuniform polymer shrinkage andorientation can lead to warpage and shrinkage over ribs andbosses. Warpage is most apparent with crystalline materials andwith large, flat parts. Methods of controlling these effects aredescribed below.<br />
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Plastic granules are softened during injection moulding and forcedunder pressure into a cold mould through small orifices or gates. Pressure is maintained on the material after injection is complete soas to reduce shrinkage of the ribs and bosses as the materialcools. Pressure is higher at the gates because it will nottransfer effectively through the compressible and rapidly coolingmelt. The additional packing pressure leads to a higher densityof material near the gates and causes internal stresses. Thesestresses tend to be partially relieved when the part is removed fromthe tool, resulting in warpage.<br />
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The plastic melt must flow from the gates, through the narrow gapbetween cooled mould surfaces, to the edge of the tool. The gapbecomes narrower as the material flows because some of the meltsolidifies at the mould surface. The pressure, flow rate anddistance between the mould faces must be great enough, and the materialviscosity low enough, to fill the mould before the solidifying materialcloses off the flow path. For each material and part thickness, thereis a maximum practical flow length from a gate.<br />
<br />
High pressures and narrow flow paths increase the orientation, whichbecomes greater as the gap freezes off. Therefore, theorientation at the centre of the part wall is much higher than at thesurface. For the same reason, orientation is highest near thegates. The gates should not be areas that are likely to sufferimpact or other stresses, such as chemical attack.<br />
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The maximum practical thickness of the part is about fourmillimetres. Above this thickness, cooling time becomesexcessive. The minimum normal thickness for injection moulding isabout one millimetre. Below this level, the party cools beforethe tool is filled and orientation is excessive.<br />
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The largest readily available injection moulding machines have a 3000tonf clamping force, which restricts part size to about one cubic metreor less, for more difficult and filled materials. The flow length ofthe plastics from any one gate is limited to about 500mm with a 3mmwall thickness. Therefore, multiple gates must beused for large parts. Gate design and position are very important forreducing part warpage and add to the complexity of the orientationeffects.<br />
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The surface finish of injected moulded parts replicates the mouldsurface as it cools in contact with the surface, except over ribs andbosses. Part design must be aimed at keeping ribs and bosses awayform the back side of visible surfaces, reducing material in the ribroot. With filled or reinforced materials, the surface tends tobe dull shows flow marks.<br />
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Cycle times vary from less than a minute to five minutes. Injection moulding is the most useful thermoplastic processingmethod. However, there are size limitations and a tendencytowards warpage in flat parts. Shrinkage over ribs can bedesigned around.<br />
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<b>INJECTION COMPRESSION MOULDING</b><br />
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Injection compression moulding is sometimes known as coining. Theplastic melt is injected into the tool, which is held to a slightlygreater opening than the ultimately desired part thickness. Asthe amount of injected material approaches the desired part weight, thetool is closed to compress the material and to fill out the tool.<br />
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It is important for surface quality that the tool closure starts beforeinjection stops and that the injection be completed before the tool isfully closed. This ensures that the material flow front does not stop.<br />
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Pressure requirements and orientation effects are less because materialflows into the tool with the tool surfaces further apart thannormal. The rate of injection can be higher because the flow pathis more open.<br />
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As the tool is closed down to the final part thickness, the melt issqueezed to the edges of the tool. Orientation is less, becausethe final melt is not being forced through a narrow channel by highpressure from the gate. Packing around the gate is eliminated asthe injection is stopped before the tool is full. Flash isreduced because their is no sudden pressure break, such as occurs innormal injection moulding when the tool fill is completed.<br />
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Long glass fibre, up to fifty per cent of fifty millimetre long, can behandled if properly formulated, because the lower injection pressuresand larger gates allow the fibres to pass through more easily. With lower built in stresses and less orientation, parts tend toexhibit much lower warpage when removed from the tool and lessdistortion and stress cracking in service.<br />
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Injection compression moulding is most useful for large area parts upto 1.5 square metres and for reinforced components requiring minimumwarpage. Sinkage over ribs is bad, or worse than withconventional injection moulding, because packing additional melt intoribs and bosses is not practical. However, the ability to addreinforcement could overcome the need to use ribs.<br />
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Although it is not widely used, injection compression moulding doesoffer the opportunity to overcome some of the size, orientation andreinforcement limitations of normal injection moulding. Injectioncompression moulding avoids the pressure peak obtained during normalinjection. This allows larger parts to be made on the same tonnagemachines as smaller parts. Internal stresses are lower because of amore even pressure distribution.<br />
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Flash is minimised, but a vertical flash tool is necessary. Thiswould normally have only one large, centrally located gate. Orientationis nearly eliminated. The need to use a vertical flash tool for thisprocess limits its ability to be used for many parts, because of partshape.<br />
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<b>HOLLOW INJECTION MOULDING</b><br />
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Hollow injection moulding is a relatively recent development. High pressure gas is injected into the polymer melt flow at the nozzleof the machine or at the gates of a hot manifold system. The gas flowsthrough the areas of lowest viscosity at the hotter centre of themelt. Polymer injection is stopped before the part is full andthis allows the gas to fill out the molten areas. Final fillingof the part is by gas pressure.<br />
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The molten areas must be designed to form a continuous path from thegate and along the ribs for the gas pressure to be effective to theextremities of the part. Ribs must normally be widened at theroot to allow for air passage.<br />
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Rib shrinkage is reduced, or eliminated, by this process. Internal stresses and flashing are reduced, because the pressure peakis also eliminated, and this reduces warpage and finishing costs. Pressure on the mould is also reduced. Therefore, much lowermachine clamping tonnage is necessary and the production of longerparts should be possible.<br />
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Surface finish is similar to that found in normal injection moulding,with the added advantage of reduced rib shrinkage. The process appearsable to handle similar materials to normal injection moulding. Limitations on reinforcement are similar to those of normal injectionmoulding.<br />
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Hollow injection moulding may require heavier wall sections than normalinjection moulding and the process can be considered as being betweennormal injection moulding and foam injection moulding, with an improvedsurface. Various alternative processes, using the melt streaminjection of liquid or solid blowing agents, have been considered.<br />
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<b>FOAM INJECTION MOULDING</b><br />
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Foam thermoplastic parts can be produced by adding a heatactivatedblowing agent to the plastic granules or by injecting gas into thepolymer melt in the injection moulding machine. Foaming does notoccur while the melt, containing the gas, is under high pressure in theinjection machine barrel. When the melt is injected into themould, the trapped gas can expand to produce a foam.<br />
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To achieve foaming, the part thickness must be at least fourmillimetres and, for low densities, a minimum thickness of sixmillimetres is necessary to achieve a reasonable foam structure.<br />
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Cycle times are much longer than with other processes because of thegreater part thickness. This is sometimes balanced by feedingmore than one tool from each injection unit.<br />
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Typical foam parts have a surface made up of collapsed cells, giving aswirl pattern similar to wood. A major advantage of the processis that the foaming action completely fills large ribs and bosses,leaving a flat surface. This is an excellent system for articlesrequiring a massive internal rib and boss system for stiffness,provided a high gloss finish is not required.<br />
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<b>SANDWICH MOULDING</b><br />
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Sandwich moulding is used to produce parts with a skin of one materialan a core of a different material. The skin material is normallyunfilled and is chosen for its good surface characteristics, while thecore material is usually foamed to eliminate sinkage or reinforced toincrease stiffness.<br />
<br />
The basic process relies on tow injection units connected, through aswitchable valve, to the gate system of a tool in a single clampunit. The skin material is injected and this is immediatelyfollowed by injection of the core material. The core material pushesthe skin material to the extremities of the mould, laying down asolidifying layer of skin on the cooled mouls surface as it passes.<br />
<br />
With a reinforced core, the total thickness must be about onemillimetre thicker than for normal injection moulding. Sizelimitations are similar to those found in normal injection moulding,but multiple gating is difficult because the flow fronts always consistof skin material.<br />
<br />
<b>COMPRESSION MOULDING</b><br />
<br />
Compression moulding is one of the few thermoplastic processing methodsthat allows the use of very long, or continuous, reinforcement. Flow moulding and stamping are two forms of compression moulding.<br />
<br />
Flow moulding involves heated plastic, moving in three dimensions,under the pressure exerted by the cold mould to fill the mould,carrying any reinforcements with it. Ribs and bosses are filledwith plastic and reinforcement, but little true control ofreinforcement orientation can be achieved, even though orientedcontinuous fibre is used in the starting material.<br />
<br />
Stamping is the deformation of a heated sheet of plastic under thepressure of a cold mould with minimal flow of material or change inreinforcement orientation. Only single thickness parts arepossible.<br />
<br />
<b>THERMOFORMING</b><br />
<br />
Thermoforming is the forming of heated plastic sheet by the applicationof air pressure (pressure forming) or a vacuum between the heated sheetand the tool. The atmospheric pressure forces the sheet onto the tool,where it cools and retains the tool shape (vacuum forming).<br />
<br />
It is impractical to form a reinforced sheet because of the lowpressure involved and the tendency of the sheet to tear. Orientationand crystallisation effects can be used to strengthen or modify thephysical properties of the plastic material, but such techniques are ofinterest only for low-cost food containers and similar items.<br />
<br />
<b>CONVENTIONAL BLOW MOULDING</b><br />
<br />
Conventional blow moulding cannot handle reinforcement. The onlyeffect on the physical properties of the material caused by theprocessing is the tendency to orientate the molecules in the directionof the extrusion head. This can ultimately lead to failure of theproduct due too splitting in the direction of flow when subjected toimpact or stress corrosion.<br />
<br />
<b>INJECTION BLOW MOULDING</b><br />
<br />
For injection blow moulding, an injection moulded preform is usedinstead of an extruded parison. The technique is particularlyuseful as a precursor for stretch blow moulding, in which blowing iscarried out at lower temperatures with mechanical means or preformshapes to ensure that biaxial orientation takes place. Stiffness andstrength are significantly increased by this process, as are otherproperties, such as resistance to the transfer of gases. Mostcarbonated beverage containers make use of this biaxial effect.<br />
<br />
<b>ROTATION MOULDING</b><br />
<br />
A plastic paste or powder is placed in a hollow metal mould, which isthen heated and rotated so that the plastic melt coats the inside ofthe mould. The mould is then cooled while still rotating. Partsproduced in this way are difficult to reinforce because the fibres tendto separate from the plastics. Internal stresses are very low, butthere is a risk of polymer degradation due to exposure to air. Theprocess is used for decorative, nonstructural parts or as analternative to blow moulding.<br />
<div class="tags" id="tagsLocation">
<br />
Tags: <a href="http://technorati.com/tag/plastic" rel="tag" target="_blank">plastic</a>, <a href="http://technorati.com/tag/injection+moulding" rel="tag" target="_blank">injection moulding</a></div>
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com1tag:blogger.com,1999:blog-4936991779739408242.post-89202582521914680022006-10-31T13:20:00.000+01:002014-06-09T09:44:00.615+02:00Venture opportunity screening<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s1600-h/Russell+Davison.jpg" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img alt="Russell Davison" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s400/Russell+Davison.jpg" id="BLOGGER_PHOTO_ID_5340435687158148082" style="cursor: pointer; float: left; height: 100px; margin: 0pt 10px 10px 0pt; width: 100px;" /></a><br />
<br />
I originally wrote this article, “Venture opportunity screening” in November 2003.<br />
<br />
Anopportunity has been screened for the export of handcrafted goods fromSingapore and the venture appears attractive. New technology and newbusiness processes are used by the venture to provide small retailersof antiques clocks, gifts, handicrafts and home décor with handcraftedgoods from Asia by 15 Kg air parcels, delivered in 7 days. The averagevalue of each consignment is S$800 and credit card payment, with order,gives UK retailers 4 weeks to 7 weeks credit with the card company,whilst the venture is assured payment by VISA and Mastercard monthly.Direct mail and telemarketing are used to create and penetrate themarket and bilingual staff are close to Asian suppliers and possesssuperior customer service skills.<br />
<br />
A quick screening of the newventure identifies the potential market of small UK retailers and thegross margin is estimated to be 50%. The competitive advantagesidentified are identified as low fixed costs, control over costs,location and people advantages. The value created is 10% profit aftertax and an IPO exit mechanism is foreseen after 3 years.<br />
<br />
Theopportunity concept takes advantage of the recent halving of prices forTranspacific freight and international call costs in the last couple ofyears and new techniques for receiving assured payment frominternational customers. The new venture strategy is to penetrate 10%of the market of UK retailers who sell antiques, clocks, gifts,handicrafts and home décor.<br />
<br />
The market profile is of reachablecustomers who seek product variety. The competition is fragmented andmarket sizes are estimated as S$20M, S$80M and S$100M in the UK, US andEurope, respectively. The venture economics profile is of low capitalrequirements and favourable free cash flow characteristics. The time tobreak even is 15 months. The IPO exit mechanism is estimated to harvestS$2M for the founder in three years. The venture provides a good fitwith the goals of the founder and a bilingual team will be createdwithin the first 2 years of operation. Strategic differentiation fromthe competition is by superior customer service, use of technology,pricing and product quality. The market entry strategy is to createcustomer awareness that it is now possible to quickly receive qualityAsian goods in small quantities at a competitive price from the newlyformed company.<br />
<br />
The reasonsfor makingthe company believe thatthe idea is an opportunity are concerned with the main components ofcustomer need, premium pricing, underlying value creation proposition,market niche and product mix. Small UK retailers need a variety of highvalue products to differentiate themselves from the larger UK retailersand to compensate for their lower lever of sales activity. They arerequired to purchase goods in modest volumes from wholesalers and UKmanufacturers to realize wholesale discounts and are prepared to pay apremium to reduce their investment in inventory. The new venture has anunderlying value creation proposition of supplying UK retailers directin more frequent, smaller volumes to reduce inventory and to takeadvantage of lower freight costs and international telemarketing callcosts. The marker niche of UK retailers selling antiques, clocks,gifts, handicrafts and home décor is chosen to avoid dealing with theend-user consumer, whose average order value would be unlikely toexceed S$100, unacceptably increasing the administration costs. Theproduct mix is carefully chosen to include only those items whose salesprice to weight ratio is high, to ensure low air parcel distributioncosts (as a percentage of the selling price). There are currently nosubstitutes for the marketing mix of premium priced products promotedby direct sales and telemarketing from Singapore.<br />
<br />
The newventure seeks to improve upon the existing value chain by eliminatingthe warehouses of UK wholesalers. This is achieved by employing the‘just in time' distribution technique that has been successfully usedwithin manufacturing industries for the last 20 years to reduceinventory costs. The product strengths are the uniqueness of Asiandesigns, handcrafted features, unfamiliar materials, unusual colours,peculiar symbology and aesthetics. The product weaknesses are unprovendemand, freight costs, fumigation certification for wooden items,humidity control requirements and the non-uniformity of designs.Existing competitors in the industry have been assessed. Direct mailcosts are estimated to be S$1,000 per thousand contacts, telemarketingIDD call costs are S$10 per hour and the web-host charges 1½% pertransaction and S$70 per month. The distribution costs have beenestimated and are 22% of sales. Value chain physical, margin andinformation flows have been mapped and they reveal that the suppliersbenefit from high percentage margins, which are moderate inabsolutedollar terms.<br />
<br />
It's estimated that the new venture will capture¼, 1, 2 and 5% of the market in years 1, 2, 3 and 4 of the venture. Thebusiness goal is 10 % of the market, with sales of S$2M, in 5 years.The product cost represents 36% of the sales price, gross margin is 36%of the sales price, fixed costs are 16% of the sales price and profitbefore tax is 12% of the sales price. Resource needs to launch thecompany are modest. The cash flow conversion cycle has been forecastedand a preliminary cash flow analysis has been created. The break-evenchart shows that the venture needs to ship three consignments everycouple of days (or 28 consignments per month) to break even.<br />
<br />
Capitalwill be raised for the business in two stages, at launch and afterthree years of operation by way of an IPO. The launch capital ofS$100,000 is to be invested by the company owner. The marketcapitalization for the IPO, after 3 years, is estimated to be S$2M.This is based upon forecasted earnings (net profit after tax) of S$0.1Mfor 2007 and S$0.2M for 2008, giving a P/E ratio of between 10 and 20.The IPO opportunity will attract investors from Singapore governmentagencies, institutions and individuals. The company owner intends toharvest the venture by means of selling the company via the IPO. Thisis estimated to occur in three years time, in January 2007. The harvestprospects are good if the forecasted growth and required margins can beachieved. The company would be source of strategic value to exportersof other products based in Singapore, or to importers based in the UK.As there are no other firms currently delivering this product andservice mix, a company contemplating entry may be a logical buyer. Thebusiness asset requirements are low and, if the owner decided to exit,it would cost less than S$20,000 in lost lease deposits and depreciatedfixtures, fittings, equipment and other venture launch expenditures.This amount seems reasonable, with respect to the venture's potentialand risk. Expenditure after launch can be adjusted to match the levelof sales activity witnessed, so as not to run out of cash beforesecuring enough profitable customers to sustain a positive cash flow.<br />
<br />
Thestrategic analysis of the competitive landscape estimates that the fourcompetitor categories are large UK importers with warehousing,specialist UK manufacturers, UK manufacturer's brokers and internethobbyists with no marketing who have market shares of 50%, 25%, 20% and5%, respectively. Marketing tactics for each competitor vary. Profilesof the competition in year 2003, for price/quality and marketshare/profitability have been created. The main manufacture ofthe handcrafted products, by definition, is not subject totechnological change. However, the required quality assurance,fumigation and humidity control processes involve technology that willtake six months to two years to develop, implement, install andmaintain. The new venture has the competitive advantage of being inclose proximity to the suppliers of the goods and an additionaladvantage can be gained by hiring staff who speak Mandarin andIndonesia Bahasa. The new venture is also able to work with itssuppliers to assure quality and meet fumigation and humidity controlrequirements. The new venture can be price competitive if theadvantages of low fixed costs, zero/low inventory costs, low suppliercosts and higher customer value (through increasing their inventoryturnover) more than compensate for the new venture’s higherdistribution costs of delivery by air parcel. The new venture’smarketing positioning, relative to the competition, has been chosen. UKspecialist manufacturers and manufacturer's brokers are vulnerable tocompetitors, like the new venture, being able to offer good qualitysubstitute handcrafted product designs from Asia. Once penetrated, thissection of the market will always remain vulnerable to the newventure’s competitors and they will lose market share if the quality ofthe new venture’s products can be maintained. Another vulnerability ofthe new venture’s competitors is in the creation of awareness in UKretailers that handcrafted Asian goods can be procured direct from thenew venture.<br />
<br />
The founder's vision is to change the way manygoods are exported from Singapore, by offering superior customerservice and good quality products, using staff skilled in CRM and byusing new business processes. The company aims to inspire its staffthrough leading by example, on the job training and by continualemployee attendance at CRM business management training seminars andcourses. The founder has many years of international businessmanagement experience with a large MNC throughout America, Asia andEurope and many years of experience in project management andengineering in Europe with various companies. He isvery knowledgeable about logistics, procurement and sales andpossessesthe skills required for the venture's success. Additional bilingualpersonnel are required in Mandarin, Bahasa and English. These newstaff members will be attracted to the venture after the first sixmonths of launching the company. The founder has previously managedprocurement and export of industrial products from America, Asia andEurope.<br />
<br />
Significant assumptions are made in the screening of thenew venture. It’s assumed that the sales projections are realistic andthat customers will purchase the goods without first being able totouch and see them, apart from the photographs and specifications inthe new venture’s catalogue. The ability to recruit local staff withgood customer service skills and understanding of UK dialects, namesand customs is assumed. It’s also assumed that the implementation ofsupplier quality assurance will be successful and that customers acceptthe new venture’s terms of payment. The downside consequences ofinvalidity to these assumptions are lost growth opportunities if salesprojections prove to be unrealistic and the company could be forced tocease trading if it is found not to be possible to recruit local staffwith good customer service skills and UK knowledge. If product qualitycannot be controlled then customer returns and lost trade could costseveral tens of thousands of dollars in refunds to the credit cardcompanies, who demand 100% customer refund guarantees. The maximum costof liquidation, to the founder, is less than S$80,000 and is tolerable.Bankruptcy is not tolerable by the founder for participation in thisventure.<br />
<br />
The risk of the venture is rated as medium as it ismanaged by financial bootstrapping and with the use of milestones.Before the IPO in three years time, the business is initially funded bythe founder. The founder's investment is moderate and break even isestimated to occur in the 15th month of trading.Bootstrapping is used between break even and the IPO listing tominimize the company's exposure to financial risk. Borrowing could beused to promote growth, but this would increase the risk. Milestonesare placed along the venture's path to the IPO, as checkpoints, beforefurther resource commitments are made. The first milestone is placedafter the first six months of operations. This marks the transition ofthe company into leased premises with a shop front and a commitment toengage two staff before the end of the first year. The precondition forpassingthis milestone is that the direct mail and telemarketingcampaign have generated more than one hundred positive responses orenquiries and that the receipt of the first few purchase orders isimminent. Similar milestones are placed every six months to matchadditional resource commitments with previous, current and future salesactivities. A schedule for week-by-week action steps, during thefirst six months, has been created.<br />
<br />
The value proposition can beenhanced by communicating to retailers the true cost, to them, of theircurrently low inventory turnovers and how the new venture company couldassist them to increase their inventory turnovers, thereby reducing theamount of their capital tied up in stock. The new venture could improvetheir value proposition by appointing agents or distributors in the UKto penetrate the 90% of the target market that they don't envisageinfiltrating by direct mail and telemarketing alone. The sequence of customer database generation, direct mailing andtelemarketing batch sizes could be changed to improve the fit byfocusing on a pilot study. The sequence could be changed so that 500targeted customers are contacted four months ahead of the plan tostatistically infer the likely response from 5000. Staff could be addedearlier than planned to divide the tasks of CRM database creation,direct mail and telemarketing between staff and the founder. The fitcould also be improved by eliminating the need for premises with a shopfront for local sales. Local sales are expected to be low, so moreeconomic business premises could be used in an out of town industrialarea. The free cash flow characteristics are at their optimum withadvanced payment commitment and retarded payment for logistics andresources. However, the value chain could be extended to manufacturethe products ourselves. The major risk, after venture launch costs, isthat the initial marketing investment of S$10,000 does not createcustomer awareness, enquiries and orders at the magnitude planned bythe new venture. The risk/reward balance could be adjusted byincreasing or decreasing the marketing investment.<br />
<br />
Tags: <a href="http://technorati.com/tag/Venture+opportunity+screening" rel="tag" target="_blank">Venture opportunity screening</a>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-19432127730385442692006-10-27T15:38:00.000+02:002014-06-09T09:44:29.120+02:00Small enterprisesI originally wrote this article, “Small enterprises” in October 2003<br />
<br />
<span style="font-weight: bold;">CASE STUDY : BURT’S BEES</span><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s1600-h/Russell+Davison.jpg" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img alt="" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s400/Russell+Davison.jpg" id="BLOGGER_PHOTO_ID_5340435687158148082" style="cursor: pointer; float: left; height: 100px; margin: 0pt 10px 10px 0pt; width: 100px;" /></a><br />
<br />
An opportunity is defined as consisting of an idea and other components.The following enterprise case study allows comparison with othercompanies in the industry and shows little investment, small marketshare, low wages and low productivity for Burt’s Bees. It is explainedthat the company's success is due to it's uniqueness, Roxanne'squalities, her family, marketing and resource management. The companyshould keep to it's plan of producing in North Carolina to allow thevalue of the company to continue to grow, prior to harvesting. According to Timmons and Spinelli (2003:106):<br />
<br />
“Roxanne Quimbysat in the president's office of Burt's Bees newly relocatedmanufacturing facility in Raleigh, North Carolina. She was surroundedby unpacked boxes and silence from the unmoving machines with no onethere to operate them. Quimby looked around and asked herself, "Why didI do this?" She felt lonely and missed Maine, Burt's Bees' previoushome. Quimby had founded and built Burt's Bees, a manufacturer ofbeeswax-based personal care products and handmade crafts, in centralMaine and wasn’t convinced she shouldn't move it back there. Sheexplained:<br />
<br />
“When we got to North Carolina, we were totallyalone. I realized how much of the business existed in the minds of theMaine employees. There, everyone had their mark on the process. Thatwas all lost when we left Maine in 1994. I just kept thinking 'Why didI move Burt's Bees?' I thought I would pick the company up and move itand everything would be the same. Nothing was the same except that Iwas still working 20-hour days.”<br />
<br />
Quimby had profound doubtsabout this move to North Carolina and was seriously considering movingback to Maine. She needed to make a decision quickly because Burt'sBees was in the process of hiring new employees and purchasing a greatdeal of manufacturing equipment. If she pulled out now, losses could beminimized and she could hire back each of the 44 employees she had leftback in Maine, since none of them had found new jobs yet. On the otherhand, it would be hard to ignore all the reasons she had decided toleave Maine in the first place. If she moved Burt's Bees back, shewould face the same problems that inspired this move. In Maine, Burt'sBees would probably never grow over $3 million in sales, and Quimbyfelt it had potential for much more.”<br />
<br />
<span style="font-weight: bold;">The difference between an idea and an opportunity</span><br />
<br />
Anopportunity consists of a market, timing, resources, networks and anidea. An idea is a component, or part, of an opportunity. An idea is ofacademic interest only when, judged in isolation and is inert, untilcombined with the other factors to create an opportunity.<br />
<br />
Ideacreation is the entrepreneur’s first step to realizing a favourableopportunity. An idea needn't be owned by the entrepreneur and could beregarded as a tool. It could be licensed from another company orestablishment. An idea must interact with other components to create anopportunity, but many ideas need to assessed till the right one ischosen to become part of an opportunity. It might be a great innovationor may simply be a more effective way of doing something. Insight orexploration may generate an idea or it may be accidentally stumbledupon.<br />
<br />
Opportunity construction is the next step in theentrepreneurial process where the idea is positioned in the real world.The idea is combined with marketing and economic factors to form theopportunity and to determine the likelihood that a gap between marketneeds and wants can be filled. A real need in the market must besatisfied or created and the timing should be right. An opportunityshould add value for the buyer and both profit and growth potentialsshould be high for the entrepreneur.<br />
<br />
It could be argued that opportunities, the real world viability of ideas, are more important than the ideas themselves.<br />
<br />
<span style="font-weight: bold;">What can be learned from the case study?</span><br />
<br />
Fivefacts can be learned from the case study, in comparing Burt's Bees withother companies in the same industry. Investment, market share, salesper employee, value added and wages are all very different betweenBurt's Bees and the industry average.<br />
<br />
<span style="font-weight: bold;">Investment</span>by Burt's Bees is significantly lower than the industry average of$13,898 per production worker. This is evident in the company'sdescription of un-automated processes.<br />
<br />
<span style="font-weight: bold;">Market share</span>for Burt's Bees is only 0.015% of the total toilet preparationindustry. This should not attract the major market player's attentionto compete.<br />
<br />
<span style="font-weight: bold;">Sales per employee</span> for Burt's Bees’ 44 workers is only 21% of the industry average.<br />
<br />
<span style="font-weight: bold;">Value added</span>per Burt's Bees' production workers is significantly less than theindustry average of $377,541 per production worker due to no investmentin automation and an unproductive, unskilled workforce - as describedin the case study.<br />
<br />
<span style="font-weight: bold;">Wages</span> for Burt's Bees' production workers are less than half the $10.93 per hour average for the industry.<br />
<br />
Otherinformation could be derived from the case study, but not withcertainty. Assets cannot be compared because it's not known ifBurt's Bees leases or has bought, for example, vehicles for the salesrepresentatives. Additionally, the ratio of production tonon-production workers can't be compared as the number of salesrepresentatives for Burt’s Bees is not stated in the case study. It'santicipated that there are proportionately less non-production workersat Burt's Bees than the average for the industry.<br />
<br />
<span style="font-weight: bold;">Why has the company succeed so far?</span><br />
<br />
The company success is due to the company's uniqueness, Roxanne's qualities, her family, marketing and resource management.<br />
<br />
Thefacts given within the case study show that Burt's Bees is verydifferent from other companies within the industry. The company'sfinancial strategy creates a competitive advantage against similarsized companies.<br />
<br />
Roxanne brings many desirable qualities to thecompany, acquired through her unforgiving background and because of hercharacter. Roxanne worked hard throughout her childhood in smallindependent ventures to raise money for college and afterwards, priorto forming Burt's Bees. According to Roxanne, "I liked buying andselling things well, adding value. Loved [the] freedom of starting abusiness, of not knowing how it would turn out.”<br />
<br />
The interactionbetween the family, Roxanne and Burt, and Burt's Bees is favourable tothe company. The family's need for liquidity is low and profits havebeen retained within the company. There is no conflict between thefamily and the business, and Burt's readiness in agreeing with Roxanneto relocate from Maine to North Carolina demonstrates an ability toadapt to the changing requirements of the business and shows that thecouple share the same perspectives. Roxanne says about Burt that, "he'smy main sounding board and [he] gives me a lot of moral andpsychological support ... there's never been a conflictbetween us."<br />
<br />
Burt'sBees' marketing of the product contributes to the success of thecompany. Being first in the market and positioning the new product inan un-served market niche helps. Roxanne knows her customers and thatthere are consumers living in urban areas who have "an unconsciousdesire for more simplicity and our products speak to that need." The product line was expanded to include other hand made crafts andbeeswax products like lip balm to appeal to the same market niche.<br />
<br />
Resourcesare carefully controlled by the company. A bootstrapping approach isused to finance the company from retained profits. This means that thecompany has no debts and actually refuses to sell products to retailerswho don't pay their bills within thirty days. The resources of theNorth Carolina Commerce Department were used to identify new premiseson favourable terms. During the growth of Burt's Bees, the minimalamount of resources is used at each stage. New employees are hired onlywhen sales increase. Household kitchen appliances are used tomanufacture the product and, without a telephone, messages werereceived from a local health food store. Roxanne's willingness to sleepin the back of a truck at trade shows, the rental of the derelictschool house as a factory and low production worker wages are furtherexamples of the efficient use of resources. According to Roxanne,"Since the beginning of Burt's Bees, the company had never once dippedinto the red, had always turned in a profit and it's profits had alwaysincreased.”<br />
<br />
<span style="font-weight: bold;">What should Roxanne and Burt do now?</span><br />
<br />
Roxanneand Burt have three options. They can sell the business, return toMaine or remain in North Carolina. They should remain in NorthCarolina, as explained below.<br />
<br />
<span style="font-weight: bold;">Sell the business</span><br />
Roxannedoes not want to be at Burt's Bees forever and has other ambitions tofulfil, like living in India. Burt's Bees will be sold by Roxanne andBurt at some time in its business cycle. Now would not be the best timebecause the company continues to grow rapidly and it's foreseeable thatrevenues could be more than ten times their current levels if thebusiness is allowed to grow. The company has no tangible assets and theonly asset is intangible 'goodwill'. The company could be currentlysold to a willing buyer for, say, a few million dollars. However, withthe company's continued growth, it could be sold for several tens ofmillions of dollars within a few years. It is not advisable to harvestthe business at this moment in time.<br />
<br />
<span style="font-weight: bold;">Return to Maine</span><br />
Theproduction workers at Maine have a good attitude. Yet, they areunskilled and this, combined with no automation, creates the lowproductivity in comparison to the industry average. Roxanne spent mostof her time alongside the production workers to give supervision and tosupplement the workforce. This left no time for Roxanne to focus onbroad management issues. New management could not be attracted to theMaine environment. The production facility could hardly meet currentdemand and sales were determined by the limited production capacity.The Maine facility incurs high transportation and payroll taxes. It isnot wise to retum to Maine, where company growth would be difficult andRoxanne would be frustrated.<br />
<br />
<span style="font-weight: bold;">Remain in North Carolina</span><br />
Burt'sBees remaining in North Carolina is the only alternative that allowsthe company to grow, realize its full potential and become ready forharvesting for a price which is fair to Roxanne and Burt.Transportation costs and payroll taxes are lower in North Carolina thanin Maine. The location is more attractive to hire a management team tosupport Roxanne. This would release her to consider broad managementissues, rather than involve herself in direct supervision of theproduction workers. Operations in North Carolina require a change inproduction methods from manual to automated manufacture. This isnecessary to control labour costs and to ensure that future revenue isnot limited by the means of production, as it was in Maine. A largepercentage of the country's population lives within a twelve hour drivefrom the North Carolina plant and this places Burt's Bees closer to themajority of its customer base. Additionally, there is a greater supplyof labour in North Carolina that is skilled. Although more expensive ona wages per hour basis, it is expected that productivity gains, byusing skilled workers, will more than offset the higher hourly wages.<br />
<br />
<span style="font-weight: bold;">NEW ASIAN VENTURE BRIEF</span><br />
<br />
Anew venture is proposed for the sale of Asian artefacts throughconventional high street retailing and export to Australia, NorthAmerica and Europe. Typical products include hand carved furniture andornaments from Indonesia and pottery from China. A market is alreadyestablished and the new venture has a competitive advantage by usingtargeted marketing and a low rental outlet. There are competitive,technical and financial risks involved and strategies are required tobe developed to reduce the impact of these risks. Supplierrelationships need to be developed and a shop layout is required. Abusiness plan needs to be created with monthly and quarterly budgets.<br />
<br />
<span style="font-weight: bold;">Market assessment</span><br />
<br />
Thereis a market of Caucasian customers who purchase Asian artefacts whilston vacation, or residing, in the South East Asia region. TheSingapore market is currently served by very small souvenir shops ormedium sized retailers located in prime, but expensive, shoppinglocations. Passing trade accounts for most of the business. Amajority of the medium sized businesses have ceased trading and haveclosed in the previous two years. This is a result of lower revenuescaused by less travellers to the region recently and the migration ofexpatriates to their home countries during the recession. Continuallyhigh shop rental prices accelerated closure of the medium sizedbusinesses. The new venture will be located outside of expensiveshopping areas and will compensate for lower passing trade byattracting customers to the outlet through specialized marketing attourist hotels events and expatriate residential areas. Theeconomic and highly available Singapore transportsystem is an attribute. Additionally, export of goods via the Internet,using international courier, will complement over-the-counter shopsales. The local market will expand over the next three years of theeconomic cycle from it's current trough.<br />
<br />
<span style="font-weight: bold;">Risk determination</span><br />
<br />
Thecompetitive risks of the new venture are that medium sized retailerswill return to the market in prime shopping locations and now useInternet technology for export of their goods.<br />
<br />
The technicalrisks involve the compromise between high shop rental and passingtrade, import/export procedures, inventory range/value, web sitestructure/maintenance and payment mechanisms.<br />
<br />
The financialrisks are commitments to fixed rental payments for a period, inventoryinvestment, supplier reliability, customer receivables and assuredrevenues.<br />
<br />
<span style="font-weight: bold;">Production planning</span><br />
<br />
Agreementsneed to be signedwith up to six suppliers in ASEAN countries. Thecontracts are to cover logistics, product ranges, import/exportprocedures, scheduling, payment, cancellations, defaults, quality,agreement enforcement and contract termination.<br />
<br />
The new ventureshop layout and telecommunication methodology need to be defined tosupport both the local and international aspects of the business. Aregister of non-current assets needs to be created to help costestimation.<br />
<br />
Advice and guidance need to be sought from acquaintances in non-competing, but similar, existing businesses.<br />
<br />
<span style="font-weight: bold;">Cost estimation</span><br />
<br />
Abusiness plan needs be created to provide a good estimate of initialcosts, expenses and projected revenues for the new enterprise. Theanticipated fixed costs are shop rental, fixtures, fittings, utilities,minimum inventory, minimum staff, telecommunications, computer hardwareand software. Variable costs are expected to be turned-over inventory,shipping, marketing and additional staff. Monthly budgets need to becreated for the first twelve months, followed by quarterly budgets forthe next two years.<br />
<br />
<span style="font-weight: bold;">Feasibility evaluation</span><br />
<br />
Finally,the above mentioned risks to the success of the new venture arerequired to be analyzed to determine how they could be managed andcontrolled. Strategies to reduce the impact of competitive, technicaland financial risks to the business need to be formulated. Anopportunity screening task is required to be done for the proposedbusiness before the decision is made whether or not to proceed with theventure.<br />
<br />
<span style="font-weight: bold;">References</span><br />
<br />
Timmons, J.A. Spinelli, S. 2003, <span style="font-style: italic;">New Venture Creation</span>, Mc Graw Hill 2003Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-75993008799112227622006-10-25T14:17:00.000+02:002014-06-09T09:44:54.402+02:00Strategic managementI originally wrote this article, “Strategic management” in April 2004.<br />
<br />
<span style="font-weight: bold;">SUMMARY</span><br />
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s1600-h/Russell+Davison.jpg" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img alt="" border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh83rL0Q1KKZZCINX64KkK2kWg_BbrvCM95QMFqA7rAoJIKlCvznXEoGRKhLxJ34nIIx9oJ8OpDVFVpae9kzOuemtf7hm487nRjYYzvMIUeAne2vbsNbGyUcLI91bjChPNGL7Rhrjz1_uw/s400/Russell+Davison.jpg" id="BLOGGER_PHOTO_ID_5340435687158148082" style="cursor: pointer; float: left; height: 100px; margin: 0pt 10px 10px 0pt; width: 100px;" /></a><br />
<br />
A business strategy is to be implemented for Élan Boats using animplementation framework. My prior work identified the strengths,weaknesses, opportunities and threats facing Élan. These analyses werepreviously summarized to enable strategic options to be considered forthe implementation of the chosen business strategy.<br />
<br />
Threestrategies were previously identified for Élan using the BCGgrowth-share matrix, KSF, Porter's five forces, driving force analysis,SWOT analysis, value chain and industry evolution approaches and thefirm is identified as falling into one of three strategic groups. Thethree strategic options of divestiture, the original strategy and agrowth strategy are evaluated and a growth strategy is formulated tohave 6 sustainable competitive advantages in addition to the strategicasset of the <span style="font-style: italic;">American Skier</span>model. The long-term and short-term objectives of the firm areidentified and converted into functional strategies for implementation.Detailed tasks are constructed to implement the strategy and sixperformance measures are assigned measurements for evaluating thesuccess of Élan's implementation of the growth strategy. Incentives forthe successful future growth of Élan are presented and potentialbarriers to implementation are identified.<br />
<br />
Summarizing the conclusions and recommendations for Élan, using the growth strategy:<br />
<br />
(1)Change company funding from debt-finance to equity-finance and removeliquidity concerns, plus provide working capital for growth.<br />
<br />
(2) Increase annual revenue growth forecast from 20% to 60% to aim for market leadership within a decade.<br />
<br />
(3) Implement customer relationship management and focus growth strategy at 2nd and 3rd largest customer base in the U.S., i.e. California and Florida.<br />
<br />
(4)Match (or even better) constant innovation record of market leaderswith release of innovative product designs in 2003, 2006 and 2009.<br />
<br />
(5)Increase manufacturing cost efficiency through value engineering,alternative material sources and changes to direct labour compensationpackage to increase gross margin from 29.6 to 40%.<br />
<br />
(6) Reduceoverheads (office and management payroll, sales consulting,advertising, marketing, professional fees) to increase net profit from1 - 5% to 10%) and exploit market leaders' high overhead weakness inmature market.<br />
<br />
<span style="font-weight: bold;">STRATEGY FORMULATION</span><br />
<br />
Importantdrivers were previously identified for use in formulating a strategyfor Élan Boats. The firm is within one of three strategic groups withinthe industry and three business strategies are considered for Élan.<br />
<br />
<span style="font-weight: bold;">Divestiture strategy</span><br />
Thisstrategy would involve the owners in selling the business to acompetitor or new entrant and is supported by the BCG growth-sharematrix approach, KSF approach and Porter's five forces approach. TheBCG model places the firm in the low-growth and low share quadrant ofthe matrix. It identifies Élan as a cash trap, because it will beperpetually absorbing cash, and a candidate for divestiture. The KSFapproach shows that Élan lacks most of the key success factors for theindustry and which are possessed by the market leaders, i.e. economiesof scale, constant innovation record, large dealership network andcustomer loyalty. Porter's five forces model illustrates theindustry as having a low profitability potential for Élan. Buyers havehigh bargaining power with a choice of 14 boat builders. The bestengine maker is locked into the market leaders, whose three firmsdominate two-thirds of the oligopoly market.<br />
<br />
<span style="font-weight: bold;">Current strategy</span><br />
Thecurrent strategy is not supported by SWOT analysis, value chain orindustry evolution approaches. The SWOT analysis shows that Élan hasthe critical weaknesses of projected low profitability/liquidity/marketshare and major threats of customer loyalty to the market leaders and amature inboard runabout boat market. The value chain analysis revealsthat the primary activities of operations, outbound logistics andmarketing in Élan's current strategy are not those of a potentialmarket leader. The industry evolution approach places the inboardrunabout boat industry at the mature stage of its life cycle and Élan'shigh variable costs and large product range are not supported by thisapproach.<br />
<br />
<span style="font-weight: bold;">Growth strategy</span><br />
Agrowth strategy removes the conflicts between the objectives within thefirm's current strategy. The modified objectives support Élan's currentmission statement. The current strategy does not support Ben Favret' sgoal to be the "true market leader in profitability, quality,manufacturing cost efficiency and eventually sales", as quoted by Nairnand Strickland (2003:179). Élan's current business plan, using 20%revenue growth, would place the firm only mid-position in the 14inboard runabout boat manufacturer's market share league table in adecade's time. A growth strategy places Élan as a market leader in adecade. The fixed and variable costs within the business plan for thefirm's current strategy also do not support Ben Favret's vision. Agrowth strategy, incorporating changes to the current strategy'sprofitability and cost efficiencies, closes the gaps and re-aligns thefirm’s objectives to support the mission statement or vision.<br />
<br />
<span style="font-weight: bold;">CORPORATE STRATEGY, SCA</span><br />
<br />
Thereare three strategic groups in the inboard runabout boat industry, i.e.market leaders, U.S. National Championships qualified towboatmanufacturers, and the remaining nine firms. Élan and Infinity form thestrategic group of being U.S. National Championships qualified towboatmanufacturers but not being a market leader. Under the firm's currentstrategy, its only competitive advantage that is substantial,sustainable and supported is that it is a qualified towboatmanufacturer for the U.S. National Championships. The growth strategyremoves many of the firm's weaknesses, reduces competitor strengths andexploits competitor weaknesses. The growth strategy increases thenumber of sustainable competitive advantages to support Élan's vision,which may be expressed as,<br />
<br />
<span style="font-style: italic;">Tosupply inboard runabout boats directly to water sports enthusiastsprimarily in the Gulf Coast region, bypassing boat retailers. Élan willeventually be the market leader, through business efficiencies andsuperior customer support.</span><br />
<br />
The growth strategy supplements,<br />
<br />
SCA 1 U.S. National Championships qualified boat manufacturer (current strategy)<br />
<br />
with,<br />
<br />
SCA 2 Market leadership position<br />
SCA 3 High product quality, performance and superior customer service<br />
SCA 4 Constant innovation<br />
SCA 5 Financial stability of the company<br />
SCA 6 High manufacturing cost efficiency<br />
SCA 7 Low overheads<br />
<br />
<span style="font-weight: bold;">LONG-TERM OBJECTIVES</span><br />
<br />
Of the six new SCAs associated with the growth strategy, three are long-term and three are short-term.<br />
<br />
<span style="font-weight: bold;">SCA 2 Market leadership position</span><br />
Marketleadership provides many benefits such as; price setting (as opposed toprice taking), economies of scale, greater customer awareness andpreferential supplier terms. Ben Favret's vision is to be market leader… eventually. Élan's current business plan shows a 20% annualrevenue growth rate, inferring a market leadership position (with salesequal to MasterCraft and Malibu) about 25 years in the future. Althoughachievable, this growth exposes Élan to the penalties of being a minorplayer in the industry for a quarter-century. The growth strategyreduces this exposure to a decade by using a 60% annual revenue growthmodel. By this method, Élan have sales comparable to MasterCraft andMalibu in 2011. This assumes that the mature market size remains asthat detailed in exhibit 10 of Nairn and Strickland (2003:171).<br />
<br />
<span style="font-weight: bold;">SCA 3 High product quality, performance and superior customer service</span><br />
"Priceand quality are the most important factors in brand selection",according to Nairn and Strickland (2003:160) and Ben Favret states thatinboard runabout boat customers are currently dissatisfied withoverpriced boats that under perform from competitors who do a poor jobof servicing customers. “American Performance Marine had beenbuilding its <span style="font-style: italic;">American Skier</span>models “to the highest possible standards" since 1975, earning areputation for high quality, exceptional product performance, andcutting edge innovation", notes Nairn and Strickland (2003:178). Areputation for high product quality is a component of the growthstrategy but Ben Favret changed the company name to Élan in 2000 andcan no longer rely upon the past good quality reputation of AmericanPerformance Marine. Reputations take years to obtain, but only weeks todestroy. This long-term objective involves Élan implementing a companyquality assurance programme from marketing, sales, procurement,testing, delivery and customer service. Of particular importance areevery point in the chain where there is a customer contact e.g. boatshow marketing, factory tour, demonstration, warranty work, customercomplaint. The customer must be delighted with the service they receivefrom Élan for the firm to earn a reputation for high product andservice quality.<br />
<br />
<span style="font-weight: bold;">SCA 4 Constant innovation</span><br />
Tobecome a market leader, Élan needs to match (and even better) theinnovative reputations of the current market leaders, who useinnovation to differentiate their products, in response to customerneeds, e.g. swim platform (1972), triple fins (1984), EFl engines(1990) and specialty wakeboard boat (1997). The long-term objective isfor Élan to introduce substantial product innovations every 3 years.<br />
<br />
<span style="font-weight: bold;">SHORT-TERM OBJECTIVES</span><br />
<br />
<span style="font-weight: bold;">SCA 5 Financial stability of the company</span><br />
Thegrowth strategy relies upon Élan being financially secure in theimmediate future. The current business plan causes immediate liquidityconcerns from the start up of the company because the inventory on handcannot be converted into cash quickly. The current strategy would haveallowed the company's liquid assets to be insufficient to cover thecurrent liabilities, which are predominantly an operating loan andtrade creditors. The growth strategy needs Élan to change from being adebt-financed business to being equity financed. This could be throughemployee/owner stock ownership or stock ownership by an outsideinstitution. The market capitalization needs to be enough to providesufficient working capital to fund the 60% annual revenue expansion ofthe growth strategy.<br />
<br />
<span style="font-weight: bold;">SCA 6 High manufacturing cost efficiency</span><br />
Ahigh efficiency in the cost of manufacturing is a key objective in thegrowth strategy and is an integral part of Ben Favret's vision to bethe "true market leader in profitability, quality, manufacturing costefficiency...", as stated earlier. The manufacturing efficiency in thecurrent strategy would lead to gross margins of 29.6%, as shown inNairn and Strickland's (2003:181) income statement for the firm. Thegrowth strategy requires Élan to align with Ben's vision of highmanufacturing cost efficiency by increasing the gross margin to 40%. Avalue engineering analysis will prioritize where material costs can bereduced and labour efficiency increased with greatest impact onmanufacturing efficiency.<br />
<br />
<span style="font-weight: bold;">SCA 7 Low overheads</span><br />
BenFavret assesses the market leader as having very high overheads due toit's large production facility. Élan's growth strategy exploits thiscompetitor's disadvantage, in a mature market, especially when salesmomentarily decline - effectively increasing the fixed cost componentin the market leader's total boat cost. However, Élan's current fixedcosts are a weakness and give rise to a meagre 1% to 5% net profit. Thegrowth strategy requires this to be 10% through reductions in; officeand management payroll, sales consulting, advertising, marketing,professional fees and miscellaneous expenses.<br />
<br />
<span style="font-weight: bold;">FUNCTIONAL STRATEGIES</span><br />
<br />
The six additional SCAs, discussed above, fall into the three functional areas of Customer, Finance, and Internal.<br />
<br />
<span style="font-weight: bold;">Customer</span><br />
Acquiringand retaining customers, to build strong relationships with, isdifficult in the inboard runabout boat industry for a new entrant likeÉlan. Porter's five forces model identifies the customer as havingloyalty to the market leaders and a high bargaining power because ofthe 14 competing firms in a mature market. The rivalry amongst existingfirms is intense because the market leaders aggressively compete toattract customers to maintain their economies of scale. Élan's vision,through the growth strategy, is to supply inboard runabout boatsdirectly to water sports enthusiasts primarily in the Gulf Coastregion, bypassing boat retailers and providing superior customersupport. This customer functional strategy may, at first glance, appearincorrect as it does not incorporate the distribution and marketing keysuccess factors of the market leaders and raises the issues of regionalmarketing, direct sales and customer support. Nairn and Strickland(2003:155) identify California and Florida as having the 2nd and 3rdlargest concentration of registered boats in the U.S., inferring that amarketing campaign in this region alone has the highest potential torealize the greatest return on marketing expenditure. Nairn andStrickland (2003:160) also identify that less than 5% of boat sales areinitiated by dealerships, whereas almost 60% of sales are from boatshows. Finally, a regionally based marketing initiative ensures closeproximity of customers, who increase the potential for superiorcustomer service in this regional market segment<br />
<br />
<span style="font-weight: bold;">Finance</span><br />
Thesuccess of Élan hinges on the firm achieving a market leadershipposition within a definite time period of (say) a decade. A substantialamount of working capital is required to finance this growth becauseincreased expenditures are incurred ahead of increased revenues. Thefirm's assets are tied up in illiquid WIP and inventory (until a saleis realized), yet Élan's current strategy would rely upon debtfinancing, which gives rise to very liquid liabilities. For thisreason, the finance functional strategy (to support growth) requiresBen Favret and any other investors to relinquish a share of theirownership in return for equity financing to give liquidity to the firm.Alternatively, Ben Favret could match his enthusiasm for Élan's successwith a greater investment, thus avoiding dilution of his equity in thecompany.<br />
<br />
<span style="font-weight: bold;">Internal</span><br />
Theinternal functional strategy can be subdivided into strategies for thesub-functions of administration, customer service, engineering andproduction.<br />
<br />
<span style="font-weight: bold;">Administrative</span>expenses, according to the current business plan, erode the net incometo 1 or 5%. This provides no significant buffer to prevent Élan fromoperating at a loss and gives no retained earnings for re-investment.Management payroll, sales consulting, advertising, marketing,professional fees and miscellaneous expenses are potential items forsavings to be realized and to enable a net income of 10% to be achieved.<br />
<br />
<span style="font-weight: bold;">Customer service</span>is an area where Ben Favret says that Élan's competitors are failing. Acustomer relationship management (CRM) programme would enhance thefirm's opportunity to provide superior service by creating customerprofiles and ensuring that every customer experience with Élan is agood one.<br />
<br />
<span style="font-weight: bold;">Value engineering</span> and activity based cost analysis of the <span style="font-style: italic;">American Skier</span>model will identify those materials and design features that can bechanged to improve manufacturing efficiency. Additionally, productinnovation is an ongoing process that should result in substantiallynew and innovative design features being brought to market every threeyears.<br />
<br />
<span style="font-weight: bold;">Production</span> atÉlan gives rise to a gross margin of 29.6%. This margin doesn't give asufficient contribution to fixed costs and production techniques,labour efficiency, compensation levels need to be changed to raise thegross margin to 40%.<br />
<br />
<span style="font-weight: bold;">TASKS / ACTIVITIES</span><br />
<br />
Themost important part of the growth strategy is it's implementation.Whist the strategy may be expertly formulated, it may fail if notcorrectly implemented. Having formulated the growth strategy, setlong-term and short-term objectives and grouped them into manageablefunctional strategies, the strategy is actually executed at thetask/activity level.<br />
<br />
<span style="font-weight: bold;">PERFORMANCE MEASURES</span><br />
<br />
Measurementof how well the firm manages to implement the growth strategy can drivethe behaviour of Élan's team. Six key performance indicators arederived to measure the success of Élan in sustaining their competitiveadvantages.<br />
<br />
<span style="font-weight: bold;">Balanced scorecard position of key performance indicators</span><br />
Market leadership position - 60% annual sales growth<br />
High product quality - 1% warranty work as a percentage of sales<br />
Constant innovation - 3 years between new product release<br />
Financial stability - liquidity ratio of 1.0<br />
Manufacturing efficiency - 40% gross profit margin<br />
Low overheads - 10% net profit margin<br />
<br />
Theabove scorecard is shown with the KPls in a balanced position. However,many relationships exist between the 6 SCAs and Élan need to be carefulthat improvements in one performance are not at the expense of anotherperformance. Lower overheads can be obtained by decreased advertising,which may jeopardize the market leadership goal. Superlative qualitymay be achieved by increased direct labour hours, which would reducemanufacturing efficiency. There are many relationships between the 6sustainable competitive advantages.<br />
<br />
<span style="font-weight: bold;">REWARDS / INCENTIVES</span><br />
<br />
Acommon choice faced by all new businesses is whether to grow thecompany or not to grow the company. The basic problem with Élan'soriginal strategy is a conflict between the owner's enthusiasm/visionfor growth and the bare facts contained in the business plan, SWOTanalysis, competitive forces analysis, etc. The business plan showsinsufficient working capital for real growth and substantial operatingexpenses. The only way for a new business to be allowed tosubstantially grow is for the owners to accept growth in the marketvalue of the business at the expense of immediate personal payrollwithdrawals and for the company to be financed through equity shares.The employees of Élan may be offered alternative compensation packages,with lower payroll amounts compensated by stock options. "Onecharacteristic that distinguished Malibu from it's competitors was itsemployee stock ownership programme", states Nairn and Strickland(2003:176).<br />
<br />
<span style="font-weight: bold;">POTENTIAL BARRIERS TO IMPLEMENTATION</span><br />
<br />
Thereare two major potential barriers to implementation of the growthstrategy and these are concerned with financing the business andmanufacturing efficiency.<br />
<br />
<span style="font-weight: bold;">Financing the business</span><br />
Aspreviously discussed, the success of the growth strategy relies uponbeing able to change the way that Élan is funded, from being debtfinanced to being equity financed. To allow this to happen, and to makemarket leadership a possibility, the current owners have to relinquisha large proportion their share in the company to private individualstockholders or to a funding institution to raise the marketcapitalization required. The growth strategy is only executable if theowners are agreeable to this action. Additionally, the working capitalrequired to meet the market leadership goal is substantial and thegrowth strategy is only viable if sufficient shareholders provideenough total shareholder capital.<br />
<br />
<span style="font-weight: bold;">Manufacturing efficiency</span><br />
Nairnand Strickland (2003:178) state that American Performance Marine waspoorly managed and had high manufacturing costs. The firm had beenmanufacturing the American Skier model for 25 years, since 1975, andobviously had much know-how and the firm had travelled a long way alongthe experience curve. It's assumed that the original workforce isretained by Élan in the company purchase and, therefore, its difficultfor labour efficiency to be increased, unless fundamentally differentways of boat manufacture can be adopted, before the economies of scaleare realized. This leaves Élan with the problem of developing newmanufacturing techniques, reducing compensation or reducing materialcosts. Compared with the market leaders, Élan's material purchases arevery small and further discounts would be difficult to obtain. Difficulty in increasing manufacturing efficiency is a major potentialbarrier to implementation of the growth strategy.<br />
<br />
<span style="font-weight: bold;">REFERENCES</span><br />
<br />
Nairn, F. & Strikland, A.J. 2003, 'Élan and the competition ski boat industry', in Thompson & Strickland (Eds) <span style="font-style: italic;">Strategic Management Concepts and Cases</span>, 13th edn., New York: McGraw-Hill pp. C-153 - C-183.Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-75238864826483555712006-10-24T21:29:00.000+02:002014-06-09T09:45:19.380+02:00SWOT analysisI originally wrote this article, “SWOT analysis” in February 2004.<br />
<br />
<span style="font-weight: bold;">SUMMARY</span><br />
<br />
A
case study by Nairn and Strickland (2003) of the Élan Boat Company is
used to identify the strengths and weaknesses of the company and the
opportunities and threats within the external environment of the
company. According to Nairn and Strickland,<br />
<br />
“Ben Favret,
professional water-skier, World Champion, V.S. Champion, and Pro-Tour
champion, was resting on the dock after a slalom training run one
afternoon when a call came through on his cell phone. Jay Blossman, his
high school tennis partner and now politician, was on the other end.
Out of the blue, Jay announced to Ben that he was buying American
Skier, the competition ski boat company owned by financially troubled
American Performance Marine. Ben instantly knew that Jay had found
himself a great boat and suspected that he was getting a great deal in
buying the company, but he also realized that while Jay was an
excellent tennis player, Jay lacked the necessary insider knowledge
about building, marketing, and selling ski boats. Excited and eager to
be involved in this rare opportunity, Ben was on the next flight to New
Orleans to meet Jay and look into the situation.<br />
<br />
As Ben took the
tour of the American Performance Marine plant in Kentwood, Louisiana,
he learned that the company had recently filed for bankruptcy. Ben
concluded that with his firsthand knowledge of the waterskiing industry
and the boatbuilding capabilities that lay before him in the Kentwood
plant, he and Jay ought to be able to resurrect the ailing company.
With all the enthusiasm and high hopes of an entrepreneur entering the
industry of a sport he loves, Ben Favret dove headfirst into building
ski boats. In keeping with this excitement and attitude, Ben renamed
the company Élan Boats. The word Élan means ‘vigorous spirit and
enthusiasm‘.”<br />
<br />
The purpose of this report is to identify the
firm's key capabilities and trends within the macro environment to
develop a clear strategy for the Élan Boat Company.<br />
<br />
The Basic
Design School Model is the strategic framework for the analysis.
External and internal appraisals are carried out. Key success factors
within the external environment and the distinctive competencies of
Élan are identified.<br />
<br />
Opportunities exist for Élan if water
sports receive greater publicity and because the profitability and
customer service of the marketleaders is unsatisfactory. . The success
of the company is threatened by a declining market (which is highly
cyclical), the competition's established dealer networks, a poor
powered watercraft safety record and suppliers locked into the industry
leaders.<br />
<br />
Élan's strengths are it's brand names of 'American
Skier' and 'Ben Favret'. The company's weaknesses are its projected
profitability and liquidity.<br />
<br />
The seven conclusions and recommendations of this report are:<br />
<br />
(1)
Consider changing the position of the new plant, in 2004, from
Covington to a location within the Great Lakes area, where demand is
highest.<br />
<br />
(2) Investigate rationalization of the company's
product range with a view to reducing the product line from eight to
one, two or three variants.<br />
<br />
(3) Raise manufacturing efficiency
and lower overhead costs to increase gross margins from 30% to 40% and
net profit from between 1% and 5% to 10%.<br />
<br />
(4) Increase the liquidity of the company to allow for depressed sales until an economic upturn in the U.S. economy.<br />
<br />
(5) Reconsider the company's distribution channel philosophy of selling directly to customers without a dealer network.<br />
<br />
(6)
Develop a close supplier relationship with a top engine manufacturer
who has both good performance and customer service records.<br />
<br />
(7) Continue to associate Élan with safety, and actively promote activities which improve the safety of Élan's customers.<br />
<br />
<span style="font-weight: bold;">STRATEGIC FRAMEWORK</span><br />
<br />
There
are many schools of strategic management thought and they can be
grouped as being either Prescriptive or Descriptive. Within the
Prescriptive Group are the Design School, Planning School and
Positioning School. Mintzberg (1990:112) illustrates the Design
School Model, and (applied to Élan Boats) it can be described as having
eleven<br />
components, and these are briefly described below.<br />
<br />
<span style="font-weight: bold;">External appraisal</span><br />
An
examination of the external elements will influence Élan's strategy
options. This involves investigating customers, competitors, market and
the environment. Where the environment is political, economic, society,
technology and ecology considerations.<br />
<br />
<span style="font-weight: bold;">Threats and opportunities in the environment</span><br />
The
external appraisal will reveal the opportunities that Élan can exploit
and the threats it faces. Opportunities can be regarded as positive
trends and threats are negative trends.<br />
<br />
<span style="font-weight: bold;">Key success factors</span><br />
Key
success factors are competitive assets or competences that Élan need to
compete successfully in the power boat industry. An absence of
strategic necessities would be a<br />
weakness and possession of strategic strengths will give advantage to Élan.<br />
<br />
<span style="font-weight: bold;">Internal appraisal</span><br />
An
examination of Élan's employees' skills, resources, innovations and
financial position will disclose how the company may be constrained by
it's capabilities and resources.<br />
<br />
<span style="font-weight: bold;">Strengths and weaknesses of the organization</span><br />
Any
activities that Élan does well will be identified as strengths from the
internal appraisal. Any lack of resources or activities that Élan does
not do well will be identified as weaknesses.<br />
<br />
<span style="font-weight: bold;">Distinctive competencies or assets</span><br />
Distinctive
competencies are the activities that Élan does exceptionally well. It's
strategic assets are brand names or customer base that is strong,
relative to Élan's competitors.<br />
<br />
<span style="font-weight: bold;">Social responsibility</span><br />
Social
responsibility is Élan's obligation, beyond that required by the law
and economics, to pursue long-term goals that are good for society.<br />
<br />
<span style="font-weight: bold;">Managerial values</span><br />
These
describe how the company's managers establish, promote and practice
Élan's values. The building of team spirit, influencing marketing
efforts, shaping of employee behaviour and guidance for managerial
decisions and actions are examples of the main purposes of managerial
values.<br />
<br />
<span style="font-weight: bold;">Creation of strategy</span><br />
Strategic
alternative strategies need to be developed for Élan Boat Company for
evaluation. These strategies should take advantage of environmental
opportunities and exploit the company's strengths.<br />
<br />
<span style="font-weight: bold;">Evaluation and choice of strategy</span><br />
Some
of the criteria used for selection of a strategy from alternatives are
scenario consideration, sustainable competitive advantage pursuit,
organizational vision and objectives consistency, feasibility and their
relationship to the other strategies of Élan.<br />
<br />
<span style="font-weight: bold;">Implementation of strategy</span><br />
For Élan to succeed, the chosen strategy must be implemented and this involves<br />
converting strategic alternatives into an operating plan.<br />
<br />
<span style="font-weight: bold;">KEY ISSUES</span><br />
<br />
<span style="font-weight: bold;">Current strategy</span><br />
According
to Nairn and Strickland (2003: 178), Favret and Blossman have the
following mission statement for the new company, Élan:<br />
<br />
"The
mission of Élan Boats is to be hyper efficient in the manufacturing and
marketing of Inboard Runabout Boats for recreational and competitive
water sports enthusiasts. Élan Boats is dedicated to building long-term
relationships with customers through superior training and customer
support. We will do business consistent with the definition of the
company's name. Élan - vigorous spirit of enthusiasm. Synonyms: Style,
Confidence, Flair, Elegance, Flamboyance."<br />
<br />
Additionally, Ben
believes that an offensive attack on the major competitors is the best
option and that Élan was "gunning for, and will take down MasterCraft,
Correct Craft and Malibu". Nairn and Strickland (2003:179) quote Ben as
wanting Élan to be the "true market leader in profitability, quality,
manufacturing cost efficiency and, eventually sales."<br />
<br />
<span style="font-weight: bold;">Identification of Key Success Factors</span><br />
A
cost advantage, through cost efficiency, would be a strategic strength
to any power boat manufacturer and Nairn and Strickland (2003:179)
state that none of the industry leaders were particularly
cost-efficient. A boat builder who was superior at servicing their
customers would also have a strategic strength. A strategic
necessity is effective promotion.<br />
<br />
<span style="font-weight: bold;">Current performance assessment</span><br />
Nairn
and Strickland (2003:180) report that, as of 2000, Élan Boats had 30
clients. According to the FAQ page of Élan's website, the company has
spent thousands of hours and dollars reconditioning their moulds,
updating their facility and equipment. The FAQ page also quotes Ben
Favret as saying, "getting boats built for factory demos and dealer
sales was our first problem. We had to fully hire, train and manage an
entirely new production team. That combined with dealing with vendors
who were sceptical slowed us down this year. Our production was backed
up through August and now we have caught up. That hurt because we could
not make a strong sales effort this summer. Our Team Élan members have
been very helpful in working with us to do demos and let other people
experience our boats."<br />
<br />
<span style="font-weight: bold;">Financial review</span><br />
Naim
and Strickland (2003:179) quote Ben Favret as saying that he wanted
Élan to be "the true market leader in profitability and manufacturing
cost efficiency". Élan needs gross margins and net margins (after tax)
in excess of 40 percent and 10 percent respectively, to achieve this.
Acceptable liquidity is also required.<br />
<br />
<span style="font-weight: bold;">Industry stage and trends</span><br />
The
current stage of the power boat industry in it's half-century history
and current trends amongst the 17 manufacturers will influence Élan's
chances of success.<br />
<br />
<span style="font-weight: bold;">Market trends and segmentation</span><br />
If the market is expanding and demand within Élan's targeted segment is buoyant then this would be favourable to the company.<br />
<br />
<span style="font-weight: bold;">Customer preferences</span><br />
Élan
and some of it's competitors have boat model features that are designed
to cater for customer preferences for wake form and control. However,
customer preferences are<br />
not fixed and change over time.<br />
<br />
<span style="font-weight: bold;">Value chain</span><br />
Nairn
and Strickland (2003:179) report that "Élan planned to bypass boat
retailers and sell directly to the end user". However, this strategy
appears to have changed as the FAQ page of Élan's website, states that
Élan are making their first run at setting up their dealer network now
and completing the few remaining Team Élan openings.<br />
<br style="font-weight: bold;" />
<span style="font-weight: bold;">HCA (Human Capital Assessment)</span><br />
Ben
Favret did not purchase American Performance Marine as a going concern
and, therefore, did not acquire any human capital with the purchase.
Nairn and Strickland (2003:178) note Ben’s thoughts that, because of
his own connections in the industry, [he had] the ability to recruit
top talent in manufacturing, sales, and marketing". This he
subsequently did and the FAQ page states that he recruited; a general
manager with 22 years expertise (Mary Travis), a sales and development
manager with 17 years experience (Darren Landry), and a top fibreglass
consultant (Rick Delone).<br />
<br />
<span style="font-weight: bold;">Distinctive competencies</span><br />
Élan's distinctive competencies are mainly strategic assets as, when the case study was<br />
written,
the company had only been trading for 10 months. These strategic assets
include the 'American Skier' and 'Ben Favret' brand names.<br />
<br />
<span style="font-weight: bold;">Competitor analysis</span><br />
An analysis of competitors such as Mastercraft, Classic Craft, Malibu and Infinity will reveal their strengths and weaknesses.<br />
<br />
<span style="font-weight: bold;">ANALYSIS</span><br />
<br />
A
situation analysis is made using the external and internal analyses of
Mintzberg's Design School Model. Condensed opportunities, threats,
strengths and weaknesses are described.<br />
<br />
<span style="font-weight: bold;">Opportunities</span><br />
<br />
<span style="font-weight: bold;">Customer</span><br />
(a) World Games include waterskiing and wakeboarding.<br />
(b) ESPN X-Games and the Gravity Games include wakeboarding.<br />
(c) Gravity Games drew 370,000 spectators and high TV ratings.<br />
(d) New Cable Parks are a way to introduce potential new boat buyers.<br />
(e) Gulf Coast customers targeted in Texas, Louisiana, Mississippi, Alabama.<br />
(f) Better service, delivery, sales force efficiency with regional advertising.<br />
(g) Élan plans to sell directly to the end user, bypassing boat retailers.<br />
(h) Under marketed competition ski boat segment to be targeted.<br />
(i) "Free week of ski school" to be offered to water skiers and wakeboarders.<br />
(j) Élan had 30 customers in 2000 and projected 50, 60, 72 in '01, '02 '03.<br />
<br />
<span style="font-weight: bold;">Competitors</span><br />
(a) MasterCraft has high overheads due to large facility, marketing, etc.<br />
(b) Correct Craft sales fell 17.2% in 2000 due to poor marketing, competition.<br />
(c) None of the industry leaders are particularly cost efficient.<br />
(d) Leaders vulnerable to unhappy buyers, sliding profits, excess capacity.<br />
(e) Ben wants Élan as market leader in profitability, quality, cost and sales.<br />
(f) Élan will achieve cost advantage by revamping it's activity cost chain.<br />
(g) Élan aim to offer a better boat than the competition at a lower price.<br />
(h) Competitive offensive aimed at rivals who service customers poorly.<br />
(i) Objective to win disenchanted customers with service oriented company.<br />
<br />
<span style="font-weight: bold;">Market</span><br />
(a) U. S. is largest boating I water skiing nation in the world.<br />
(b) Estimated that waterskiing interest will double if it becomes Olympic event.<br />
(c) Boating industry held approximately 200 boat shows annually across U.S.<br />
<br />
<span style="font-weight: bold;">Environment</span><br />
(a) International Water Ski Federation lobbying IOC hard.<br />
(b) Cruise control and driver videotaping have allayed IOC's concerns.<br />
(c) Waterskiing came very close to being included in the 2004 Athens Games.<br />
(d) IWSF is now focusing it's sights on the 2008 Games in Beijing.<br />
(e) Ben anticipates investing in a new facility in Covington Industrial Park.<br />
(f) Team Élan launched to get qualification for Regional and National events.<br />
<br />
<span style="font-weight: bold;">Threats</span><br />
<br />
<span style="font-weight: bold;">Customer</span><br />
(a) A 2001 sales decline would mean fewer people trading up in 2002 to 2005.<br />
(b) Excessive customer dissatisfaction with overpriced/underperforming boats.<br />
<br />
<span style="font-weight: bold;">Competitors</span><br />
(a) Technology and innovation accelerate in economic downturns.<br />
(b) MasterCraft has exclusive Gravity Games towboat provider 3 yr. contract.<br />
(c) Indmar has exclusive customization program with MasterCraft and Malibu.<br />
(d) Indmar has private label with MasterCraft for electronic fuel ignition.<br />
(e) Indmar has considerable name recognition and brand awareness.<br />
(f) Indmar is visble at grassroots waterskiing competitions.<br />
(g) Customer loyalty to MasterCraft, Malibu and Correct Craft is entry barrier.<br />
(h) Three industry leaders have large dealer networks and scale economies.<br />
(i) Three industry leaders have greater supplier bargaining power.<br />
<br />
<span style="font-weight: bold;">Market</span><br />
(a) Waterskiing participation fell 18°J'o from 7.2 M in 1998 to 5.9 M in 2000.<br />
(b) Motor boating and waterskiing are ranked 13th and 40th for participation.<br />
(c) Boating industry suffers during periods of economic decline.<br />
(d) Decline in recreational boater numbers accelerated in 2001.<br />
(e) PWC sales fell 54°J'o from 200,000 in 1995 to 92,000 in 2001.<br />
<br />
<span style="font-weight: bold;">Environment</span><br />
(a) Spare money is not used for boat-related expenses during recessions.<br />
(b) Income restrained households will depress prices if opting out of boating.<br />
(c) Waterskiing as an Olympic sport has been delayed over driver concerns.<br />
(d) PWCs had a bad reputation with boaters & law enforcers from rowdiness.<br />
(e) There were 83 fatalities associated with PWCs in 1997.<br />
(f) There were 506 deaths and more than 11,000 injured in the last decade.<br />
(g) PWC injuries are six times greater than motor boat injuries.<br />
(h) Blunt trauma is the leading cause of PWC related deaths.<br />
(i) Many new regulations are imposed on PWC use because of bad record.<br />
<br />
<span style="font-weight: bold;">Strengths</span><br />
<br />
<span style="font-weight: bold;">Brand/firm association</span><br />
(a) Ben knew Jay had found a great boat and a great deal in buying company.<br />
(b) Company had been building to highest possible standards since 1975.<br />
(c) Company had earned a reputation for quality, product perf. and innovation.<br />
<br />
<span style="font-weight: bold;">Relative cost</span><br />
(a) Company purchased at low price, giving low overheads and no debts.<br />
(b) Élan Boat company was started with a low capital expenditure.<br />
(c) Inherited R&D, shaping and mold design can cost in excess of $400,000.<br />
<br />
<span style="font-weight: bold;">Innovation</span><br />
(a) American Skier is over 600 Ibs. lighter than any other boat on the water.<br />
<br />
<span style="font-weight: bold;">Management capability</span><br />
(a) Ben Favret is excited and eager to be involved in this rare opportunity.<br />
(b) Ben Favret has first hand knowledge of the waterskiing industry.<br />
(c) The Kentwood plant is already constructed with boatbuilding facilities.<br />
(d) Ben has entrepreneur enthusiasm entering industry of the sport he loves.<br />
(e) Ben renamed the company Élan, meaning vigorous spirit and enthusiasm.<br />
(f) Ben is a professional water skier and World, US, and Pro-Tour Champion.<br />
(g) Jay Blossman is a politician and high school tennis partner of Ben Favret.<br />
(h) Ben has the ability to recruit top talent in manufacturing, sales, marketing.<br />
(i) Ben will make history as the first professional skier to buy a boat company.<br />
(j) Élan's facility in Kentwood had capacity for 150 units a year.<br />
<br />
<span style="font-weight: bold;">Weaknesses</span><br />
<br />
<span style="font-weight: bold;">Profitability</span><br />
(a) Projected 1 % I 5°k after tax net income contradicts Élan's profitability goal.<br />
(b) Projected 29.5% gross margin conflicts with Élan's profitability goal.<br />
(c) Projected current ratios of 1.5, 1.7,2.1 give liquidity concerns.<br />
(d) Projected acid test ratios of 0.6/ 0.66 for 2002/2003 cause for concern.<br />
(e) Diminishing cash flow from operations too low to cover current liabilities.<br />
<br />
<span style="font-weight: bold;">Brand/firm association</span><br />
(a) American Marine had been unfocused, poorly managed, undercapitalized.<br />
(b) American Skier plant closed it's doors in Jan '01 and filed for bankruptcy.<br />
(c) American Skier had high debt, high production costs, poor management.<br />
(d) Élan prevented from strong sales effort because of backlogof work.<br />
<br style="font-weight: bold;" />
<span style="font-weight: bold;">Management capability</span><br />
(a) Jay Blossman lacks necessary insider knowledge about ski boat industry.<br />
(b) Ben Favret fully hired, trained and managed entirely new production team.<br />
<br style="font-weight: bold;" />
<span style="font-weight: bold;">Critical issues</span><br />
The critical issues for the Élan Boat Company are:<br />
(1) Long-term demand for personal watercraft is declining.<br />
(2) American Skier and Ben Favret brand names are Élan's strategic assets.<br />
(3) Élan's profitability and liquidity are cause for concern.<br />
(4) The personal watercraft industry performance is highly cyclical.<br />
(5) Competitors have established dealer networks.<br />
(6) Suppliers have exclusive agreements with competitors.<br />
(7) Poor safety and a bad user reputation influence PWC demand.<br />
<br />
<span style="font-weight: bold;">CONCLUSIONS AND RECOMMENDATIONS</span><br />
<br />
Élan
Boat Company is operating in the U.S. PWC market that has been
contracting since 1996. The Kentwood plant is not located within the
highest demand area of this market. If the plant is to be relocated in
2004, as stated by Nairn and Strickland (2003:180), then a location
within the Great Lakes area should be considered.<br />
<br />
'American
Skier' is the brand name that end-users recognize. It is doubtful as to
whether Élan Boat Company benefits from having three varieties of this
model and five more boat varieties in the Volante and Eagle ranges. The
design, tooling, set-up and material costs for these eight product
variations should be analyzed. This may reveal that Élan's product line
should be reduced to between one, two or three product varieties.<br />
<br />
Élan's
profitability is at variance with it's mission statement and Ben's goal
to be the "true market leader in profitability…” is not reflected in
projected gross margins of 29.5% and net margins (after tax) of 1 % to
5%. These figures need to be a minimum of 40% and 10% respectively.
This could be achieved by increasing manufacturing efficiency and
reducing overheads. Élan's projected assets may cause liquidity
problems as most are in the form of inventory and the cash flow from
operations does not cover current liabilities. Inventory levels
and the amount of working capital should be investigated.<br />
<br />
The
demand for personal water crafts, as luxury goods, is reduced when the
U.S. economy is on the downside of the economic cycle. This means that
Élan should have sufficient financial reserves to support the company
until the economic upturn, and they should look at the sensitivity of
Élan's finances to reduced sales during this period.<br />
<br />
Nairn and
Strickland (2003:179) state that "Élan planned to bypass boat retailers
and sell directly to the end user." This would be done through
advertising. Dealers are used to sell personal watercrafts
because it is the type of product that potential customers prefer to
see in reality so that they can touch it, sit in it and walk around
it. It is recommended that Élan should re-appraise their
distribution channel strategy.<br />
<br />
Indmar is the most popular engine
and this supplier, naturally, has created close relationships with the
market leaders. As Élan had less than 1/<sub>6</sub>% of
the competition ski boat market in the second quarter of 2001,
according to Nairn and Strickland (2003:171), it is possible that the
market leaders may not regard Élan as a serious threat and a supplier
relationship between Élan and Indmar may be possible.<br />
<br />
The poor
historical safety associated with personal watercraft use influences
sales. Élan promote safety on their main web page and offer ski
schools. This is a good strategy and it is recommended that this should
be built upon.<br />
<br />
<span style="font-weight: bold;">REFERENCES</span><br />
<br />
'Frequently asked questions', <span style="font-style: italic;">Élan Boat Company</span>. Retrieved: from http://www.elanboats .com/elanfaq.htm.<br />
<br />
Mintzberg, H. 1990, ‘Strategy Formation - Schools of Thought', in J.W. Frederickson (ed) <span style="font-style: italic;">Perspectives on Strategic Management</span>, Harper Business, New York.<br />
<br />
Nairn, F. & Strickland, A.J. 2003, 'Élan and the competition ski boat industry', in Thompson & Strickland (Eds) <span style="font-style: italic;">Strategic Management Concepts and Cases</span>, 13th edn, New York: McGraw-Hill pp. C-153 - C-183.Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-28666832701974346812006-10-15T12:20:00.000+02:002014-06-09T09:45:38.479+02:00Managerial control<br />
I originally wrote this article, “Managerial control” in July 2003.<br />
<br />
A group of my friends have what you believe to be the opportunity of a lifetime.<br />
<br />
They
graduate this year and the father of one of my friends has asked two of
them if they would like to buy the air-conditioning business he founded
and operated for thirty years. It has been a very lucrative business
for him; today he is a millionaire several times over. They are aware
his firm is the leader in its field in their area and they see the
possibility of expanding because many new homes are being built locally.<br />
<br />
My
friend's father will finance the buyout through a loan, to be paid off
over the next ten years. Both of my friends have some degree of
expertise in the heating and air-conditioning field since they have
both worked for my friend’s father during university vacation
times. My friend’s father has also agreed to be a consultant to
the two of them for the first year or so if they need his advice.<br />
<br />
The
business has almost 60 well-qualified employees, a large inventory, 40
service trucks in excellent condition and a well established list of
clients. At the same time the return on investment has been lower than
average for the past three years, labour costs are very high, and the
company has attracted only a few new clients during the past two years.
In addition they have some indication that the firm is not carrying the
most up-to-date heating or air conditioning equipment and the four
large structures used to house showrooms and service centres are in
need of refurbishment.<br />
<br />
My friends are discussing the possibility
of buying the firm. In considering the situation I reviewed the control
forms and processes that I would use to ensure effective control over
the operation.<br />
<br />
I outlined the control issues and potential
problems that I considered relevant to this case. I recommended
control processes to be put into place to ensure the continued success
of the business. Using my knowledge of the concepts and
classification of controls, I applied these concepts of control to
their particular situation.<br />
<br />
The proposed purchase, by my
friends, of the air-conditioning business raises many issues that are
discussed. I've identified ten potential problems with the acquisition.
Half of the potential problems are controllable and I propose four
control process models to reduce the risk of business
failure. <br />
<br />
<span style="font-weight: bold;">Issues</span><br />
<br />
Organizational
control of the air-conditioning business is required if my friends are
to be successful in this venture. Daft (2003, p. 654) defines
organizational control as the 'systematic process through which
managers regulate organizational activities to make them consistent
with expectations established in plans, targets and standards of
performance.' The importance of control is evidenced by the fact that
it is one of the four basic management functions - planning,
organizing, leading, controlling, as explained by Robbins, Bergman,
Stagg and Coulter (2003). Controlling is required throughout the depth
of the organization (strategic, tactical and operational) and the
breadth of the organization (financial, operations, information and
people).<br />
<br />
As part of the control process, they need systems to
measure and compare actual performance. This will allow them to take
corrective action if performance deviations are found. They should only
control processes which will contribute to the success of their
business. One method of selecting these particular processes is by
resource-dependency, as described by Bartol (1997). The standards of
the existing air-conditioning business need to be reviewed, amended and
supplemented, where necessary.<br />
<br />
Having established which of the
business process performances are to be measured, my friends need to
determine if measurement is to be through observation or reporting,
i.e. statistical, oral or written. If they find deviations in
performance against their standards then they may; take action to
change the performance, alter the standard or they may choose to take
no action. Depending on the business process, they should use feedback,
feed-forward, concurrent control or a combination to match the
application. Additionally, the results may be simply mechanically
processed or may require subjective judgment.<br />
<br />
Up to four
managerial approaches to implementing controls are described by various
authors. All sources include bureaucratic and clan (decentralized)
control. Robbins, Bergman, Stagg and Coulter (2003, p. 558) add a third
approach, described as 'market control', which uses external market
mechanisms to establish standards in the system. Mullins (2002, p. 774)
further identifies a fourth approach which he labels personal
centralized control. This approach is found in small owner-managed
organizations where decision-making and initiative are centralized
around aleadership figure.<br />
<br />
My friends need to study the
managerial control style used by my friend's father. They should
determine if this style is most appropriate to the operations and to
the new leadership. Existing control systems and new control systems
should be assessed to ensure that they have the right qualities. They
also need to consider how the control systems could be misused,
manipulated or be negatively viewed.<br />
<br />
<span style="font-weight: bold;">Ten potential problems</span><br />
<br />
I’ve
identified ten potential problems with the management of the
air-conditioning business. The first five problems do not lend
themselves readily to the application of control processes and they
are; their inexperience, business purchase price evaluation, role of
the current owner, financial loan terms and nepotism. The remaining
five potential problems may be monitored through control processes and
they are; inventory turnover, asset turnover, return on investment,
profit margin and sales growth.<br />
<br />
My friends have some experience
in the heating and air-conditioning field, since they both worked for
my friend's father during university vacation times. Whilst there are
advantages of an early entry strategy into the business, Hodgetts and
Kuratko (2001, p. 61) identify a disadvantage that normal mistakes tend
to be viewed as incompetence in the successor. The problem centres
around the ability of them to gain credibility with the firm's sixty
existing employees. This is in contrast to a delayed entry strategy
which would involve my friends in gaining experience outside of the
business, prior to takeover. This would have the advantages of;
self-confidence development outside the firm, credibility and
acceptance through outside successes and a broader business perspective.<br />
<br />
Establishing
a mutually agreeable and fair purchase price with my friend's father
for the air conditioning business is a potential problem. Assuming that
all of the current personnel will remain, the major concerns are the
inventory condition, state of other assets and quantifying the
contribution of goodwill. The inventory is large and I have noticed
that the firm is not carrying the most up-to-date heating or
air-conditioning equipment. Storage costs for this equipment need to be
considered and if the products are obsolete then they contribute
minimal or no value in the inventory portion of the purchase price. The
four large structures used to house showrooms and service centres are
in need of refurbishment. The condition of these assets attracts
significant maintenance expenditure, required within the immediate
future of operating the new business, and this cost needs to be
factored into the price. Quantifying the goodwill contribution to the
purchase price is complicated by the fact that the company has
attracted only a few new clients during the past two years.<br />
<br />
My
friend's father has agreed to be a consultant to my friends for the
first year or so, if they need his advice. Despite the obvious
advantages of such an arrangement, there are potential problems.
Although my friends will be the owners of the new business, the
presence of my friend's father could lead to management conflicts when
the sixty existing employees naturally still see him as still being in
control of the business. This situation could be further complicated if
my friend's father previously used a personal centralized control
technique. As company founder, with thirty years of experience, it
would not be possible for my friends to emulate his previous style.<br />
<br />
The
terms of the financial loan need to be thoroughly investigated. Whilst
the interest rate could be readily agreed upon, there are other factors
of great importance to be formalized. The payment frequency, principal
and interest apportioning, payment default definition, contractual
terms and security all need to be negotiated.<br />
<br />
Nepotism between my friends and my friend’s father is a delicate issue and a potential problem one friend.<br />
<br />
As
stated previously, the firm has a large amount of stock, due to low
inventory turnover, and is not carrying the most up-to-date heating or
air-conditioning equipment. The obsolete inventory is a burden,
incurring storage costs, and reflects badly in the financial ratios of
the business - if it is not already written off. They may inherit this
stock if my friend's father insists on compensation for it within the
business purchase price.<br />
<br />
The four large structures used to house
showrooms and service centres are in need of refurbishment. It's
possible that this is a result of poor building maintenance planning.
Alternatively, short-term cost savings may have been sought by avoiding
building maintenance.<br />
<br />
Return on investment for the business has
been lower than average for the past three years. Labour costs are very
high and the firm uses forty service trucks.<br />
<br />
The final two
potential problems are associated with the fact that the company has
attracted only a few new clients during the past two years. If sales
revenues are flat or declining then the ability to retain the sixty
well-qualified employees, who incur very high labour costs, is in
question if the profit margin on sales is to be an acceptable value.
Additionally, a certain level of sales are required to achieve total
asset turnover to compensate for the forty service trucks and the four
large structures used to house showrooms and service centres.<br />
<br />
<span style="font-weight: bold;">Four control processes</span><br />
<br />
Four
processes should be implemented to control the latter five potential
problems. The first two processes have the objective of testing the
operations and they control inventory turnover and total asset
turnover. The remaining two processes have the objective of monitoring
profitability and they are profit margin and return on investment. The
model of Robbins, Bergman, Stagg and Coulter (2003, p.567) is used to
explain the four control processes.<br />
<br />
<span style="font-weight: bold;">Inventory turnover control process</span><br />
<br />
The
inventory turnover control process model is designed to make sure that
all warehoused inventory is saleable. This is accomplished by setting
an acceptable standard average time period, measured monthly, for all
inventory. The average time assumes a standard deviation and may be
adjusted so that all inventory remains within their technically and
commercially useful life. Price reductions, writing off and scrapping
are possible courses of action for obsolete items. The acceptance
criteria may be increased if newer models are slower to reach the
market and if shelf life permits.<br />
<br />
<span style="font-weight: bold;">Total asset turnover control process</span><br />
<br />
Robbins,
Bergman, Stagg and Coulter (2003, p. 623) identify that 'the fewer
assets used to achieve a given level of sales, the more efficiently
management is using the organization's total assets'. The main assets
of the air-conditioning business are the four large structures used to
house showrooms, service centres and the forty service trucks in
excellent condition. If the total asset turnover ratio falls below an
acceptance criteria then asset re-financing or disposal should be
carried out.<br />
<br />
<span style="font-weight: bold;">Profit margin on sales control process</span><br />
<br />
I
initially estimate that the overall gross profit for the air
conditioning business should be 40 percent and that the net profit
margin should be 7 percent. If the profit margin on sales ratio falls
below this standard then they should attempt to increase sales through
increased promotion and advertising. Additionally, they may reduce
business costs for either labour, materials or overheads.<br />
<br />
<span style="font-weight: bold;">Return on investment control process</span><br />
<br />
I
noticed that the return on investment for my friend's father's business
has been lower than average for the past three years. They need
to establish the cause for this and to remedy the situation. I
propose that they set a standard for their return on investment,
identify the cause for any under performance and take action to correct
the performance. The control process model shows that they should
reduce labour, material or overhead costs if the acceptance criteria is
not met for the month. Additionally, the total asset costs should be
reduced through re-financing or disposal.<br />
<br />
<span style="font-weight: bold;">List of references</span><br />
<br />
Bartol, K.M., Martin, D.C., Tein, M. & Matthews, G. 1997, <span style="font-style: italic;">Management: A Pacific Rim Focus</span>, 2nd edn, Sydney: McGraw-HiII pp.6SS-6S8<br />
<br />
Daft, R.L. 2003, <span style="font-style: italic;">Management</span>, South-Western, Mason, Ohio, U.S.<br />
<br />
Hodgetts, R.M. & Kuratko, D.F. 2001, <span style="font-style: italic;">Effective Small Business Management</span>, Harcourt College Publishers, Orlando, Florida, U.S.<br />
<br />
Mullins, L.J. 2002, <span style="font-style: italic;">Management and Organizational Behaviour</span>, Pearson, U.K.<br />
<br />
Robbins, S.P., Bergman, R., Stagg, I. & Coulter, M. 2003, <span style="font-style: italic;">Management</span>, Pearson, Australia.
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-48223974559066071062006-10-11T23:33:00.000+02:002014-06-09T09:54:50.230+02:00Virtual team working<br />
I originally wrote this article, “Virtual team working” in June 2003.<br />
<br />
Robbins
et al (2003, p.4) define an organisation as being "a deliberate
arrangement of people to accomplish some specific purpose." If the
people working together within the organisation are separated by
distance and/or time then the organisation type can be described as
being 'virtual’. It is uncommon to find a fully virtual
organisation. Virtual teams however, operating within an
organisation, are commonplace and their growth in numbers raises many
management issues.<br />
<br />
<span style="font-weight: bold;">Organisation</span><br />
<br />
The
virtual workplace has the potential to allow team members to be more
effective by matching work times to when people are likely to be at
their best. Greater efficiency can be realized by removing time wasted
commuting to, and from, a traditional workplace.<br />
<br />
Mintzberg's
interpersonal, informational and decisional management roles within the
virtual workplace may be very different to that of a traditional
organisation. Anderson and Shane (2002) report that some virtual teams
use shared leadership. They also suggest that having only one team
leader can slow decision making. Knowledge management, as an
informational role, is a key component of management in virtual
organisations according to Witzel (2002).<br />
<br />
When evaluating the
technical, interpersonal and conceptual skills required for a
successful virtual team, Adres (2002) quotes various researchers as
stating that interpersonal skills are most important. This is because
the lack of physical proximity between team members reduces the number
of communication channels available and can lead to an increase in
'noise'.<br />
<br />
It could be argued that contributions from Peters
(1992) could be considered as worthy of being added to the works of
recognized general administrative theorists like Henri Fayol and Max
Weber in predicting that "information networks will be decisive to
relative future competitiveness”. However, no, universally
accepted approach is yet available for the management of the virtual
workplace.<br />
<br />
Taylor (2001) describes the challenges faced by
labour unions in coping with fragmented labour markets in virtual
workplaces and introduces the concept of 'e-picketing' by virtual
workers as a new form of protest.<br />
<br />
Globalisation is seen by Hagen
(1999) and many other authors as being a major force in the rise of
numbers of virtual workplaces. Workforce diversity is created by
the employment of minorities and mobility-impaired people who may
otherwise experience difficulties in being accepted by certain
traditional organisations. Additional diversity is provided by the fact
that people of different countries, nationalities, religion or culture
may be part of the same virtual team.<br />
<br />
There are certain
dimensions of the successful virtual organisational culture that have
common characteristics. High team orientation, low aggressiveness and
high innovation and risk taking are important. Conner (2003)
suggests that organisations will no doubt have to foster proactive
employee behaviour in terms of selection, socialization and policies
that encourage individual initiative.<br />
<br />
<span style="font-weight: bold;">External and internal environments</span><br />
<br />
The
interface between the external environment and a virtual organisation
can be quite different from that of a traditional organisation. Many
virtual organisations extensively utilize outsourcing, strategic
alliances and similar partnerships to realize their goals, according to
Fitzpatrick and Burke (2001). Walters and Buchanan (2001) believe
that more cooperation among competitors, suppliers and customers makes
it harder to determine where one company ends and another begins.<br />
<br />
The
proportion of U.S. workers employed in manufacturing has halved in the
last thirty years and Konrad and Deckop (2001) attribute this decline
to globalization. Virtual teams are a natural choice for
geocentric organisations that break down the barriers of time, distance
and national borders to execute projects.<br />
<br />
<span style="font-weight: bold;">Social responsibility and ethics</span><br />
<br />
The
classical view that management's only social responsibility is to
maximize profits is exemplified by the virtual organisation, according
to Conner (2003), who states that [virtual] "organisations are cutting
cost and streamlining operations by reducing or eliminating the need
for facilities, levels of management and work sites. This contrasts
with the socioeconomic view of Businessline (2002), which argues that
virtual organisations offer flexible working practices to
mobility-impaired talent, women and minorities.<br />
<br />
A consideration
of ethics within the virtual workplace raises the issues of collective
bargaining, communication, security and trust. <br />
<br />
Williams
(2002) claims that outsourcing of workers affects wage bargaining and
quotes Young as stating that, 'in outsourced businesses, the most
important flexibility is that of employees in accepting lower wages and
intensified work.' However, Taylor (2001) has an interesting
notion that the web enables unions to communicate directly with workers
in their homes, thus bypassing the employer.<br />
<br />
A lack of courtesy
may be experienced within the virtual workplace due to the use of
e-mail over face-to-face communication. This may lead to
assertive and hostile language as reported by Andres (2002) from
research carried out by Siegel. Although e-mail has the
convenience and casualness of conversation, it is a written record and
the contents of some messages can be regretted at a later date.<br />
<br />
The
dispersed team members within the virtual workplace rely upon internet,
satellite and telephone networks for communication and this gives rise
to potential security problems. 'In the Net economy,
organisations are forced to strike a delicate balance between
accelerating their transformation to e-Business while still securing
their networks and data. This balance is driving the rapid
adoption of security services, a market which analyst firm IDC expects
to reach US$21 billion by 2005', according to M2 Presswire (2001).<br />
<br />
Staples
(2001) has tested four hypotheses dealing with the role of trust in
remote work. He suggests that trust between the manager and employee is
an important factor for making remote work effective. His research
found that four hypotheses<br />
relating to trust were supported, and
these were that higher levels of trust between the manager and employee
will be associated with:<br />
<br />
<ul>
<li>more positive perceptions of self-performance</li>
<li>higher levels of job satisfaction</li>
<li>more frequent communication</li>
<li>lower levels of job stress</li>
</ul>
<br />
Additionally,
Anderson and Shane (2002) recognize that trust among the virtual team
members is very important and they need to be confident in each other’s
competency.<br />
<br />
<span style="font-weight: bold;">Decision making</span><br />
<br />
Two
aspects of the managerial decision making process have prominence
within the virtual workplace. They are the availability of information
and the empowerment of individual virtual team members.<br />
<br />
Koch
(2000) describes a decision support environment known as the
'management cockpit', which is an advanced information system. It's a
special meeting room with walls covered with screensdisplaying data on
internal and external processes. The vision is to control an entire
organisation with one hand and this concept is already being used by
companies such as ISS Europe, Citibank, Groupe Oburg and La Suisse
Assurance. This type of organisational hub is also described by
Fitzpatrick and Burke (2001), who state that it performs all the
functions needed to maintain their core competitive competencies and
coordinate the work process as it flows or is transmitted from one
subcontractor to another within the virtual organisation.<br />
<br />
The
sharing of relevant information from management amongst virtual team
members will become increasingly expected. Decentralised, and a higher
degree of discretion in, decision-making will be sought by virtual
staff members, according to Businessline (2002).<br />
<br />
<span style="font-weight: bold;">Experience</span><br />
<br />
I
worked for seven years as a Project Manager for Rolls-Royce plc leading
virtual teams from 1996 to 2002 in Asia, Europe and the US on three
separate projects.<br />
<br />
The first project was a joint venture between
the jet engine design bureau of Sukhoi and Rolls-Royce plc. The joint
venture was created to utilise the energy systems experience of
Rolls-Royce to modify Sukhoi jet engines to be used for generating
electricity and to pump gas from Siberia to Europe. It was a two year
project from 1996 to 1998. A virtual team was created with
members in Liverpool, Moscow and Ohio. The team consisted of British
engineers and drafters, American stress analysts and designers and
Russian designers and production engineers.<br />
<br />
The time difference
was between three and eight hours for team members and English wasn't
readily understood by the Russian designers and engineers. Knowledge
was difficult to manage as much of the Rolls-Royce information was
proprietary and all of the Sukhoi information was military and only
available in the Russian language. Engineering design, equipment
and materials were to American, British, Russian, military standards
and imperial and metric sizes. I reduced the language barrier by
ensuring that all designs, specifications, drawings and daily
correspondence was produced in two languages using several interpreters.<br />
<br />
The
second project was the reconstruction of two, twenty year-old,
Rolls-Royce gas turbines for the Oil and Natural Gas Corporation of
India. The turbines were past their useful life but the oil rig, where
they were located, was a hub and production time could not be lost for
the installation of new turbines. Lasting for two years, the
project ran from 1999 to 2001. The oil rig was in the Arabian Sea;
parts and manpower came from the UK, US, Singapore and Bombay. I was
based at hotels in Bombay and Singapore and visited the oil rig by
helicopter. The virtual team consisted of designers, drafters,
schedulers, technical authors and shippers in the US and the UK. Oil
production engineers and construction workers were based in Bombay.<br />
<br />
The
time difference was between five and nine hours for team members.
Communication networks are a problem in Bombay. The
infrastructure is not designed for the level of internet traffic and
drop-out is frequent during facsimile and e-mail transmissions.
Additionally, the monsoon period from May to September creates periods
of several days when communication is not possible, due to waterlogged
communication hubs and distribution centres. Further, for
security reasons, communication between the oil rigs and the outside
world is severely restricted to public payphones only. Digital
communication with ONGC's oil rigs, by third parties, is not
allowed. Whilst onshore in Bombay, I utilised my Nokia 6150
mobile phone for most of the voice calls and was able to transmit and
receive e-mails and facsimiles to the UK and the US via the infrared
port, using a laptop computer.<br />
<br />
My final project with Rolls-Royce
plc was remote machinery diagnostics for seven gas turbines owned by bp
Indonesia, Conoco and Shell Philippines. These three companies had
signed multi-million dollar asset management agreements with
Rolls-Royce to manage the maintenance of the machines and to remotely
monitor their condition for a period of ten years. The seven turbines
were all located offshore in the South China Sea. The virtual team
consisted of members in Birmingham, Indianapolis, Jakarta, Manila,
Melbourne, Ohio and Singapore. Monthly invoice payments to RolIs-Royce
were performance related and penalties were to be applied if machinery
efficiency fell below 98.5 percent.<br />
<br />
I hired a team of five
engineers to be based in the Singapore office of Rolls-Royce and
installed several dedicated broadband internet lines for each customer.
Using Microsoft SQL and Oracle databases, virtual team members
throughout the global company were able to view 300 turbine parameters
almost real-time, with only a delay of approximately three seconds. By
this method, quality experts in Indianapolis liaised with field
technicians from Melbourne and production operators in Jakarta to
resolve problems during teleconference calls whilst simultaneously
viewing real-time performance data via the internet. Based in
Singapore, I was the customer's single point-of-contact for all
technical and commercial issues. The global network of Rolls-Royce plc
was used, via intranet, to obtain answers to questions beyond my
capabilities and a customer response time of same-day or 24 hours was
usually achieved. Monthly customer meetings in Jakarta and Manila
enhanced the virtual teamwork.<br />
<br />
<span style="font-weight: bold;">List of references</span><br />
<br />
Anderson, F.F. & Shane,H.M. 2002, 'The impact of netcentricity on virtual teams: The new performance challenge‘, <span style="font-style: italic;">Team Performance Management</span>, 2002.<br />
<br />
Andres, H. P. 2002, 'A comparison of face-te-face and virtual software development teams', <span style="font-style: italic;">Team Performance Management</span>, 2002.<br />
<br />
Conner, D.S. 2003, 'Social comparison in virtual work environments: An examination of contemporary referent selection', <span style="font-style: italic;">Journal of Occupational and Organizational Psychology</span>, March 2003.<br />
<br />
Fitzpatrick, W.M. & Burke, D.R. 2001 ,'Virtual venturing and entry barriers: Redefining the strategic landscape', <span style="font-style: italic;">S.A. M. Advanced Management Journal</span>, Autumn 2001.<br />
<br />
Hagen, M.R. 1999, 'Teams expand into cyberspace', <span style="font-style: italic;">Quality Progress</span>, June 1999.<br />
<br />
Koch, C. 2000, 'Collective influence on information technology in virtual organisations-emancipatory management of technology?',<span style="font-style: italic;"> Technology Analysis & Strategic Management</span>, September 2000.<br />
<br />
Konrad, A.M. & Deckop, J. 2001, 'Human resource management trends in the USA Challenges in the midst of prosperity', <span style="font-style: italic;">International Journal of Manpower</span>, 2001.<br />
<br />
'NOVELL: Novell delivers iChain web security software - the gatekeeper to network and application resources', <span style="font-style: italic;">M2 Presswire</span>, 18 October 2001.<br />
<br />
Peters, T. 2003, <span style="font-style: italic;">Liberation Management</span>, Macmillan, London<br />
<br />
Robbins, S.P., Bergman, R., Stagg, I. & Coulter, M. 2003, <span style="font-style: italic;">Management</span>, Prentice<br />
Hall, Australia.<br />
<br />
Staples, D.S. 2001, 'A study of remote workers and their differences from non-remote workers', <span style="font-style: italic;">Journal of End User Computing</span>, April-June 2001.<br />
<br />
'Surfing the virtual workplace', <span style="font-style: italic;">Businessline</span>, 22 July 2002.<br />
<br />
Taylor,
R. 2001, 'Workers unite on the internet: TRADE UNIONS: They were as
workplace relics quietly fading away. But information technology may
offer labour organisations a new lease of life', <span style="font-style: italic;">Financial Times</span>, 11 May 2001 .<br />
<br />
'Technology: Substitute or complement?', <span style="font-style: italic;">Businessline</span>, 2 September 2002.<br />
<br />
Waiters, D. & Buchanan, J. 2001, 'The new economy, new opportunities and new structures', <span style="font-style: italic;">Management Decision</span>, 2001<br />
<br />
Williams, G. 2002, 'Virtual organisations? Union survival in the outsourced workplace', <span style="font-style: italic;">Management Research News</span>, 2002<br />
<br />
Witzel, M. 2002, 'lack of tangibles can be an asset MANAGEMENT A-Z: VIRTUAL ORGANISATION:', Financial Times, 29 August 2002.
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-57504578982790284402006-09-30T16:37:00.000+02:002014-06-09T09:56:10.507+02:00Customer relationship management<span style="font-size: small;">
<br />
I originally wrote this article, “Customer relationship management” in
November 2003. A systematic process is used to prepare a
comprehensive proposal to a sponsor for approval to implement a
Customer Relationship Management (CRM) System in an organisation. The
proposed system introduces a new information system and improves
organisational productivity. The sponsor is a financial
institution. The information system supports the strategic goals
of the organisation where it will be implemented. A systematic
approach was followed to identify the opportunity and the choice of
proposed system is justified. A feasibility study for the system
is proposed, including system investigation and the preparation of
functional specifications for the intended system (from a managerial
viewpoint) and a system implementation plan is given.
<br />
<strong><br />
SUMMARY</strong><br />
<br />
An investment is proposed for the
implementation of a customer relationship management (CRM) system
within the client company over a six month period. It is the optimum
solution to the client’s problem of how to achieve their sales revenue
growth requirement for the next five years.<br />
<br />
The proposed system has a good fit
with the six strategic goals of their business. In particular, it meets
the need to secure lifelong customers who buy the most profitable
products using the client’s unique service.<br />
<br />
The problem of achieving sales
revenue growth is solved using a systems approach. First, we
established that the problem has the four components of; creating
customer awareness, encouraging sales, maintaining repeat custom and
deciding upon the marketing mix.<br />
<br />
Six alternative solutions to the
problem are appraised. Mass marketing, CRM, local distributors, local
sales representatives, advertising and the internet are considered.
These possible solutions are evaluated againstthe definedproblem, cost,
time and the degree of fit in supporting the business goals.<br />
<br />
The optimum solution is a CRM system
to focus the marketing and sales efforts in the right direction. It is
envisaged that the system will help to attract, retain and get
customers to spend more with the company. Using a relational database,
the system will be used to co-ordinate the direct mail and
telemarketing campaigns.<br />
<br />
A feasibility study is required
during the systems analysis and conceptual design phase to ensure that
it meets the requirements for data; warehousing,extraction,
management, mining, analysis and query. Implementation of the project
will proceed only upon a favourable outcome from the feasibility study.<br />
<br />
Project implementation is in nine
stages. The critical stage is that of training staff in system
adoption, data mining, use of technology and in how to get system
support.<br />
<br />
<b> INTRODUCTION</b><br />
<br />
The client company is a new business
venture formed to utilize an opportunity to satisfy a UK demand for
Asian products exported from Singapore by air parcel. The target market
is small British retailers who already sell antiques, clocks, gifts,
handicrafts and home decor. They compete by having product variety, and
very few currently sell handcrafted goods from Asia. Their present
offerings are either locally made expensively machined products or poor
quality imports from wholesale warehouses. The client company offers
good quality, high value, low weight, hand-made Asian products by 7 day
delivery air parcel for payment by credit card.<br />
<b><br />
STRATEGIC GOALS OF THE ORGANIZATION</b>
<br />
<br />
The client company has six strategic
goals, and they are:<br />
<br />
<b> Annual export sales of S$2M in 5
years and 10% net profit after tax</b> - The client company will
acquire 500 lifelong European retail outlet customers. The average
order value is S$800 per consignment and the client company will
receive bi-monthly or quarterly orders from each customer. Gross margin
for the cost of goods sold is 50% and the cost of doing business is
such that net profit after tax is 10%.<br />
<br />
<b> The client company’s customers
have high inventory turnover</b> - The order quantity requirements are
smaller than that of the client company’s competitors and reduce the
amount of cash tied up in the customer's inventory. The customer's
higher inventory turnover enables them to place smaller orders which
are delivered more often. Their risk of holding low demand products is
reduced.<br />
<br />
<b> The client company’s value chain
is shorter than that of their competitors</b> - The value chain is
shorter than that of the competitors because UK wholesale warehouses
are eliminated. The client company’s customer is the retailer, not the
wholesaler, and deliveries are door-to-door from Singapore to Britain
by air parcel - not container ship.<br />
<br />
<b> The client company’s goods have a
money-back guarantee</b> - Credit is not offered to customers and all
order payments are made through Visa and Mastercard credit card
companies. However, the credit card companies give 4 to 7 weeks free
credit to customers and the client company is paid monthly by the
credit card companies, who dictate the money-back guarantee.<br />
<br />
<b> The system of competing is
unique, integrated and not easily imitated</b> - The client company
only sells products to the target market that fits their particular
business model. The minimum order value is S$750 and each consignment
weighs less than 15Kg. Goods within each consignment are high value,
have a high price to weight ratio and are only sold to the target
market of small UK retailers who sell antiques, clocks, gifts,
handicrafts and home decor.<br />
<br />
<b> Competition with the small
British retailer is not promoted</b> - The Asian product mix is not
readily available in Britain and there are very few competitive outlets
already in existence which specialize in similar products.
Administration costs are minimized by having a minimum order value of
S$750 and, by this mechanism, not selling direct to British end-users.
Additionally, substantial discounts are not offered for larger order
quantities because this leads to lower retail prices and a perceived
lowering of product quality.<br />
<br />
<b> SYSTEMS APPROACH TO PROBLEM
SOLVING</b><br />
<br />
An approach is used, as described by
O'Brien (1999:p.80), to systematically solve the problem in 5 steps:<br />
<br />
Recognize and define the problem
using systems thinking<br />
Develop and evaluate alternative
system solutions<br />
Select the system solution that best
meets the requirements<br />
Design the selected system solution<br />
Implement and evaluate the success
of the designed system<br />
<br />
<b> Problem definition</b><br />
<br />
The problem of acquiring 500
lifelong customers is identified as having the four key components of;
creating customer awareness, encouraging sales, maintaining repeat
custom and having the right marketing mix.<br />
<br />
<b> Customer awareness</b> - How does
the client company make UK retailers aware that their company and
marketing mix exist? The client company has just recently created their
new business venture and, until they can reach their customers, nobody
knows who they are, what we sell, where they are located and why they
should do business with them.<br />
<br />
<b> Encourage sales</b> - If the
client company manages to reach their target market then what can they
do to encourage customers to place orders with their company? Customers
may be aware that their company exists but inertia, tradition or
apprehension may influence their buying decision process and divert
custom away from their company.<br />
<br />
<b> Maintain repeat custom</b> -
Having secured their first order from a customer, how do they achieve
'lock-on' and create a lifelong customer? If a customer doesn't enjoy a
good experience with the company during the first transaction then the
relationship may end after one sale.<br />
<br />
<b> Marketing mix</b> - How does the
client company know that the product mix is priced correctly through
the right distribution channel and that the promotion tactics work? Is
there a market demand for the initial offering? Is the end-user willing
to pay the retailer the recommended price? Is the marketing campaign
investment giving the required return? Are small UK retailers the best
distribution channel?<br />
<br />
<b> Evaluation of alternative systems</b><br />
<br />
Six alternative solutions have been
developed to solve the problem:<br />
<br />
</span><span style="font-size: small;">
Mass marketing<br />
Customer Relations Management system<br />
Local UK distributors<br />
Local UK sales representatives<br />
Advertising<br />
Internet site only<br />
<br />
</span><span style="font-size: small;">
<table border="0" style="width: 100%px;">
<tbody>
<tr>
<td><strong>Problem</strong></td>
<td><strong>Mass marketing</strong></td>
<td><strong>CRM system</strong></td>
<td><strong>Local UK distributors</strong></td>
<td><strong>Local UK sales representatives</strong></td>
<td><strong>Advertising</strong></td>
<td><strong>Internet site only</strong></td>
</tr>
<tr>
<td><strong>Customer awareness</strong></td>
<td>Very low response rate</td>
<td>Low response rate</td>
<td>Low incentive to promote client’s products</td>
<td>High cost and time to establish contacts</td>
<td>Very high cost and very low response rate</td>
<td>Low cost but no response</td>
</tr>
<tr>
<td><strong>Encourage sales</strong></td>
<td>Very low probability of obtaining orders</td>
<td>Moderate probability of obtaining orders</td>
<td>Moderate probability of obtaining orders</td>
<td>High probability of obtaining orders</td>
<td>Low probability of obtaining orders</td>
<td>Very low probability of obtaining orders</td>
</tr>
<tr>
<td><strong>Maintain repeat custom</strong></td>
<td>No relationship building</td>
<td>High relationship building</td>
<td>Moderate relationship building</td>
<td>Very high relationship building</td>
<td>No relationship building</td>
<td>Very low relationship building</td>
</tr>
<tr>
<td><strong>Marketing mix</strong></td>
<td>Very low customer feedback</td>
<td>High customer feedback</td>
<td>Moderate customer feedback</td>
<td>High customer feedback</td>
<td>No customer feedback</td>
<td>Low customer feedback</td>
</tr>
<tr>
<td><strong>Cost</strong></td>
<td>Moderate</td>
<td>Moderate</td>
<td>High</td>
<td>Very high</td>
<td>High</td>
<td>Very low</td>
</tr>
<tr>
<td><strong>Time</strong></td>
<td>Quick</td>
<td>Moderate</td>
<td>Slow</td>
<td>Slow</td>
<td>Quick</td>
<td>Quick</td>
</tr>
<tr>
<td><strong>Degree of fit in supporting business goals</strong></td>
<td>Low - not target market and could promote competition to
small retailer</td>
<td>High - meets all business goals</td>
<td>Low - extra stage in value chain and not unique selling system</td>
<td>Moderate - reduced profit</td>
<td>Low - not target market and could promote competition to
small retailer</td>
<td>Low - not target market and sales goal not possible</td>
</tr>
</tbody>
</table>
<br />
The six alternatives solutions have
been evaluated as to how they fit in supporting the business goals and
solving the problem:<br />
<br />
Our development and evaluation of
the six alternatives gives the optimum solution to our problem of
acquiring 500 lifelong customers profitably as being to implement a
customer relationship management system.<br />
<br />
<b> PROPOSED SYSTEM</b><br />
<br />
The proposed customer relationship
management system has the benefit of facilitating the business goals at
a reasonable cost. This represents a saving on the appointment of UK
sales representatives to achieve comparative results.<br />
<br />
The CRM system will focus the client
company’s marketing and sales efforts in the right direction, allow
statistical analyses of the marketing campaigns and fit the business
goals.<br />
<br />
The client company’s revenues will
not be enhanced by selling more core items but by increasing the amount
of spending customers do with the client company. The system will
enable the client company to monitor and enhance the longevity, depth,
breadth and diversity of spendingby their customers. It will identify
customers with opportunities, as well as customers at risk. The system
will allow the client company to understand the differences among
customers, particularly the nature and intensity of the relationship
they currently have with the client company, so the depth, breadth and
the length of their relationship can be improved. By developing a
multi dimensional customer typology (segmentation scheme), the client
company will select segmentation variables which show customer's
preferences for products and the intensity (magnitude and frequency) of
their relationship with the client company. It can be determined what
the most profitable customers look like, who the high-risk customers
are and describe customers who have a high propensity to buy certain
products.<br />
<br />
A proprietaryrelational database
will be populated by client company staff with 10,000 to 30,000 small
UK retailers who already sell antiques, clocks, gifts, handicrafts and
home decor. Basic information for the target market is available from
UK regional Chambers of Commerce, trade directories, Yellow Pages, etc.
Commercially available data bases are avoided because they are
notoriously unreliable and very expensive. Weekly regional direct mail
campaigns will target London, followed by Birmingham, Leeds, Sheffield,
Bradford, Liverpool and Manchester. Each batch of direct mail is to be
followed by telemarketing calls from the single point-of-contact staff
at the client company’s call centre.<br />
<br />
The business goals of the client
company will be supported by the CRM system. Their sales and profit
goal will be made possible by getting direct mail I telemarketing
response rates better than the 2 to 3% achievable by direct mail alone.
This will assist the client company to get a critical mass of customers
locked on and will create a platform from which to stretch their
product range into the many areas of their end-users' lives. The
customer benefits of a high inventory turnover, money-back guarantee
and 'small retailer only' target market will be explained by the client
company’s telemarketers to potential customers and their responses will
be recorded into their database for analysis. High value to weight
products, for low shipping costs, will be selected to match the
particular requirements of individual groups of customers, from their
database response records, to further focus on market niches.<br />
<br />
<b> FEASIBILITY STUDY</b><br />
<br />
A feasibility study is required
within the systems analysis and conceptual design phase of the client
company’s implementation plan. The implementation of CRM within their
company is a major undertaking and they need to make sure that they
have sufficient resources and are able to integrate this system with
their other management information systems. This will involve the
development of many processes within their business model. Hardware,
software and resource costs and the time taken to implement the CRM
system need evaluating to verify that the project is feasible.
The implementation plan will proceed only if the results of the
feasibility study are positive, thus enabling the project to be
completed.<br />
<br />
It needs to be determined if, within
the business constraints, it is viable to implement:<br />
<br />
Data warehouse information -
customers calling the client company, their purchases, transaction
history, complaint history, data archaeology, contact, customer
business, group, history, promotion, product purchases, survey and
customer response data, customer interaction data.<br />
<br />
Data extraction and cleansing<br />
<br />
Data management and storage -
logical stores of information<br />
<br />
OLAP or data mining applications<br />
<br />
Data analysis and query tools -
sliced and diced system reports<br />
<br />
These are the main features required
of the CRM if implementation is to proceed and the project is practical.<br />
<br />
<b> IMPLEMENTATION</b><br />
<br />
Implementation of the CRM system is
in the eight stages of strategic planning, research, system analysis
and conceptual design, design, construction, implementation,
maintenance and documentation, adaptation.<br />
<br />
<b> Strategic planning</b> - complete
business process analysis, identification of customer interaction
points and decision support requirements.<br />
<br />
<b> Research</b> - assessment of
market conditions, business resources and possible technological means
of meeting business needs.<br />
<br />
<b> System analysis and conceptual
design</b> - user interaction, software and hardware vendor assessment,
data design, scalability and feasibility study.<br />
<br />
<b> Design</b> - detailed
specification, selection of specific software packages and core
technologies.<br />
<br />
<b> Construction</b> - execution of
design plan<br />
<br />
<b> Implementation</b> - training
program for staff in; system adoption, support
seeking, technology, data mining techniques.<br />
<br />
<b> Maintenance and documentation</b>
- system performance evaluation, data quality, data quantity,
confirmation of meeting DSS needs.<br />
<br />
<b> Adaptation</b> - modifications to
the system to match changes in the market and business.<br />
<br />
A phased roll-out is planned,
commencing with a pilot program.<br />
<br />
<b> CONCLUSIONS</b><br />
<br />
The client company’s first strategic
business goal of annual export sales of S$2M in 5 years is achievable
with the proper management tools. The proposed CRM system is one of
those tools. It’s not pretended that use of this technology will solve
all of the problems. It is the people within the company, using this
technology, that will determine the success of the venture.<br />
<br />
<b> List of references</b><br />
<br />
Q'Brien, J.A. 1999, Management
information systems: managing information technology in the
inter-worked enterprise, 4th ed., Boston, Irwin McGraw Hill.</span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-10066286958114912702006-09-29T08:51:00.000+02:002014-06-09T09:56:51.884+02:00Enterprise resource planning<span style="font-family: arial; font-size: small;"><br />
I originally wrote this
article, “Enterprise Resource Planning” in October 2003 when I analysed
the Fast Food Industry’s business models using the competitive forces
and value chain analysis models. I explained that an Enterprise
Resource Planning System would provide a good solution to McDonald’s
challenges. The critical success factors driving technological
were identified and reasons for the failure of information systems,
within the fast food industry, were given. The managerial,
organisational and technology factors that caused these problems were
explained. The role and impact of alternative information systems
development projects were evaluated in terms of the future strategic
directions to be taken by McDonald’s and Burger King. The
undertaking of risk evaluations are recommended with each
project. Finally, I recommended an approach to prevent the
negative impact of technology upon the people concerned, including the
financial performance of the stock.<br />
<br />
<b>BUSINESS MODEL ANALYSIS</b><br />
<br />
<b>Competitive forces model</b><br />
<br />
The competitive forces within the fast food Industry can be analyzed
using Michael Porter's competitive forces model, described by O'Brien
(2003:p.42). These forces are the bargaining powers of customers and
suppliers, competitor rivalry, new entrant threats and the threat of
substitutes.<br />
<br />
Customer bargaining power is high and created by fast food outlets
being located in close proximity to each other. Prices are readily
displayed, giving the customer a real choice of which outlet to buy
from.<br />
<br />
Supplier bargaining power is low because of the concentration of suppliers and the availability of substitute suppliers.<br />
<br />
Competitor rivalry is high because it is difficult for fast food
companies to distinguish themselves from their competitors, so the
challenge has intensified.<br />
<br />
The threat of new entrants is caused by the relatively low entry
barriers into the fast food business. MOS Burger and Wendy's are
examples of new entrants.<br />
<br />
The threat of substitute fast food products is affected by trends, such as increased health consciousness, and cost changes.<br />
<br />
Using Michael Porter's above model; competitive strategies of cost
leadership, differentiation, innovation, growth, alliances and other
tactics are used in the fast food industry to counter the actions of
the above competitive forces.<br />
<br />
A cost leadership strategy used by fast food companies requires
efficient facilities, cost reduction programs and tight cost control by
a structured organization with defined responsibilities.<br />
<br />
An example of a differentiation strategy is that used by McDonald's to
distinguish it's products and services from Burger King, etc. by
introducing wholesome foods, re-introducing hostesses to carry trays
and exploiting the Ronald McDonald mascot for the brand experience.<br />
<br />
Innovative strategies employed by fast food companies include;
operating units in non-traditional markets, dual branding, food science
experimentation and test marketing of new products to adjust to the
consumer's changing food tastes. For example, on 8th October 2003,
McDonald's appointed a Director of Worldwide Nutrition to help guide
McDonald's nutrition and active lifestyle initiatives, McDonald's
(2003c).<br />
<br />
The growth strategies of a fast food business expand the company's
ability benefit from the economies of scale, product integration and
global expansion. Both McDonald's and Burger King see the Eastern
Hemisphere as a place to expand and compensate for the more saturated
market in America and Europe.<br />
<br />
Alliance strategies are becoming more prevalent in the fast food
industry. Competitors like KFC and Pizza Hut share common locations and
home delivery services. McDonald's have more than 800 restaurants in
Wal-Mart stores.<br />
<br />
Another strategy used by McDonald's to counter competitive forces is
sponsorship. For the first time, the company became the exclusive
worldwide sponsor of the Olympic Day Run, in addition to being
committed to the International Olympic Movement for more than 30 years,
McDonald's (2003b)<br />
<br />
<b>Value chain analysis model</b><br />
<br />
The business model within the fast food Industry can also be analyzed
using Michael Porter's value chain analysis model, described by Kotler
(2003:p.70), as a tool for identifying ways to create more customer
value. The primary activities in the generic value chain are in bound
logistics, operations, outbound logistics, marketing, sales and
service. The support activities are firm infrastructure, human resource
management, technology development and procurement.<br />
<br />
Using McDonald's as an example of a fast food business, the primary
activities of logistics and operations are decentralized whereas sales,
marketing and service are centralized, according to Lorentzen (2000).
Each region of restaurants manages its own supply of materials and
operational efficiency to create customer value, but sales, marketing
and service are centralized.<br />
<br />
The fast food business support activities are usually centralized, with
the exception of procurement. McDonald's implements a centralized
Supplier Social Accountability Program and Supplier Product Quality
Program, reports Beurskens (2002), as a condition of doing business
with the company. However, whilst a supplier is in compliance with
these procurement programs, buying from these suppliers is controlled
regionally.<br />
<br />
<b>An ERP as a good solution to McDonald's challenges</b><br />
<br />
<b>McDonald's has 10 challenges:</b><br />
<br />
<b>Customer satisfaction</b> - McDonald's has been ranked the worst company for customer satisfaction in America for a decade.<br />
<br />
<b>Franchisee monitoring standards</b> - The company has no system for monitoring standards, so as to avoid trouble with the franchisees.<br />
<b><br />
Investor relations</b> - McD's share price has underperformed the
S&P500 for several years. Investors want a tighter, more
centralized McDonald's. Instead of aggressive
expansion, investors want the company to concentrate on the
profitability of existing stores, The Economist (2001).<br />
<br />
<b>Threat of substitutes</b> - The future of fast food may be congee,
tofu and roast duck as Chinese will displace the burger and pizza, says
The Economist (2002a). The Economist (2002b) reports that sales at
McDonald's and Burger King are declining and 'fast casual' gourmet
sandwich, salad and soup chains are taking market share. McDonald's
offering looks increasingly outdated.<br />
<br />
<b>Changing customer eating habits</b> - “The world has changed. Our
customers have changed. We have to change too", says McDonald's CEO,
Jim Cantalupo, in The Economist (2003). There are too many confusing
meal choices and variety will be reduced and salads, yoghurts and
sliced fruit introduced.<br />
<br />
<b>Growth</b> - The company no longer aims to be bigger than everybody
else in the fast food industry, just better. A decade of stagnant US
store sales was followed by declining sales in 2002. like Coca-Cola or
Disney, McDonald's is in the maturity stage of it's life cycle and, as
a cash cow, needs milking.<br />
<br />
<b>Capital investment</b> - The company massively misallocated capital
for decades, according to The Economist (2003), and slashed capital
spending by a third, to USD1.2 billion, for2003.<br />
<br />
<b>Out-of-date strategies</b> - The Economist (2003) quotes an analyst
as saying that McDonald's top management, shaped by previous
out-of-date strategies, lacks the vision or stomach to make the
necessary changes."<br />
<br />
<b>Decentralization</b> - The company decentralized operations in 1998
to rebuild tattered relationships with franchisees. However, this
caused reduced service, quality and cleanliness standards. McDonald's
new CEO promises improvements in franchisee restaurant management.<br />
<br />
<b>Franchisee alienation </b>- The poorly executed and imposed 'Made
For You' kitchen initiative had an adverse effect upon franchisee
revenue growth and profits.<br />
<br />
An enterprise resource planning (ERP) system would provide a good
solution for McDonald's 10 challenges. The company's internal
businesses would be integrated and improved through a framework. This
would enable monitoring of franchisee standards and increase customer
satisfaction. An ERP would increase efficiency, thereby reducing costs
and improving investor relations. Quick access to sales information
would allow the company to develop menus to match the changing eating
habits of customers, counter the threat of substitutes and make
informed capital investment decisions. The decision support from an ERP
would also enable strategies to be adjusted and brought up-to-date.
Centralization of the many regional and departmental existing
information systems would give greater agility to McDonald's.<br />
<br />
Burger King's ERP system, reports Malcom (2003), enables the company to
analyze sales trends and track food costs on a daily basis and is also
used by marketing to analyze the product mix. A growing number of fast
food companies, like Burger King, are standardizing their systems on
packaged ERP systems, according to Songini (2002). Burger King uses
Microsoft's “Business Solutions” says iStart (2003)<br />
<br />
<b>CRITICAL SUCCESS FACTORS</b><br />
<br />
<b>Critical success factors driving technological change</b><br />
<br />
The 'Investor Fact Sheet, McDonald's (2003a) defines the company's
critical success factors as being those of McCarthy's Four P Components
of the Marketing Mix, Kotler (2003:p.16), plus people - Product, Price,
Promotion, Place and People.<br />
<br />
The product variety needs to match changing customer tastes and swift
fast food outlet feedback is necessary to drive the changing product
mix. Product quality requires controlling and customer service needs
improving.<br />
<br />
The food price is determined by market forces, so costs need reducing
through greater operational efficiency. Operating profits and returns
on investment call for improvements.<br />
<br />
Promotion of McDonald's brands needs re-building to differentiate its products and service from competitor offerings.<br />
<br />
The place where customers dine, the McDonald's restaurant, has lost
it's status as the gold standard for clean restaurants. It needs
re-imaging, rebuilding and renovating.<br />
<br />
The people who produce the restaurant food require training to deliver
better customer service and educating in the use of technology for
logistics, production and sales.<br />
<br />
Reasons for failure of IS within the fast food industry<br />
The 6 reasons for failure of IS within the fast food industry are;
project cancellation, user resistance to IS, system crashes, user lack
of understanding IS, bad system performance and IS not meeting
expectations.<br />
<br />
<b>Management, organizational, and technology factors</b><br />
<br />
Poor management can cause IS project cancellation. McDonald's wrote off
$170 million already spent on a project in 2002 when they unexpectedly
realized that the final cost would exceed $1 billion. Taylor
(2000) identifies scope management as the leading management activity
leading to IS project failure. Companies tend to underestimate the
planning complexity, development and training required to change
business processes. Compressing new IS roll-out periods, an over
reliance upon expensive and external ERP consultants and overstated
expectations also contribute to IS failure.<br />
<br />
Organizational factors in the fast food industry contribute to IS
failure, especially if corporate IT systems are linked to individual
stores or franchises that have workers who are relatively unfamiliar
with technology, according to Computer Weekly (2002). The
non-involvement of affected workers in development and insufficient
employee training in ERP can also cause IS project failure.<br />
<br />
Technology factors are the least cause of IS failures. Technology
problems are only responsible for between 12 and 15 percent of projects
that don't work, says Everett (2002).<br />
<br />
<b>ALTERNATIVE IS DEVELOPMENT PROJECTS</b><br />
<br />
<b>Role and impact of alternative IS development projects</b><br />
<br />
The role of alternative IS development projects in the fast food industry is to increase revenues and reduce costs.<br />
<br />
McDonald's has tested automated order taking machines, using paper money only, says Belilos (1999).<br />
<br />
The VISA quarterly report (2002) describes how Burger King and VISA are developing cashless payment.<br />
<br />
Contact-less, cashless payment, according to Longini (2002) and
Kuykendall (2003), is accepted at certain fast food outlets, e.g.
McDonald's in Chicago in the form of a car key fob.<br />
<br />
Centralized management of HVAC, lighting and food processing energy
conservation systems, reports Sheehan (2001), is being tested by
McDonald's at their restaurants in Atlanta, Chicago, Colorado springs
and San Francisco.<br />
<br />
Ewalt (2002) and Hamblen (2002) say that Burger King uses Palm-100 PDA
programmed warming bins in 500 company-owned restaurants and is
transitioning to all of it's 8,000 outlets.<br />
<br />
McDonald's is looking at putting in an electronic invoicing system that
will be integrated into it's network, reports Newman (2002).<br />
<br />
Singer (2003a), Black (2003) and Krane (2003) report that McDonald's
unveiled wireless hotspots at 10 restaurants in New York and plan to
"unwire” 300 restaurants by the end of the year. The New York launch
was followed by a similar launch in San Francisco, according to Singer
(2003b), and subsequent openings in Chicago, Canada and Australia,
reports Kaye (2003).<br />
<br />
Burger King, according to Hulme (2003), uses identity and access
management systems at a cost of $5 to $25 per employee to protect
access to it's systems because of rapid staff turnover.<br />
<br />
The impact of automated order taking and cashless payment is to reduce
order processing times and cash handling costs. Energy conservation,
programmed warming bins and electronic invoicing all reduce operational
costs. The impact of WiFi is to increase sales revenue by attracting
new customers or retaining existing customers who might be tempted to
use the facility elsewhere.<br />
<br />
If McDonald's and Burger King choose the strategic directions of
cashless payment to reduce costs and WiFi to increase sales revenues
then substantial capital investment is required.<br />
<br />
<b>Risk associated with each project</b><br />
<br />
Risk evaluation is required at the beginning of each project to
evaluate the risk probability and magnitude of effect of the occurrence
of the risk associated with each project.<br />
<br />
The risks associated with ERP and operational efficiency systems
implementation vary according to whether the project has a piloted,
phased or 'big bang' roll-out. Risks connected with existing legacy
systems, crash contingency plans, stoppages etc. need evaluating. Floyd
(2000) says that "the obvious places to start a phased migration are
with the 'easy' modules, like Fixed Assets and General Ledger.<br />
<br />
Cashless payment IS project risks include system crashes, software and
hardware bugs, card theft, communication problems and employee training.<br />
<br />
<b>Prevention of negative impact of technology</b><br />
<br />
Technology is prevented from having a negative impact on the people
concerned by involving them from conception to completion of each
project. Users need to be involved in project development and they need
to be trained. Pilot programs require assessing and investors should be
kept informed of the hefty financial commitment before the first cheque
is written.<br />
<br />
McDonald's have introduced e-Ieaming tools in restaurants to bridge the
technology skill gap of franchisee employees required to use new
information systems. Jones (2001) quotes McDonald's as saying, "This is
not a white collar tool. This is a business tool”.<br />
<br />
Customer and employee acceptance of new technology can be assessed
using pilot programs. For example, a new POS contact-less smart card
has been tested by McDonald's and Mastercard in Orlando, says Lingblom
(2003).<br />
<br />
The financial performance of the stock can be protected by making
provisions in several years of accounts for investment in IS. The total
costs must be realistic and must include all costs for data conversion,
employee training, software, hardware, implementation, maintenance and
a risk contingency<br />
<br />
<b>List of references</b><br />
<br />
Belilos, C. 1999, 'Technology enhancing service at MacDonald's', CHIC
Hospitality Consulting Services, 16th August 1999. Retrieved: from
http://www.easytraining.com on 1 th October 2003.<br />
<br />
Beurskens, F. 2002, 'Value of Supply Chain Management Issues from the
Customer's Perspective', Corn Utilization and Technology Conference
2002, 3rd June 2002. Retrieved: from www.agribiz.com on 1ih October
2003.<br />
Black, J. 2003, ~The Magic of Wi-Fi', Businessweek, 18th March 2003. Retrieved: from www.businessweek.com on 17th October 2003.<br />
<br />
'Burger King standardizes ERP menu', Computer Weekly, 9th July 2002.
Retrieved: from www.computerweekly.com on 17th October 2003.<br />
<br />
Cantalupo, J. 2003, 'McDonaJd's eMac Digital News', McDonald's Corporate Press Release, 20th May 2003.<br />
'Did somebody say a loss?', The Economist, 10th April 2003.<br />
<br />
Everett, C. 2002, 'Special Report - The slings and arrows of CRM', Akibia, 18th July 2002.<br />
<br />
Ewalt. D. M. 2002, 'PDAs get more innovative, from food-service to
life-saving functions', Informationweek, 9th September 2002. Retrieved:
from www.informationweek.com on 17th October 2003.<br />
<br />
Floyd, T.H. 2000, 'Phased ERP Implementation instead of "The Big
Bang"', ERP World West, Anaheim 2000. Retrieved: from www.supgrp.com on
17th October 2003.<br />
Hamblen, M. 2002, 'Field Report: Want Fries With Your PDA?,
ComputelWorfd, 29th July 2002. Retrieved: from www.computerworld.com on
17th October 2003.<br />
<br />
Hulme, G. V. 2003, 'Companies can cut costs significantly by
implementing software that manages users' access to applications',
Informationweek, 20th January 2003. Retrieved: from
www.informationweek.com on 17th October 2003.<br />
<br />
'Investor Fact Sheet', McDonald's, May 2003a. Retrieved from www.mcdonalds.com on 1th October 2003.<br />
<br />
Jones, M. 2001, 'Comdex E-Ieaming experts call for knowledge management
rethink', Infoworld, 15th November 2001. Retrieved: from
www.infoworld.com on 17th October 2003.<br />
'Junk food?', The Economist, 5th December 2002a.<br />
<br />
Kaye, T. 2003, 'Will you be having a McWiFi with that, sir?',
Australian IT News, 26th August 2003. Retrieved: from
www.australianitnews.com.au on 17th October 2003.<br />
<br />
Kotler, P. 2003, Marketing Management, 11th ed., Prentice Hall, New Jersey, USA.<br />
Krane, J. 2003, 'Burgers, Fries, And Wi-Fi', Informationweek, 11th March 2003. Retrieved:<br />
from www.informationweek.com on 17th October 2003.<br />
<br />
Kuykendall, L. 2003, 'Will Contactless Payments Prove Sticky?' I
American Banker, 9th June 2003. Retrieved: from
http://aO-gateway.proquest.com.ezproxy.scu.edu.au on 17th October 2003.<br />
<br />
Lingblom, M. 2003, 'Mastercard puts contactless smart card to the
test', CRN.Jericho, 3rd March 2003, Iss. 1035; p. 55. Retrieved: from
http://80-gateway.proquest.com.ezproxy.scu .edu.au on 1ih October 2003.<br />
<br />
Longini, P. 2002, 'Models for Internet Success and Failure', Techyvent,
7th January 2002. Retrieved from www.imakenews.com/techyvent on 17th
October 2003.<br />
<br />
Lorentzen, 1.2000, tlmplementing multi-site ERP projects:
centralization and decentralization revisited', Department of
Sociology, NTNU Inform. Science, Norway.<br />
Malcolm, A. 2003, 'Aussie burger chain gains Kiwi smarts', IDG
Communications Ltd, 24th January 2003. Retrieved: from www.idg.co.nz on
1 ih October 2003.<br />
<br />
'McDonald's Announces Worldwide Sponsorship of Olympic Day Run', McDonald's Corporate Press Release, McDonald's 16th June 2003b.<br />
<br />
'McDonald's Corporation Announces Worldwide Nutrition Director' I
McDonald's Corporate Press Release, McDonald's ath October 2oo3c.<br />
<br />
'Microsoft Business Solutions delivers for Burger King', iStart
Limited, February 2003. Retrieved: from www.istart.co.nz on 17th
October 2003.<br />
<br />
Newman, K. 2002, 'McDonald's seeks closer electronic relations', iStart
Limited, August 2002. Retrieved from www.istart.co.nz on 1ih October
2003.<br />
<br />
'Not so fast', The Economist, 5th December 2002b.<br />
<br />
O'Brien, J. A. 2003, Management Information Systems, McGraw Hill, New York, USA.<br />
<br />
Sheehan, M. 2001, '10 Ways to Cut The Cost of Energy', H T Magazine,
March 2001. Retrieved from www.htmagazine.com on 1ih October 2003.<br />
Singer, M. 2003a, W-Fi Gets 'Super Sized", IT Management, 11th March
2003. Retrieved: from
www.itmanagement.earthweb.com/erp/article.php/2107771 on 17th October
2003.<br />
<br />
Singer, M. 2003b, 'McDonald's Serves Up Wi-Fi in SF', Jupitermedia
Corporation, ath July 2003. Retrieved: from www.cioupdate.com on 17th
October 2003.<br />
Songini, M. L. 2002, 'Burger King Upgrades to mySAP.com',
Computerworld, 15th July 2002. Retrieved: from www.computerworld.com on
17th October 2003.<br />
<br />
'Spotlight: Burger King Pilot', Visa Quarterly Report, Visa, August
2002. Retrieved: from www.visa.com/usnewsroom on 17th October 2003.<br />
<br />
Taylor, A. 2000, 'IT Projects: Sink or Swim', The Computer Bulletin,
January 24-26. 'Where's the beef, The Economist, 1st November 2001.</span><span style="font-size: small;"><br style="font-family: arial;" />
</span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-25299609054381925282006-09-28T09:36:00.000+02:002014-06-09T09:57:18.716+02:00Online retail<span style="font-size: small;"><br />
I originally wrote this article, “Online retail“ in
April 2003. The effectiveness of the marketing and operations
management of Amazon.com are discussed and changes are suggested to
improve the management of these functions.<br />
<br />
<b>Introduction</b><br />
<br />
Amazon.com is an international business with operations in Asia, Europe
and the US. Using the latest internet technology, the company
trades in goods online and provides services to other companies.
Amazon.com owns several patents based upon internet technology.
'Amazon.com Reports Second Profit Ever' (2003) describes how the
company's revenue for 2002 was $1.43 billion, up 28% from 2001's
figures and annual sales for 2003 are expected to increase by 15
percent upon sales for 2002. Net income for the company in the last
quarter of 2002 was $2.7 million, down 48 per cent from the same period
in 2001. A $40.6 million exchange rate loss in the euro contributed to
this fall as Amazon's $2.15 million borrowings are in this
currency. However, euro fluctuations in 2001 gained the company
$16.3 million.<br />
<br />
International sites in Japan, Germany, France, UK and Canada provided
the company with the largest growth during 2002. The annual
revenue for each international site increased by more than 60% in 2002.
This created a 76 per cent annual increase for the international
business, outside the US, to $461.4 million.<br />
<br />
The company was founded in 1995 by Jeff Bezos and Schepp (2002)
describes how Jeff attributes continuous improvements in computer and
internet technology as being key to the success of his operations.
According to Moore's Law, a doubling of speed in computing technology
takes place every year. Lower prices, faster delivery and new web-site
features have been achieved by Amazon as a result of this.<br />
<br />
<b>International marketing business strategies</b><br />
<br />
Amazon's SEC report ‘Annual Report Persuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the fiscal year ended December
31,2002' (2003) includes their mission statement, “We seek to offer
Earth's Biggest Selection and to be Earth's most customer-centric
company, where customers can find and discover anything they might want
to buy online. We have designed our Web sites to allow millions of new,
used and collectible products to be sold by us and by other businesses
and individuals worldwide. A product on our Web sites may be listed for
sale simultaneously byseveral different sellers. For instance, a
product may be offered by us, by a participant in our Merchants@
program and by a business or individual selling a new, used or
collectible version of the product through Amazon Marketplace, zShops
or Auctions. We also offer certain e-commerce services to other
businesses through our Merchant.com and Syndicated Stores programs."
The expansion of Amazon's product and service range appears to be
getting to a stage where either the company should consolidate its
position within the market or split up the company. There is a danger
that customers and management will find it hard to focus and identify
with the aims of a company with such a diverse product I services mix.<br />
<br />
Cost leadership is the international business strategy adopted by
Amazon. Additionally, the company also adopts a strategy which
attempts to differentiate its products and services from that of its
competitors. The product range is greater than that of high street book
sellers. Promotion of Amazon's products is online rather than in-store
and distribution is centralized via courier, rather than personal pick
up of the product from the retailer. However, with such a variety of
products, its competitors are not now just the booksellers. It is any
company that sells any of its products either offline or online.<br />
<br />
To attain synergy and competitive advantage, Amazon has strategic
alliance partner networks with other retailers. Jeff Bezos' goal is to
provide customers with a single source of supply. "Our vision is to
become a one-stop shopping place for anyone to buy anything. It will be
done not exclusively by us alone but in conjunction with what will
ultimately be thousands of partners. The benefit of which is lower
prices and better selection for Amazon customers“. I would recommend
that the book sales business be separated from the 'one-stop shopping
place'. Amazon have good experience with book sales but could
jeopardize the success of this portion of Amazon by diluted efforts.<br />
<br />
Last year, Amazon opened its fifth international business operation and
expanded into the Canadian market. Amazon saw it as a natural choice as
Canada was served by only one major online retailer, Heather Reisman's
Chapters - Indigo. I consider that the choice of Canada for the latest
international site was a mistake. Canadian law prohibits direct
management of the operations and the company is in danger of losing
control of its operations which are entirely subcontracted to third
parties. Additionally, the total population and population
density of Canada isn't amenable to providing a wide variety of
products with a quick delivery service.<br />
<br />
<b>Think global, act local</b><br />
<br />
Amazon's marketers had to decide between an ethnocentric, polycentric
or geocentric approach to their international operations. They
chose geocentric marketing and operations management. To the
international consumer, it appears to be a polycentric company. Each
website, for countries whose first language is not English, is
available in that country's language and English. However, Amazon
achieves this "think global, act locally" approach through the clever
use of software. They have developed a single piece of global
software which can handle any language. This reduces their entry costs
into further international markets.<br />
<br />
<b>Foreign pricing laws</b><br />
<br />
Amazon's international pricing policy is influenced by the laws and
regulations of host countries. For example, there is no law against
price fixing in Japan. Publishers in Japan do not allow retailers to
discount prices on their books. This means that Amazon's strategy is
modified for the Japanese market. Only books in non -Japanese
language and other products are discounted. List price is used
for Japanese books. I recommend that Amazon focus on the product,
promotion and place in countries where laws dictate list price. A
larger product collection, online promotion and same day delivery would
differentiate Amazon from its competitors in densely populated cities
of certain countries.<br />
<br />
<b>Cultural differences</b><br />
<br />
Soto (2002) describes how mobile phones are heavily used by the
Japanese for online purchases. They spent $19.2 million for online
purchase of books and music, via mobile phone in early 2002. Amazon
lags behind its Japanese competitors, such as Kinokuniya, in the use of
mobile technology for online purchases. However, Amazon state
that they expect only a small proportion of their sales income growth
through mobile devices, compared with internet access through computers.<br />
<br />
American culture and products are popular in Japan. Amazon bought 9% of
the shares of a US company that specializes in assisting companies to
expand into international markets using multi-lingual software.<br />
<br />
Japanese preferences for payment methods has also affected another of
Amazon's strategiesin this country. The payment method to Amazon for
goods, used internationally, is by credit card. However, the Japanese
don't normally use credit cards for payment of goods. Amazon has
changed its payment policy in Japan and offers cash on delivery, to
suit the local market.<br />
<b><br />
Branding</b><br />
<br />
Amazon expects growth in its international markets to exceed growth in
its domestic market. High international brand recognition is assisting
this growth. For example, the market in Japan was developed prior to
the company starting operations there. Tens of thousands of
Japanese customers were already patronising Amazon's other
international sites, based upon the high brand recognition. After
commencing operations in that country, the Japanese web site now has
revenues in excess of $100 million.<br />
<br />
Yamada (2000) reports that three years ago, complaints started to be
made about Amazon's alleged practice of dumping liquidated,
discontinued, damaged, returned or overstocked products on its auction
sites. Questions were asked as to whether this strategy conflicted with
Amazon's quality branding image. In response to this criticism however,
the company gave 'money back' guarantees for purchased items to a value
of $2,500. I'd recommend that Amazon separate these business activities
from its core business an operate them under a different company name
to preserve their brand image in online book sales.<br />
<br />
<b>Pricing</b><br />
<br />
Amazon's sales volumes increase yearly. The sales are driven by lower
prices and Jeff Bezos claims that Amazon is lower in price because it
can afford to be. 'Chewing the Sashami with Jeff Bezos' (2002) reports
that although one of Amazon's long standing goals had been to reduce
prices, it was only in 2002 that they were able to do so. A re-arranged
cost structure from years 2000 to 2002 allowed the company to achieve
this goal. Price reductions were achieved in three stages. Firstly, a
30 percent discount was offered on all books over $20. This was
followed by free or discounted shipping. Most recently, the 30 percent
discount was extended to books over $15.<br />
<br />
Retail prices are discounted by 20 per cent to 80 per cent for
liquidated products sold online by Amazon. This compares to 40 per cent
to 80 per cent discounts offered by traditional liquidators. Amazon
receives 5% sales commission for these products and the company's aim
is to provide a better return than traditional liquidators can achieve.
I'd recommend that liquidated products be sold by the company under a
name other than 'Amazon' to preserve brand image.<br />
<br />
<b>Market pricing</b><br />
<br />
Amazon's Canadian operations, which began last year, has adopted market
pricing. It discounts its top 40 bestsellers in Canada by 40%.
Amazon's Canadian competitor, Indigo, was forced to adopt the same
strategy. This form of geographic market pricing is necessary to
compete in local markets.<br />
<br />
Product prices can be adjusted to match changing geographic,
demographic or economic market conditions using web-based systems. In
2001, Amazon tested market pricing but had to abandon the test after
five days because of customer resentment. I'd recommend that the
company only use market pricing geographically.<br />
<br />
<b>Advertising</b><br />
<br />
Amazon's expenditure to retain existing customers and to acquire new
customers is very large. Advertising costs in 2003 will exceed $100
million.<br />
<br />
The company has developed software that analyses the purchasing
patterns of individual customers. It then recommends complimentary
products based upon that particular buyer's previous buying history.
According to Jeff Bezos, “The goal here is not rampant consumerism. The
idea is to use technology to capture information about customers and
their interests and match individuals with other products they might
like, including products they don't know even exist." I'd
recommend that Amazon spend more effort in re-assuring the customer of
how this information is exactly used to prevent mistrust.<br />
<br />
<b>Sales promotions</b><br />
<br />
Soto (2003) reports that Amazon's free shipping promotion will cost the
company $100 million in 2003. Free shipping commenced at the end
of 2002 and the campaign has proved to be so successful that the
promotion will continue throughout 2003 for orders above $25 in the US
and £39 in the UK. Amazon attributes a 28 percent sales increase
as being a result of the free shipping promotion. Free shipping is also
offered at its international sites in Japan and Europe throughout
2003. Sales volumes in the UK rose 32 percent for the end of 2002
as the British operations shipped 6.2 million products. The free
shipping promotion contributed to a sales growth of 76 percent for its
international operations at the end of 2002. I'd recommend that
Amazon use quantitative analytic techniques on a regular basis to match
sales promotion expenditure with increase insales revenue and make
sure that it is a profitable activity.<br />
<br />
‘Jeffrey P. Bezos' (2002) describes how Amazon offers a 15 percent
commission to other companies whose web sites link a customer to
Amazon, resulting in a sale. The web sites can recommend Amazon books
and tens of thousands of these affiliate sites are linked to
international Amazon sites. I'd recommend that Amazon be
selective in the frequency of payments to affiliates. Only a few
hundred affiliates with large commissions due should be reimbursed
monthly, the remainder being paid yearly.<br />
<br />
<b>International operations management</b><br />
<br />
The international operations management is now organised on a
geocentric basis. The company merged the management of its US
home country business with its international business operations in
November 2001.<br />
<br />
<b>Supply chain management</b><br />
<br />
Jeff Bezos states that the distribution philosophy at Amazon is
different from traditional retailers. Amazon uses a centralized
distribution system. The inventory is much reduced when compared to
that of high street retailers. Jeff Bezos expects that this business
decision will ultimately lead to a very high return upon the capital
investment.<br />
<br />
International couriers, international and national postal services are
used by the company for distribution of its products to customers.
Urban property identification is very different in Japan, when compared
to Europe and the US. Many streets don't have names and there is often
no sequence to property numbers. Amazon aligned with Nippon Express for
customer deliveries to benefit from their 'in country' knowledge.<br />
<br />
Amazon was taught a lesson from its distribution centre mistakes in the
US and applied its learned experience in Europe. The company had
previously constructed too much warehouse capacity in the US and was
forced to close one warehouse. They built five automated warehouses but
only actually required four. After this, international depots
were designed more efficiently.<br />
<br />
International business accounts for one-quarter of Amazon's sales.
However, much of this business doesn't involve products crossing
borders. For example, the business operation in Germany deals
mainly in books produced in the German language. These books are
published and distributed within the same country.<br />
<br />
Supply problems have created difficulties for Amazon in Canada. The
relatively small population leads to smaller stocks of fewer titles
being held by the publishers. It’s not economically viable to
maintain huge stocks in Canada and this has lead to customer complaints
of late deliveries. The business in Canada was created to alleviate the
problems experienced by Canadians when they orders goods from the
US. High shipping costs and adverse exchange rates are
avoided. However, low warehouse stocks levels in Canada create
the situation whereby it’s still quicker and cheaper for Canadians to
order from Amazon's US operations. "It’s hard to come out of the gate
perfect," acknowledges Amazon spokesperson Kristin Schaefer. "It’s
difficult to know how to accurately manage and stock inventory until
you know what customers are buying."<br />
<br />
<b>International logistics</b><br />
<br />
Amazon ships products to 220 countries. Products are shipped to
customers entirely domestically within international operations or via
international inter-company transfers. Shipping times have been reduced
by two-thirds and growth has been achieved in both international
internal markets and export markets.<br />
<br />
International distribution is offered to customers in three tiers.
Customs clearance charges and import duties are the responsibility of
the customer. Firstly, using DHL Worldwide Priority Express, products
can be shipped in one to four business days. Secondly, using DHL
World Mail, products may be shipped in 7 to 21 days. The slowest
shipping method is by surface mail and the shipping times are; 3 weeks
to Canada, 6 weeks to the UK, 8 weeks to Australasia and 12 weeks to
Brazil. Tracking of shipments from Amazon is available over the
internet. I'd recommend that Amazon consider undertaking delivery to
densely populated cities within the world through their own
organisation, without subcontracting to third parties. This would
provide a complete service to millions of customers and customs
clearance would be facilitated.<br />
<br />
<b>International service operations</b><br />
<br />
Amazon has international service operations where it derives income
from partnerships. Retailers use the international Amazon web
sites as portals for purchase of their products. Borders, CDNow and
Toys"R"Us are some of Amazon's partners. This exploits the benefits
that Amazon receives from internet traffic.<br />
<br />
<b>The role of government</b><br />
<br />
As well as crossing national borders, Amazon's business also crosses
national laws. Two interesting cases have arisendue to
differences in US law and UK law. Courts in the UK issued an
injunction against the distribution of a book defaming the founder of a
religious sect. The book was removed from all of Amazon's international
websites. A huge protest ensued by the global public who criticized
Amazon for globally applying UK law. The book was returned to Amazon's
selection, except for the UK web site. Courts in the UK also issued
another injunction against the distribution of a book defaming a
political activist in the Northern Ireland dispute. The book was
withdrawn from the UK website and sales from the US website are not
allowed to residents of the UK. I'd recommend that Amazon pay more
attention to the consequences of their actions with regard to the
differences between the laws of different countries.<br />
<br />
Europe is a large market for online shoppers but it is a collection of
many individual countries, each having their own laws. There are common
EU directives on e-commerce but irregular execution of these laws in
member countries may splinter Europe into several different markets.
Asbo (2003) reports Amazon as noticing that the value of transactions
within the EU is growing alongside the increase in online trade. The
company would like to see legislation keep pace with the technological
advances being made. I'd recommend that Amazon continue to be involved,
along with other e-commerce companies, in the harmonization of national
laws.<br />
<br />
Wolverton (2002) states that two of Amazon's technology patents were
published by the US Patent and Trademark office last year. They were
related to their particular system for online payment. Previous patents
from Amazon were for its purchasing process, affiliates programme and
recommendation service. The company has lodged these patents for
a particular reason. The techniques described within the patents are
not particular technological breakthroughs. However, the processes are
critical to the business of the company. Having the patents in the name
of Amazon prevents any other company from suing Amazon or from
threatening the core operations of the business. Indeed, many
other companies utilize the same techniques patented by the company.
Amazon choose not to litigate against these other companies as evidence
of their intention to use the patents purely in a defensive manner.
This was a good tactic by Amazon to counter any potential legal threat
to the operation of its core business.<br />
<br />
Canadian lawrequires book retailing companies in Canada to have a
minority of foreign ownership. Amazon expanded into the Canadian
market, with books in the English and French languages, last year but
had to adjust the operation to comply with Canadian law. It has
accomplished this by using Canadian registered companies to provide
supply and distribution services. However, a similar previous
arrangement tried by Borders was disallowed by the Canadian Booksellers
Association. Borders challenged the legality of Amazon's operations in
the Canadian courts but lost. As Amazon doesn't have an office in
Canada, it works through partner companies and the Canadian government
ruled that the Investment Canada Act did not apply.<br />
<br />
<b>References</b><br />
<br />
'Amazon. corn Reports Second Profit Ever', Associated Press, January
24,2003. Retrieved: April 3, 2003 from
http://www.tallahassee.com/mld/tallahassee/news/<br />
<br />
'Annual Report Persuant to Section 13 or 15( d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31,2002' United
States Securities and Exchange Commission, February 19,2003. Retrieved:
April 3, 2003 from http://phx.corporate-ir.net<br />
<br />
Asbo. P. 2003, 'Amazon exec warns that legal uncertainties hinders
Eurpoean e-ommerce', europemedia.net, February 20, 2003. Retrieved:
April 3, 2003 from http://www.europemedia.net<br />
<br />
'Chewing the Sashimi with Jeft Bezos', BusinessWeek online, July 15,
2002. Retrieved: April 3, 2003 from http://www.businessweek.com<br />
<br />
'Jeffrey P. Bezos', METU Industrial Engineering Department, Ankara, Turkey, 2002<br />
<br />
Schepp, D. 2002, 'Amazon's Bezos pushes growth', BBC News, June 3,2002.
Retrieved: April 3, 2003 from http://news.bbc.co.uk/1/hi/business/<br />
<br />
Soto, M. 2002, 'Amazon faces big test in international markets', The
8eaftle Times, April 22, 2002. Retrieved: April 3, 2003 from
http://seattletimes.nwsource.com /htmllbusinesstechnology/<br />
<br />
Soto, M. 2003, 'Earnings: Amazon posts second net profit', The 8eaftle Times,<br />
January 24,2003. Retrieved: April 3, 2003 from http://seattletimes.nwsource.com<br />
. /html/businesstechnology/<br />
<br />
Wolverton, T. 2002, 'Amazon seeks patent for payment system', CNET
Networks, Inc., September 23, 2002. Retrieved April 3, 2003 from
http://news.com.com<br />
<br />
Yamada, K. 2000, 'Shop Talk: Amazon.com's junkyard strategy', RHC
Media, Inc., June 2, 2000. Retrieved: April 3, 2003 from
http://www.redherring.com/insider/</span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-15443987071056833662006-09-27T10:57:00.000+02:002014-06-09T09:57:50.783+02:00International business<span style="font-size: x-small;">I originally wrote this article, "International business" in March 2003.<br />
<br />
<b>Reasons for international business growth</b><br />
<br />
'Marriott to double Wi-Fi coverage' by Junnarkar (2003) is a good
example of the reasons for international business growth. The
article reports upon a strategic alliance between Intel and Marriott to
provide high speed internet wireless access in the US, Canada and
Europe. It shows how market expansion, competitive forces,
technological changes and social changes create international business
growth needs for both Intel and Marriott.<br />
<br />
Junnarker (2003) quotes a Marriott vice president as saying, 'High
speed internet access is one of the most common requests at our
worldwide reservations department.' The article notes that 'many
hotspots offer free access, but security concerns often keep business
travellers from tapping into the network.' Marriott, with Intel, will
expand into the market of providing secure high speed internet access
for business travellers. The article also describes how Intel is
working with companies such as Marriott to 'verify wireless
compatibility.' This approach is essential. The service is being tested
in a smaller market to identify product improvements, prior to further
market expansion.<br />
<br />
Competitive forces influence Marriott's decision to enter this new
market because, according to the article, 'customers are selecting
hotels based on it's [high speed internet access] availability.'
Junnarker (2003) also reports on competition to Intel from T-mobile,
Cisco and Connexion. The Intel and Marriott strategic alliance will
combat these competitive forces. Additionally, the article reports that
'as hot spots proliferate in cafes, hotels, airport lounges and city
neighbourhoods, companies from various industries have been seeking
ways to provide Wi-Fi services to business travellers. This could mean
a drop in Marriott's revenues derived from business communications
unless the company also provides the same service.<br />
<br />
This particular international business growth has only been made
possible because of technological changes. Commercially available
equipment that utilise wireless network services have only been on the
market in the last few years. Telecommunication advancements have
made broadband hubs more readily available in diverse locations.
Portable computers and hand held devices are now produced, or easily be
adapted, to utilise wireless network technology. Business e -mail
security systems, once reliant upon land based telephone line country
hubs, are now adapted to provide security with web based systems.<br />
<br />
Social changes also create the need for wireless networks to be made
available to the business traveller. The businessman replaced office to
hotel communication by fax with e-mail through hotel room telephone
lines. A disadvantage of this technique is that large documents and
files can take a long time to download. Additionally, the businessman
has to conduct all communications in his personal room so that call
charges can be billed. This compromises business discussions between
travellers in hotel conference rooms and lounges. This change of
attitude is reported by Junnarker (2003), 'High-speed access is
increasingly available at work and at home, and business travellers
aren't willing to compromise a fast connection when they travel. '<br />
<br />
The timing for this strategic alliance between Intel and Marriott is
explained by the accelerating competitive forces at the moment,
together with social and technological changes.<br />
<br />
<b>
Foreign direct investment</b><br />
<br />
'Cadence to invest $50m' (2003) is a good example of foreign direct
investment. The article reports on international investment of $50
million in the customer call centre and IT support service business.<br />
<br />
India currently enjoys comparative advantages in the CCC and IT support
service businesses. The availability of skilled workers at low cost
entice companies like Cadence to continue their foreign direct
investment which, according to the article, is $100 million since 1987.
India has a large pool of well educated graduates and their good
command of the English language is a legacy from colonial times. Whilst
western countries also have workforces skilled in the CCC and IT
support service industries, India is able to offer workers at a
relatively much lower cost.<br />
<br />
The article quotes the Cadence CEO as saying "We will approximately
invest $50 million in India in three years for research and development
and for scaling up capabilities to outsource customer support and
high-end call centre jobs to India." It's interesting to note
that the Cadence CEO is focusing on the 'high-end' of call centre jobs.
Although not stated in the article, it follows that the Cadence CEO
recognizes that innovative Indian CCC and IT support service companies
are in the maturity stage of their life cycle and that this focus on
high-end jobs is due to competitive, socio-economic and technological
factors and a need to differentiate.<br />
<br />
Low entry costs into the CCC market have created a glut of Indian
service providers, some well organised but others being more
speculative and lacking a good business model. These companies provide
insufficient CCC agent training and attract the attention of labour
unions from countries whose workers are displaced by foreign direct
investment. The quality of customer relations in these companies could
be better and bad international publicity is creating a backlash. Firms
in countries with large numbers of redundant CCC agents are improving
working conditions and training to compete on the quality of service.<br />
<br />
Ireland lost market share in the CCC industry when it's low labour cost
comparative advantage was reduced. Wages were increased to workers due
to demand and this appears to be also now happening in India.<br />
<br />
Technological changes in natural speech recognition within the next
five years will automate such low-end call centre activities as
telephone directory enquiries. The internet is already the preferred
method for parcel tracking, train times, airline bookings and on-line
shopping.<br />
<br />
According to the article, the Cadence CEO states, "India offers Cadence
tremendous opportunities to grow and expand it's scope of
activities..." However, political instability and infrastructure
factors may influence this growth.<br />
<br />
Historically, Indian governments have opposed foreign direct
investment. The current ruling coalition party encourages FDI.
This policy may be reversed with a change in government.<br />
<br />
Privatisation of the Indian telecom companies is proceeding at a slow
pace because of government bureaucracy. The telecom infrastructure
needs rapid improvement if the CCC and IT support service companies are
to maintain current growth rates.<br />
<br />
<b>
The role of culture</b><br />
<br />
‘Bickering is something of a habit' by Oon (2003) is a good example of
the role of culture. The article discusses the many unresolved
bilateral issues between Malaysia and Singapore. Oon (2003) identifies
the water issue as being the most important. The role of culture
plays a significant role in the majority of these unresolved issues. It
is well understood that Malaysia's additional income from a water price
increase wouldn't have a noticeable effect on the country's wealthand
Singapore has more than enough financial reserves to pay whatever price
Malaysia demands. The problem could be solved tomorrow wereit not for
one cultural factor common to both - saving ‘face'.<br />
<br />
Although Oon (2003) attributes today's problems to the acrimonious
split in 1965, it is evident that the cultures of Malaysia and
Singapore have been very adaptive since 1965. Unfortunately, they
have been diverging. Singapore's culture is being influenced by
the European and U.S. continents whilst that of Malaysia is being
influenced more by the Arab nations. The Singapore government has
actively sought to maintain a status quo between all nationalities
since 1965 whereas Malaysia has internally promoted the interests of
the Malay businesses at the expense of the Chinese.<br />
<br />
In negotiations between the two nations, Malaysia often accuses
Singapore of being too legalistic and the Malaysian PM refers to water
agreements of 1961 and 1962 as 'special prices on ancient pieces of
paper.' This difference in importance attached to written contracts is
another example of divergent cultures.<br />
<br />
Religion or social conduct is also an important factor. Confucianism
and effective business practices by the Chinese majority in Singapore
have been significant in the State's success since 1965. The
independent success of Singapore was unforeseen by Malaysia.' To
associate itself with some of Singapore's glory, according to Oon
(2003), 'Malaysia has tended to regard Singapore as the little brother
which needs to show the big brother more respect and deference.'
Obviously, statements like this are not well received in
Singapore. They give rise to what Malaysia sees as 'arrogant'
counter statements. Singapore is well aware of it's secular minority
status in the region of mainland Malaysia, Sumatra, Kalimantan and
Java. This is why it maintains an independent armed force strength
which is disproportionately greater than that of Malaysia and sometimes
displaying a siege mentality. According to Oon (2003), religious
differences also created problems in 1986 during a meeting when Israeli
diplomats visited Singapore, 'it's relationship with Malaysia was
soured for some time after that.' The current Malaysian PM is
replaced this year by Mr Bawadi and the article states that, 'many
political observers say there will be great pressure on him to stand
tough against Singapore.' This shows how the malevolent behaviour
aspect of Malaysia's culture is transmitted intragenerationally, due to
peer pressure.<br />
<br />
The role of culture in bilateral relations between neighbouring
counties is not unique to Malaysia and Singapore. Cultural
differences are usually the catalyst for the formation of two or more
new nations from an existing country.<br />
<br />
<b>
National trade policy</b><br />
<br />
'Businesses Say Reforms Must Start at Top' by Lavrentieva and Clark
(2003) is a good example of national trade policy. It reports upon an
interesting export demotion strategy in the energy sector. Russia is
the world's largest producer of natural gas. The country has an
oil reserve of fifty years in comparison to the world's average of ten
to twelve years and a gas reserve of seventy years. Russian companies
achieve margins six times greater for exporting gas when compared to
domestic gas sales.<br />
<br />
Russian Deputy Prime Minister Alexei Kudrin proposes a change in the
national trade and investment policy. The article states that 'export
duties on oil and petroleum products are likely to be increased to $39
to $40 per metric ton as of March 1, which would provide an additional
$500 million in the following two months and contribute as much as
$$4.6 billion to a stabilization fund by the end of the year.' Many
countries are removing barriers to international trade and most
remaining tariffs are collected only on imported goods or services. The
aim of this particular Russian government policy revision is to
diversify the economy away from it's heavy reliance upon energy sector
exports.<br />
<br />
The article quotes Kudrin as saying, 'The government is optimistic
about the diversification, which he said would allow for the
modernisation of the economy and give a much-needed jump start to
domestic production.' Although not stated in the article, the increase
in export duty would also tend to prolong the life that petroleum
products, as a natural resource in Russia, would give the country a
comparative advantage in the energy sector.<br />
<br />
The article states that additional revenues gained from the energy
export tariff increase will 'contribute as much as $4.6 billion to a
stabilisation fund by the end of the year.' This will shift the
current tax burden away from the manufacturing industries, allow for
increased spending in the country's infrastructure and could enable
export promotion of manufactured goods.<br />
<br />
Russia already has trade agreements with countries such as Kazakhstan,
Belarus and Ukraine which share their borders and with whom a common
heritage exists since soviet times. Russia's President Vladimir
Putin is keen for the remaining members of the eiS, currently outside
of the free economic space, to participate in trade agreements. Putin's
plan is for co-ordinated efforts to join the World Trade Organisation
in the future.<br />
<br />
Whilst the change to Russia's trade and investment policy to encourage
diversity is good, two factors may prevent $4.6 billion being realised
for the stabilisation fund.<br />
<br />
Firstly, as quoted by Kudrin in the article, 'If oil prices drop to $16
to $17 per barrel, due to the situation in Iraq, we could fall into a
trap where we don't get those taxes.'<br />
<br />
Secondly, as stated in the article, is the 'more amorphous and
persuasive problem of corruption.' Will the government's stabilisation
fund actually receive monies due by the large oil and gas corporations
for the export tariff increase?<br />
<br />
<b>
References</b><br />
<br />
'Cadence to invest $50m', Business Standard, February 25,2003.
Retrieved: March 7, 2003, from
http://www.business-standard.com/archives/2003/feb/50250203 .015.asp<br />
<br />
Junnarker,S. 2003, 'Marriott to double Wi-Fi coverage', CNET Networks,
February 27, 2003. Retrieved: March 7, 2003, from
http://news.zdnet.co.uklstory/O,,t269 S2131173,00.html<br />
<br />
Lavrentieva,V. & Clark,T. 2003, 'Businesses Say Reform Must Start
at Top', The Moscow Times, February 27,2003. Retrieved: March 7,2003,
from http://www. Themoscowtimes. co m/stories/2003/02/27/002. html<br />
<br />
Oon, Y. 2003, 'Bickering is something of a habit', Bangkok Post,
January 21, 2003. Retrieved: March 7,2003, from
http://www.bangkokpost.com/210103_News /21 Jan2003 - opin33. html</span>
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-13551670121266671802006-09-26T21:56:00.000+02:002014-06-09T09:58:24.749+02:00New product launchI originally wrote this article, “New product launch” in April 2003
when I was asked to spearhead the development of a new product.<br />
<br />
<strong>Summary</strong><br />
<br />
There
is a customer need for an effective household lizard destroyer.
An innovative electrostatic device has been developed and will be
launched on 1st July at five retail outlets in Singapore. The company
has low fixed costs, low market exit costs and a positive cash flow
forecast after product introduction. As the company is new, it has no
reputation and promotion is limited to passing trade at five store
locations. Opportunities exist for product diversification for the
extermination of other household pests. Threats remain from a depressed
market caused by economic downturn and raw material supply from China
is a concern. A market-penetration pricing objective is chosen. Cost
estimation, competitor's prices and the company's ROI objective dictate
a selling price of S$28.99 per unit. An action programme of pre-launch
tasks has been produced. The marketing budget clearly forecasts that
the product should be deleted after 2 years when it is in the decline
period of its life cycle and demand has fallen. Sales, financial
and personnel controls procedures will be adopted.<br />
<br />
<strong>Product life cycle</strong><br />
<br />
The four stages of the product life cycle for the <i>LizaKilla</i>TM
in Singapore’s home country market are estimated to be 3 months
introduction, 6 months growth, 2 years maturity and 4 years of
decline. Although risky and expensive, we choose to gain a
pioneer advantage by being first into the market with our electrostatic
lizard terminator. Our quality product uses new technology and
our company will benefit from the brand awareness of being first to
enter the market. We expect to add new design features to the existing
product at the latter end of the growth stage to sustain market growth.
Our advertising, promotion and pricing will be modified during the
maturity stage and the product will be deleted from our range at the
latter end of the decline stage.<br />
<br />
<strong>Market evaluation</strong><br />
<br />
The market for the <i>LizaKilla</i>TM
is currently latent. Customers need an efficient method of ridding
their premises of house lizards but no highly effective product is
currently available. Two surveys of 100 home owners each in Jurong,
Holland Village and 20 business owners throughout the island show that
70% would be interested in buying ournew product if it was economic to
buy, maintenance free and was more successful that current methods. We
expect competitors to enter the market as it grows and we will defend
our share of the market through introducing product innovations. As
competition becomes more fierce during the maturity stage of the
market, our modified advertising, promotion and pricing will maintain
our position as market leader. As the market becomes saturated and
demand declines, we will dispose of the product when profits become
unattractive.<br />
<br />
<strong>Challenges</strong><br />
<br />
We face many challenges with our launch of <i>LizaKilla</i>TM
but we have taken steps to mitigate our risks associated with bad
market information, product performance, costs and competition.<br />
<br />
<strong>Ideas</strong><br />
<br />
Our
idea for this new product came from the need of customers who were
dismayed with the ineffective traditional method of house lizard
extermination. We used several creativity techniques to provide a short
list of six alternative product designs. The electrostatic device was
chosen in preference to our other alternatives of ultrasonic,
mechanical, electrical and chemical device ideas.<br />
<br />
<strong>Concept to strategy</strong><br />
<br />
Over the last few months, we've developed several <i>LizaKilla</i>TM
prototypes and tested them at various locations throughout Singapore.
Prototype MKT01 was the most effective but was not economic to
manufacture. Prototype MKT02 suffered from spurious discharges
which reduced battery life. The most economic prototype was MKT04, but
the structure of this model was not rigid enough for commercial use.
Eventually, from development tests, we chose Prototype MKT03 as being
economic to manufacture, effective and robust for commercial use. Our
marketing strategy for pricing, distribution, market size, structure,
share, positioning and financials are given in our marketing plan.<br />
<br />
<strong>Development to commercialisation</strong><br />
<br />
We
negotiated the supply of raw materials which arrive from China every
month. Our fist batch arrived last month and our staff of four contract
employees are assembling 100 units per day to build up stock for the
product launch and market testing next month. We've secured contracts
with Cold Storage at their Centrepoint, China Square, Holland Village,
Novena and Takashimaya locations. We'll be market testing for the first
month at these stores. If the trial results prove favourable then we'll
commence negotiations to expand our manufacturing operations by moving
to larger premises at the start of the growth phase in three months.<br />
<br />
<strong>Consumer adoption</strong><br />
<br />
Cold storage have agreed to locate our <i>LizaKilla</i>TM
product displays at end-of aisle positions at it's five stores for a an
initial one month period to create customer awareness. Each display
stand has an enlarged lizard at it's top to stimulate interest and
customers can evaluate the product by reading the technical and
commercial information at the display stand. We expect that our
marketing mix will encourage customers to buy <i>LizaKilla</i>TM and to recommend the product to others, after effective trials at their home.<br />
<br />
<strong>Product mix</strong><br />
<br />
The <i>LizaKilla</i>TM
provides benefits to the customer at various levels. The core benefit
is the elimination of lizard faeces on ceilings, walls, floors and
eradication of any bacteria, virus or disease spread by the
reptile. Our basic product consists of a 15 cm plastic oblong,
internally housing an electro statically charged foil mat powered by a
battery operated capacitance circuit with automatic discharge. The
product expected by our customers, we estimate, has a battery life of
six months, is safe to humans, 95% effective, robust, easy to operate,
can be moved around the premises and retains the dead lizard as
evidence of a kill. An augmented product will be introduced at the
start of the growth stage. We will continually develop the <i>LizaKilla</i>TM, using customer feedback, to produce the potential product during the growth stage.<br />
<br />
<strong>Branding</strong><br />
<br />
The trade name of our <i>LizaKilla</i>TM
product has been registered and our strategies instil the idea of
affordable effectiveness in the customer's mind. The product represents
the values of our company being a quality manufacturer of an effective,
economical product. The identity of the<i>LizaKilla</i>TM is
readily identified by it's name and our logo of a green lizard inside a
yellow circle with a line through, signifies the absence of lizards. We
will build brand loyalty through reputation so that our brand equity
differentiates our product from competitors' offerings during the
growth stage. Customer feedback and complaints will be efficiently
dealt with to retain our brand equity.<br />
<br />
<strong>Packaging</strong><br />
<br />
The
packaging takes advantage of the rectangular shape of the
product. The external surfaces are flat, as all the functional
parts are contained within the oblong housing. The product name, logo
and instructions are all printed on the external surfaces to allow
simple and cost effective clear cellophane to package the product.<br />
<br />
<strong>Preface - organisation, mission, corporate objectives</strong><br />
<br />
Lizakilla
(Singapore) Pte Ltd was incorporated on 1st April 2003 with registered
offices at Shopping Block 445, Clementi Avenue 3. There are currently
two full time employees (directors) and four contract workers based at
the 500 sq. feet ground floor facility. Each company director has
provided S$10,000 of share capital and S$40,000 of investment capital
in Lizakilla (Singapore) Pte Ltd. The company mission statement of
Lizakilla is "We serve our customers with quality products which keep
their homes free of household pests. Our customers benefit from
receiving the latest technology in pest extermination devices at
affordable prices.”<br />
<br />
The company has financial, marketing,
operational and personnel corporate objectives. A return upon
investment of greater than 85 percent per year will be achieved through
market leadership in all of our product offerings. We will efficiently
execute our operations, matching scale with demand. We will provide a
stable work environment to attract and retain staff.<br />
<br />
<strong>Current marketing situation</strong><br />
<br />
The total market size for <i>LizaKilla</i>TM
is that of all homeowners in Singapore (approx. 800,000). Our market
surveys show that the potential market of Singaporeans with a
sufficient level of interest in an electrostatic lizard terminator is
approximately 500,000. Out of this, it's estimated that the available
market of people with income, access and interest is approx.
200,000. To curtail promotion costs, the target market size of
100,000 relies upon available market customers patronising the five
Cold Storage locations, during introduction. The potential, available
and target market sizes will grow as the number of people interested in
the offer expands, due to the stores promotions and referrals. The
penetrated market is expected to grow quarterly from 1 % to 4% of the
target market during growth, reaching a saturation level of 6% before
decline, as shown in the table below :<br />
<br />
<table border="0"><tbody>
<tr><td><br /></td><td>Introduction</td><td>Growth</td><td>Maturity</td><td><br /></td><td><br /></td><td><br /></td></tr>
<tr><td><br /></td><td>2003</td><td><br /></td><td>2004</td><td><br /></td><td><br /></td><td><br /></td><td>2005</td></tr>
<tr><td><br /></td><td>Q3</td><td>Q4</td><td>Q1</td><td>Q2</td><td>Q3</td><td>Q4</td><td><br /></td></tr>
<tr><td>Market</td><td>800k</td><td>800k</td><td>800k</td><td>800k</td><td>800k</td><td>800k</td><td>800k</td></tr>
<tr><td>Potential market</td><td>500k</td><td>510k</td><td>520k</td><td>530k</td><td>540k</td><td>540k</td><td>540k</td></tr>
<tr><td>Available market</td><td>200k</td><td>204k</td><td>208k</td><td>212k</td><td>216k</td><td>216k</td><td>216k</td></tr>
<tr><td>Target market</td><td>100k</td><td>102k</td><td>104k</td><td>106k</td><td>108k</td><td>108k</td><td>108k</td></tr>
<tr><td>Penetrated market</td><td>1k</td><td>2k</td><td>4k</td><td>5k</td><td>6k</td><td>6k</td><td>12k</td></tr>
</tbody></table>
<br />
<strong>Strengths and weaknesses</strong><br />
<br />
An evaluation of <i>LizaKilla</i>TM and Lizakilla (Singapore) pte Ltd's internal strengths and weaknesses gives:<br />
<br />
<strong>Strengths</strong><br />
<br />
<ul>
<li>The quality of the product is tested during assembly, prior to distribution</li>
<li>Delivery of the product to each stores location takes place every day by a dedicated employee</li>
<li>The product is innovative and uses the latest technology</li>
<li>The finance of the product launch is entirely by way of share capital and personal investment by company directors</li>
<li>The cash flow forecast, after introduction, is favourable</li>
<li>The company is currently financially stable</li>
<li>The fixed cost for the small assembly facility is low</li>
<li>All of the workforce are on six month renewable contracts</li>
<li>Assembly efficiency within the small company is high</li>
<li>The business premises are on a short term lease</li>
<li>The directors are proven good leaders and have a financial interest in the success of the company</li>
<li>The company directors have an entrepreneurial orientation</li>
<li>The company has the flexibility to cease trading with low exit costs and the ability to expand with minimum relocation loss</li>
</ul>
<br />
<strong>Weaknesses</strong><br />
<br />
<ul>
<li>The company is new and has no track record</li>
<li>Promotion of the product is through passing trade in Cold Storage outlets only</li>
<li>Only five retail stores locations are used during the product launch</li>
<li>The current workshop has a limited output capacity</li>
<li>The workforce is contract labour</li>
</ul>
<br />
<strong>Threats and opportunities</strong><br />
<br />
An analysis of <i>LizaKilla</i>TM and Lizakilla (Singapore) pte Ltd's opportunities and environmental threats gives:<br />
<br />
<strong>Opportunities</strong><br />
<br />
<ul>
<li>Stimulation
and retention of the interest of passing trade, within the five stores,
through regular change of the end-of-aisle displays</li>
<li>Expansion in the number of sales places to include all of the Cold Storage store locations</li>
<li>Expansion in categories of sales places to include all grocery and hardware locations for a variety of companies</li>
<li>Accreditation to ISO 9000 and Singapore PSB domestic product testing to display conformance to standards by the product</li>
<li>Product diversification for the extermination of other household pests</li>
<li>Cost effectiveness through the economies of scale</li>
<li>Promotion through internet based companies</li>
<li>Developments in attributing disease to household lizards</li>
</ul>
<br />
<strong>Threats</strong><br />
<br />
<ul>
<li>Economic downturn reduces the available market size</li>
<li>Government legislation protecting certain species of reptile</li>
<li>Adverse publicity from animal rights campaigners</li>
<li>Premature entry into the market of competitors</li>
<li>Withdrawal of sales place by retailers</li>
<li>Disruption to supply of raw materials from China</li>
</ul>
<br />
<strong>Marketing strategies</strong><br />
<br />
The
company has considered options in selecting the objective of market
penetration pricing. Survival pricing was not chosen because it is
short term and just covering costs would not assist in company
expansion. Maximum current profit pricing was excluded because market
demand for is not known with certainty. The product does not lend
itself to market-skimming pricing as their insufficient buyers with a
high demand. Market-penetration pricing will stimulate the market
growth required, lower costs and discourage competition.<br />
<br />
Although customers are expected to buy the <i>LizaKilla</i>TM
infrequently, the maximum price that may be charged has to be set to
provide a minimum demand. As the product is new, there is no history to
estimate the relationship between price and demand. The price may be
adjusted once the elasticity of demand has been established during the
introduction phase of the product.<br />
<br />
The fixed cost for Lizakilla
(Singapore) Pte Ltd are S$20,000.00 per month for the business unit
rent, utilities, salaries and transport. The variable cost of the<span style="font-style: italic;"> LizaKilla</span>TM
is S$5.00 per unit for the raw materials from China andfor the cost of
packaging each item. From these fixed and variable costs, the average
cost per unit is :<br />
<br />
<table border="0"><tbody>
<tr><td>Monthly production</td><td>Fixed cost</td><td>Variable cost</td><td><br /></td><td><br /></td><td><br /></td><td>Total cost</td><td><br /></td><td><br /></td><td>Average cost per unit</td><td><br /></td></tr>
<tr><td>1000</td><td>S$20,000</td><td>S$5,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$25,000</td><td><br /></td><td><br /></td><td>S$25.00</td><td><br /></td></tr>
<tr><td>2000</td><td>S$20,000</td><td>S$10,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$30,000</td><td><br /></td><td><br /></td><td>S$15.00</td><td><br /></td></tr>
<tr><td>3000</td><td>S$20,000</td><td>S$15,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$35,000</td><td><br /></td><td><br /></td><td>S$11.67</td><td><br /></td></tr>
<tr><td>4000</td><td>S$20,000</td><td>S$20,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$40,000</td><td><br /></td><td><br /></td><td>S$10.00</td><td><br /></td></tr>
<tr><td>5000</td><td>S$20,000</td><td>S$25,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$45,000</td><td><br /></td><td><br /></td><td>S$9.00</td><td><br /></td></tr>
<tr><td>6000</td><td>S$20,000</td><td>S$30,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$50,000</td><td><br /></td><td><br /></td><td>S$8.33</td><td><br /></td></tr>
<tr><td>7000</td><td>S$20,000</td><td>S$35,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$55,000</td><td><br /></td><td><br /></td><td>S$7.86</td><td><br /></td></tr>
<tr><td>8000</td><td>S$20,000</td><td>S$40,000</td><td><br /></td><td><br /></td><td><br /></td><td>S$60,000</td><td><br /></td><td><br /></td><td>S$7.50</td><td><br /></td></tr>
</tbody></table>
<br />
There are currently three competing products in the market for getting rid of house lizards :<br />
<br />
<table border="0"><tbody>
<tr><td>Competitor’s product</td><td>Selling price</td><td>Characteristics</td><td>Estimated monthly demand</td></tr>
<tr><td>Ultrasonic repeller</td><td>S$80.00</td><td>Plugs into electricity supply. Emits repelling high frequency sound with 80% claimed success. No evidence of kill.</td><td>100</td></tr>
<tr><td>“Wet Feet”</td><td>S$30.00</td><td>White chemical painted onto walls and ceilings.</td><td>200</td></tr>
<tr><td>Lizard paper</td><td>S$3.50</td><td>Paper with adhesive on one side to catch prey. Ineffective.</td><td>400</td></tr>
</tbody></table>
<br />
Lizakilla
(8ingapore) Pte Ltd estimates that a price position below the
ultrasonic repeller and “Wet Feet” but abovelizard paper is correct.<br />
<br />
The
lowest price, given a customer monthly demand of 2000 to 4000 units is
S$10.00 to S$15.00. At this price the company would make no
profit. The highest price is dictated by positioning within the
current product offerings of competitors and is S$30.00. Additionally,
the company's financial objective dictates a target rate of 85% minimum
return on investment per year. Target -return pricing dictates a unit
selling price of S$28.99, as shown in the cash flow forecast. It is
estimated that the customer would have a reference price of $20.00 to
$30.00 for the product, based upon competitive products and the
application of the device. Additionally, the company is anxious to
encourage Cold Storage to promote the product and has agreed to offer
S$5.00 commission to the retailer on the sale of each unit. Taking into
account the psychological benefit of '.99', a sales price of S$28.99 is
chosen.<br />
<br />
<strong>Action programme</strong><br />
<br />
<br /><table border="0"><tbody>
<tr><td><br /></td><td>Action plan for product launch on 1st July 2003</td><td><br /></td><td><br /></td><td><br /></td></tr>
<tr><td>Item</td><td>Description</td><td>Person responsible</td><td>Date required</td><td>Date completed</td></tr>
<tr><td>01</td><td>Meet Cold Storage to sign sales contract</td><td>Tan M H</td><td>01 May</td><td><br /></td></tr>
<tr><td>02</td><td>Buy stands for product in store displays</td><td>Wong B</td><td>15 May</td><td><br /></td></tr>
<tr><td>03</td><td>Stock control procedure with Cold Storage</td><td>Tan M H</td><td>13 May</td><td><br /></td></tr>
<tr><td>04</td><td>Create workshop inventory system</td><td>Tsee M</td><td>20 May</td><td><br /></td></tr>
<tr><td>05</td><td>Define daily stocking store procedure</td><td>Tsee M</td><td>23 May</td><td><br /></td></tr>
<tr><td>06</td><td>Process April letter of credit letter with supplier</td><td>Wong B</td><td>26 Apr</td><td><br /></td></tr>
<tr><td>07</td><td>Expedite supplier for May delivery</td><td>Tsee M</td><td>26 Apr</td></tr>
<tr><td>08</td><td>Process May letter of credit with supplier</td><td>Wong B</td><td>26 May</td><td><br /></td></tr>
<tr><td>09</td><td>Expedite supplier for June delivery</td><td>Tsee M</td><td>26 May</td><td><br /></td></tr>
<tr><td>10</td><td>Commence discussions with new premises landlord</td><td>Tan M H</td><td>15 Jun</td><td><br /></td></tr>
<tr><td>11</td><td>Process June letter of credit with supplier</td><td>Wong B</td><td>26 Jun</td><td><br /></td></tr>
<tr><td>12</td><td>Meet Cold Storage for display locations</td><td>Wong B</td><td>23 Jun</td><td><br /></td></tr>
<tr><td>13</td><td>Deliver product to 5 Cold Storage sores</td><td>Tsee M</td><td>30 Jun</td><td><br /></td></tr>
</tbody></table>
<br />
<strong>Marketing budget</strong><br />
<br />
<table border="0"><tbody>
<tr><td>Sales</td><td>Jul-03</td><td>Aug-03</td><td>Sep-03</td><td>Oct-03</td><td>Nov-03</td><td>Dec-03</td></tr>
<tr><td>Units sold</td><td>300</td><td>300</td><td>400</td><td>500</td><td>700</td><td>800</td></tr>
<tr><td>Sales @ S$23.99/unit</td><td>8,697</td><td>8,697</td><td>11,596</td><td>14,495</td><td>20,293</td><td>23,192</td></tr>
<tr><td>Cost of sales </td><td><br /></td><td><br /></td><td><br /></td><td><br /></td><td><br /></td><td><br /></td></tr>
<tr><td>Retailer commission </td><td>1,500 </td><td>1,500 </td><td>2,000 </td><td>2,500 </td><td>3,500 </td><td>4,000 </td></tr>
<tr><td>Fixed costs </td><td>20,000 </td><td>20,000 </td><td>20,000 </td><td>20,000 </td><td>20,000 </td><td>20,000 </td></tr>
<tr><td>Variable cost </td><td>1,500 </td><td>1,500 </td><td>2,000 </td><td>2,500 </td><td>3,500 </td><td>4,000 </td></tr>
<tr><td>Total cost </td><td>23,000 </td><td>23,000 </td><td>24,000 </td><td>25,000 </td><td>27,000 </td><td>28,000 </td></tr>
<tr><td>Opening balance </td><td>80,000 </td><td>65,697 </td><td>51,394 </td><td>38,990 </td><td>28,485 </td><td>21,778 </td></tr>
<tr><td>Contribution </td><td>(14,303) </td><td>(14,303) </td><td>(12,404) </td><td>(10,505) </td><td>(6,707) </td><td>(4,808) </td></tr>
<tr><td>Closing balance </td><td>65,697 </td><td>51,394 </td><td>38,990 </td><td>28,485 </td><td>21,778 </td><td>16,970 </td></tr>
</tbody></table>
<br />
<table border="0"><tbody>
<tr><td>Sales </td><td>Jan-04 </td><td>Feb-04 </td><td>Mar-04 </td><td>Apr-04 </td><td>May-04 </td><td>Jun-04 </td></tr>
<tr><td>Units sold </td><td>1200 </td><td>1300 </td><td>1500 </td><td>1600 </td><td>1700 </td><td>1700 </td></tr>
<tr><td>Sales @ S$23.99/unit </td><td>34,788 </td><td>37,687 </td><td>43,485 </td><td>46,384 </td><td>49,283 </td><td>49,283 </td></tr>
<tr><td>Cost of sales </td><td><br /></td><td><br /></td><td><br /></td><td><br /></td><td><br /></td><td><br /></td></tr>
<tr><td>Retailer commission </td><td>6,000 </td><td>6,500 </td><td>7,500 </td><td>8,000 </td><td>8,500 </td><td>8,500 </td></tr>
<tr><td>Fixed costs </td><td>20,000 </td><td>20,000 </td><td>20,000 </td><td>20,000 </td><td>20,000 </td><td>20,000 </td></tr>
<tr><td>Variable cost </td><td>6,000 </td><td>6,500 </td><td>7,500 </td><td>8,000 </td><td>8,500 </td><td>8,500 </td></tr>
<tr><td>Total cost </td><td>32,000 </td><td>33,000 </td><td>35,000 </td><td>36,000 </td><td>37,000 </td><td>37,000 </td></tr>
<tr><td>Opening balance </td><td>16,970 </td><td>19,758 </td><td>24,445 </td><td>32,930 </td><td>43,314 </td><td>55,597 </td></tr>
<tr><td>Contribution </td><td>2,788 </td><td>4,687 </td><td>8,485 </td><td>10,384 </td><td>12,283 </td><td>12,283 </td></tr>
<tr><td>Closing balance </td><td>19,758 </td><td>24,445 </td><td>32,930 </td><td>43,314 </td><td>55,597 </td><td>67,880 </td></tr>
</tbody></table>
<br />
<strong>Controls</strong><br />
<br />
The
marketing plan has sales, financial and personnel controls procedures
to keep the programme on track and to identify any changes that may be
required.<br />
<br />
Sales figures are received daily when stock is taken
and replenished by the dedicated distribution worker for Lizakilla
(Singapore) pte Ltd. Additionally, this information is verified
in the weekly account statement from Cold Storage. Production volumes
and raw material purchases are adjusted during the demand forecast for
the next four weeks.<br />
<br />
Payments received, and expenditure made,
are reconciled with bank statements every month and audited company
accounts are produced every six months. Deviations from cash flow
forecasts are analysed and corrective action is taken, where required.<br />
<br />
Personnel
are informed every Friday afternoon of next week’s production target
and contract workers are advised every month of the security of their
tenure.
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-61624335380184081332006-09-24T11:32:00.000+02:002014-06-09T09:58:48.206+02:00Marketing management<span style="font-size: small;"><br />
I originally wrote this article, “Marketing management” in March 2003
when Mickey Bakshi, the owner of Hide & Chic Luggage sought my
advice.<br />
<br /><b>
September 2001:</b><br />
<br />
Mickey Bakshi was planning the opening of his new store in Parramatta,
Sydney, for October 4, 2001. Mickey had worked in the luggage business
for over 10 years; he had started with a stall at the Sydney Markets
and over the years had established good contacts with suppliers and
wholesalers. When he heard about the new Riverbank Shopping Centre
being developed in Parramatta he decided the time was right to open his
own store.<br />
<br />
Mickey's vision was for a specialised luggage store offering good
quality at value-for-money prices. Apart from Grace Bros and David
Jones there was no specialised luggage store in the west of Sydney. The
concept of a store specialising in luggage and briefcases had been
successful in Sydney city. Mickey checked out other shopping centres in
the Sydney metropolitan area, before settling on the Riverbank,
Parramatta.<br />
<br />
He chose the catchy name "Hide & Chic Luggage" for his store. His
luggage range included well-known brands: Samsonite, Antler, Paklite
and Hedgrain as well as some cheaper unbranded lines. He also offered
complementary products: leather briefcases, and small leather goods
such as wallets and purses.<br />
<br />
Parramatta was the third largest CBD in Australia. The Riverside Centre
was close to the CBD and would house 50 stores. Around 30% of the
stores were already trading, the rest would open over the next 3 to 4
months. Mickey selected his location carefully, finally settling on a
site close to Country Road, Bed BathNTable, and David Jones Foodchain,
which he believed would ensure passing customers.<br />
<br />
Riverside was being marketed by the developers as an 'up-market'
shopping centre, supported by a $2 million promotional spend spread
over the next 12 months. Mickey had placed advertisements in the local
paper to create awareness of his new store.<br />
<br /><b>
October 2001:</b><br />
<br />
Reviewing performance week by week following the opening, Mickey was
becoming increasingly concerned. His worst fears were being realised;
world events through September and the collapse of Ansett Airlines in
Australia were having a serious impact on sales. Luggage sales were
virtually non-existent, wallets had been his main seller but these
alone would not bring in enough turnover or profit.<br />
<br />
Asmorestores in thecentre opened, customertraffic was beginning to
build up; the lunchtime period was especially busy with workers from
nearby offices. Mickey believed his prime target market was women aged
25-39 but men were also visiting the store.<br />
<br />
Mickey decided to extend his product line to include sports bags and
other casual bags to counter the falling demand for luggage, and with
the Christmas trading season looming. He found he was often having to
give a discount to attract customers; he couldn't afford to spend any
more on promotion.<br />
<br /><b>
October 2002:</b><br />
<br />
Mickey's business had survived - just. Luggage sales had slowly picked
up but were still well below his forecast, and he had continued to
stock the sports bags and casual bags to boost sales. He was breaking
even, mainly because the landlord had agreed to reduce his rent.<br />
<br />
Occupancy of the shopping centre had not achieved forecast levels and
David Jones had announced the Parramatta Foodchain would close in the
next few months. David Jones launched its first Foodchain outlet in
Brighton, Melbourne in November 2000, and followed with stores at
Hawthorn and St Kilda in Melbourne, and Parramatta, 'Sydney. At
Foodchain you could find fresh foods and prepared meals, an extensive
range of everyday grocery lines at competitive prices, as well as
speciality products from Australia and around the globe.<br />
<br />
According to David Jones, an operational review had highlighted
operational issues for Foodchain's failure to meet key targets. Whilst
some locations were expected to achieve targets this year, Parramatta
did not meet their revised site selection criteria and they had
approached the Parramatta landlord regarding assigning the lease.<br />
<br />
The departure of Foodchain was a blow to the shopping centre, although
centre management were confident they would attract one of the major
supermarkets (Woolworths or Coles) to take over the Foodchain site.<br />
<br />
Mickey was worried about the future direction for his business. Hearing
that I was business consultant, he had sought my advice.<br />
<br /><b>
Summary</b><br />
<br />
Marketing is of growing importance to Hide & Chic. Marketing
focuses on the needs of the buyer, as opposed to the sellers needs.
Hide & Chic can obtain a differential advantage using the tools of
the marketing mix, ie. product, price, promotion and place. A marketing
plan is required to implement the marketing concept through SMART
goals.Primary and secondary market research information may be
obtained at low cost by Hide & Chic. The company needs to be aware
of; what triggers the need for luggage, where buyers search for
information, evaluation of alternatives, purchase decision influences
and customer satisfaction. Hide & Chic can position their luggage
to attract target customers within a market segment.<br />
<br /><b>
Marketing concept</b><br />
<br />
An understanding of the concept of marketing to Hide & Chic Luggage
could create the difference between the success or failure of the
company. Marketing is a separate and different activity to selling. The
two terms are often wrongly used synonymously.<br />
<br />
The selling concept focuses on the needs of the seller. The
organisation has stock of a product and sells it, without much
knowledge or research into the needs of the customer.<br />
<br />
The marketing concept focuses on the needs of the buyer. Emphasis is
given to providing value to the customer. Companies using the marketing
concept get to know who their customers are, what they actually value
and strive to give better value than their competitors.<br />
<br /><b>
Implementing the marketing concept</b><br />
<br />
The marketing concept involves providing a product or service that
meets the value requirements of the customer. Hide & Chic can use
four marketing tools to categorize their current and to implement their
desired position in the luggage retail market. These are to consider
the product, price, place and promotion for Hide & Chic Luggage to
obtain a differential advantage over the competition. These four 'P's
are known as the marketing mix.<br />
<br />
The product can be considered in terms of Hide & Chic's luggage design features, branding, quality and other attributes.<br />
<br />
The price component of the marketing mix considers the pricing strategy
to be adopted by Hide & Chic and determines the selling price,
credit allowed or discounting.<br />
<br />
Promotion of Hide & Chic Luggage may be through several avenues,
which may include magazine slots, newspaper adverts, sales promotions,
etc.<br />
<br />
Hide & Chic's place of conducting the business involves a study of
the store's physical location, stock capacity and stock variety.<br />
<br />
Implementation of the marketing concept also needs to take into account
microenvironmental forces and macroenvironmental forces that are
affecting Hide & Chic's business. Competitors, suppliers and
customers are exmples of microenvironmental forces. Macroenvironmental
forces such as recession, terrorism and bush fires also affect the
business.<br />
<br /><b>
Marketing planning</b><br />
<br />
Hide & Chic Luggage need a marketing plan to implement the
marketing concept. All businesses have a finance plan to control cash
flow. Large companies may also have a mission statement, business
objectives, business plan, production plan, etc. Small companies like
Hide & Chic need a separate marketing plan, in addition to their
business I finance plan. Hide & Chic would aIso benefit from the
creation of business objectives derived from a mission satement to
avoid the creation of a narrow marketing plan or one focused in the
wrong direction.<br />
<br />
The marketing plan should consist of an audit of the current situation,
goals for the desired outcome and a breakdown of tasks to achieve the
goals. Most importantly, constant feedback is required throughout the
execution to control and adjust the plan.<br />
<br /><b>
Information for marketing</b><br />
<br />
Hide & Chic need information on their market and would benefit from low cost market research methods.<br />
<br />
Market research of competitor performance at Grace Bros. and David
Jones can be done by relatives or friends staking out stores over given
periods to obtain primary data.<br />
<br />
Research of market size and fluctuation can be obtained from published
secondary data at no cost. For example; government economy statements
and forecasts, airline traveller numbers and Sydney demography can be
obtained from the internet.<br />
<br /><b>
Knowing your customer</b><br />
<br />
It's important that Hide & Chic are aware of the buying
decision-making process of their customers. This impacts upon the
company's current strategy to offer different quality levels of luggage
at the same location. The buying decision process can be
chronologically divided into the five processes of trigger, search,
evaluation, decision and satisfaction.<br />
<br />
What triggers a need in the customer to buy luggage?<br />
<br />
Where does the buyer search for information on what luggage to buy?<br />
<br />
How does the buyer evaluate the alternatives in luggage available to him?<br />
<br />
Who and what influences the buyer to decide to complete the purchase?<br />
<br />
How does Mickey retain satisfied customers and minimize dissonance?<br />
<br />
The above processes are influenced by psychological, personal, cultural and social factors.<br />
<br /><b>
Segmentation, targeting and positioning</b><br />
<br />
Hide & Chic can position their luggage to attract target customers within a market segment.<br />
<br />
Market segmentation for Hide & Chic involves recognizing and
profiling the customer group for it's luggage sales. The segment can be
described in demographic, geographic, psychographic and behavioural
terms. Within the market segment, Hide & Chic may identify niches
of buyers who want to purchase quality luggage. Additionally, this
niche will consist of several people from the local area of Sydney or
individuals willing to travel to the store to make a purchase.<br />
<br />
Hide & Chic may target customers through concentration, specialisation or even full market coverage.<br />
<br />
Concentration on a single segment of the market would be aimed at
people in the same location within a certain age group exhibiting
similar behaviour and holding the same values.<br />
<br />
Specialization in market segmenting could be selective, product or
market specialized. The abovementioned single segment market may be too
volatile. Selective marketing chooses several, single segments to
spread the risk. Product specialization focuses on one product within
several segments and market specialization targets one segment with
many products.<br />
<br />
Full market coverage isn't viable for Hide & Chic. It requires
mass-advertising for undifferentiated marketing or a large inventory
for differentiated marketing<br />
<br />
The timing of Mickey's entry into the sale of specialised, good quality
luggage at value-for-money prices is unfortunate. The recent national
economy slowdown was exasperated by the further effects of 911 in the
travel industry and, consequently, demand for his company's products
was lower that anticipated. It's recommended that his company vacates
the Riverside Centre because of low occupancy and an uncertain future.
The available market passing trade at Riverside doesn't exist. Mickey
should re-locate to a large CBD with a proven available market passing
trade within his segment for quality luggage. Unbranded luggage should
be dropped from his offering. Economic market information is required
by Hide & Chic and, when above break even, promotion should
commence to increase market share.<br />
<br /><b>
Evaluation of Hide & Chic's marketing strategy to date</b><br />
<br />
Hide & Chic's current marketing position can be analysed by
investigating the company's internal strengths and weaknesses and
considering external opportunities and threats.<br />
<br /><table><tbody>
<tr><td colspan="2" rowspan="1"><strong>
INTERNALFORCES</strong></td></tr>
<tr><td><strong>STRENGTHS</strong></td><td><strong>WEAKNESSES</strong></td></tr>
<tr><td>10 years luggage sales experience</td> <td>No marketing skills</td> </tr>
<tr> <td>Good supplier & wholesaler contacts</td> <td>No store sales experience</td></tr>
<tr> <td>Vision for good quality luggage store</td> <td>No profits to re-invest</td> </tr>
<tr> <td>Proven successful product concept</td> <td>Riverside store location decision</td> </tr>
<tr> <td>Offering complimentary products</td> <td>Mix of branded and unbranded product in same store</td> </tr>
<tr> <td>Good passing trade demography</td> <td>Wrong choice of advertising</td> </tr>
<tr> <td><br /></td> <td>Wrong identification of target market</td> </tr>
<tr> <td><br /></td> <td>Product extension to casual bags</td> </tr>
<tr> <td><br /></td> <td>Discounting to attract trade</td> </tr>
<tr> <td><br /></td> <td>No promotional budget left</td> </tr>
<tr> <td colspan="2" rowspan="1"><strong>
EXTERNAL FORCES</strong></td> </tr>
<tr> <td><strong>OPPORTUNITIES</strong></td> <td><strong>THREATS</strong></td> </tr>
<tr> <td>Economic upturn in 2004?</td> <td>Store opened just after 911</td> </tr>
<tr> <td>Only two competitors in West Sydney</td> <td>Collapse of Ansett Airlines</td> </tr>
<tr> <td>Riverside marketed as 'up-market'</td> <td>Lower demand for air travel luggage</td> </tr>
<tr> <td>$2 million Riverside promotion</td> <td>Economic downturn till 2004</td> </tr>
<tr> <td>Workers from nearby offices</td> <td>Low Riverside Centre occupancy</td> </tr>
<tr> <td>Lower rent to reduce fixed costs</td> <td>Low passing trade for Country Road</td> </tr>
<tr> <td>Woolworths or Coles at Riverside</td> <td>David Jones Foodchain closing</td> </tr>
</tbody></table>
<br /><b>
Definition of the problem faced by Hide & Chic</b><br />
<br />
Hide and Chic's problem is that the potential and available markets for
it's product have collapsed. The potential and available markets
for quality luggage customers contracted in 2001 and will not recover
till 2004. The problem can be sub-divided into the three external
factors of national economy, travel decline and passing trade.<br />
<br /><b>
Nationaleconomy</b><br />
<br />
The national economy is in a downturn till 2004. Retrenched consumers
have left the available market and returned to the potential market
till they have income. Additionally, the interest of consumers still
within the available market has reduced. Quality luggage purchases are
delayed by the available market till the return of the 'feel good'
factor.<br />
<br /><b>
Travel decline</b><br />
<br />
Travel by air attracts less people now than compared to two years ago.
Less people have an interest innew travel luggage and have left the
potential market.<br />
<br /><b>
Passing trade</b><br />
<br />
The ability to attract the interest of the available market through
passing trade is less than Hide & Chic envisaged because of
transient and long term factors.<br />
<br /><b>
Transient passing trade</b><br />
<br />
Hide and Chic are located adjacent to Country Road, Bed BathNTable and
David Jones Foodchain. They share a common market segment. The
transient increase in passing trade from the correct market segment
during a good national economy benefits all adjacent stores. However,
the decrease in passing trade during economic downturns is caused by
the temporary loss of a whole market segment.<br />
<br /><b>
Long term passing trade</b><br />
<br />
Occupancy of the shopping centre has not achieved forecast levels. The
overall size of the available market of interested consumers is lower
than anticipated by Hide & Chic. Compounded with the transient
lower available market, there is effectively no commercially viable
available market for Hide & Chic's quality luggage in it's current
location through passing trade.<br />
<br /><b>
Alternatives for a future marketing strategy</b><br />
<br /><b>
Ansoff's Matrix</b><br />
<br />
Ansoffs Matrix can be used as a tool to analyse market penetration,
market extension, product development and diversification possibilities.<br /> <table><tbody>
<tr> <td colspan="4" rowspan="1"><strong>
PRODUCT</strong></td></tr>
<tr><td><br /></td> <td><br /></td><td><strong> Existing</strong></td><td><strong> New</strong></td></tr>
<tr> <td><strong>MARKET</strong></td><td><strong> Existing</strong></td><td>Market penetration<br />
Increase market share for luggage</td><td>Product development<br />
Introduce travel, leather and hand carried related products</td></tr>
<tr> <td><br /></td><td><strong> New</strong></td><td>Market extension<br />
Introduce luggage for additional market segments</td><td>Diversification<br />
Diversify into different markets with different products</td></tr>
</tbody></table>
<br /><b>
Marketing Mix</b><br />
<br />
The available marketing mix to Hide & Chic is :<br /><br /><table> <tbody>
<tr> <td colspan="4" rowspan="1"><strong>
MARKETING MIX</strong></td> </tr>
<tr> <td><strong>PRODUCT</strong></td><td><strong>PRICE</strong></td><td><strong>PROMOTION</strong></td><td><strong>PLACE</strong></td></tr>
<tr><td>Product variety</td><td>List price</td><td>Sales promotion</td><td>Channels</td></tr>
<tr> <td>Quality</td><td>Discounts</td><td>Advertising</td><td>Coverage</td></tr>
<tr><td>Design</td><td>Allowances</td><td>Sales force</td><td>Assortments</td></tr>
<tr><td>Features</td><td>Payment period</td><td>Public relations</td><td>Locations</td></tr>
<tr><td>Brand name</td><td>Credit terms</td><td>Direct marketing</td><td>Inventory</td></tr>
<tr><td>Packaging</td> <td><br /></td> <td><br /></td> <td>Transport</td> </tr>
<tr><td>Sizes</td> <td><br /></td> <td><br /></td> <td><br /></td> </tr>
<tr> <td>Services</td> <td><br /></td> <td><br /></td> <td><br /></td> </tr>
<tr> <td>Warranties</td> <td><br /></td> <td><br /></td> <td><br /></td> </tr>
<tr> <td>Returns</td> <td><br /></td><td><br /></td> <td><br /></td> </tr>
</tbody></table>
<br /><b>
Evaluation of alternative marketing strategies</b><br />
<br />
Ansoff's Matrix and the marketing mix can be combined to produce
several alternative marketing strategies. Certain permutations are not
worthy of consideration and, additionally, basic assumptions have to be
made about the personal preferences of Mickey Bakshi. It's assumed that:<br />
Product and market diversification is too risky for Hide & Chic<br />
Mickey has no profits to re-invest, i.e. 'breaking even' from the case study<br />
Mickey can't afford to spend any more on promotion<br />
Upturn in the national economy and air travel increase occurs in June 2004<br />
<br /><b>
Strategy 1 - Market penetration</b><br />
<br />
Market penetration requires Hide & Chic to capture more of the
available market from Grace Bros. and David Jones for the quality
luggage and from the Sydney Markets for unbranded luggage.<br />
<br /><b>
Market penetration of quality luggage</b><br />
<br />
Hide & Chic would need to make the available market aware of their
presence to capture market sharefrom Grace Bros. and David Jones.
Mickey has no capital to invest in sales promotion. Passing trade from
the current market segment is negligible. Moving to a location with
more passing trade would be desirable if Mickey is unable to survive
with no profit for the next year. Additionally, offering quality
branded products alongside unbranded products at the samestore
location depresses sales of the branded products as consumers receive
mixed signals and procure the cheaper product or make no purchase at
all.<br />
<br /><b>
Market penetration of unbranded luggage</b><br />
<br />
Mickey has 10 years of experience at the Sydney Markets selling
unbranded luggage. According to the case study, 'he is breaking even
... and has continued to stock the sports bags and casual bags to boost
sales'. Riverside Centre is the wrong place to sell sports bags and
casual bags alongside Country Road, BedNtable and David Jones
Foodchain. The relatively high fixed cost of the store, low return per
square foot for unbranded luggage and low available market make this a
strategy with a limited life span.<br />
<br /><b>
Strategy 2 - Product development</b><br />
<br />
Hide & Chic could extend their product range to serve the same two
market segments that they serve now. However, with two market segments
for branded and unbranded luggage, sports bags and casual bags, the
cost of stock holding and return per square footage would create
further problems for Hide & Chic.<br />
<br /><b>
Strategy 3 - Market extensions</b><br />
<br />
Market extension would involve Hide & Chic in catering for
additional demographic, geographic, psychographic and behavioural
market segments and increased stock levels. Do Hide & Chic have the
financial reserves to support this strategy?<br />
<br /><b>
Specific recommendations for future marketing strategy</b><br />
<br />
Based upon strategy 1 - Market penetration, the following five point plan is proposed for Mickey and Hide & Chic Luggage:<br />
<br />
1) Focus on Mickey's vision for a specialized luggage store offering
good quality at value-for-money prices. Drop the sale of unbranded
luggage and get Mickey to, when economically possible, visit the
factories of Samsonite, Antler,paklite and Hedgrain to obtain product
and marketing knowledge.<br />
<br />
2) Negotiate lease termination with the Riverside Centre on the basis
that occupancy of the shopping centre has not achieved forecast levels.<br />
<br />
3) Carry out a no cost market research information surveyusing primary
data from friends and relatives for a demographic profile of Grace
Bros. and David Jones customers. Obtain secondarymarket
information for the West Sydney luggage industry from the internet.
Invest in a sales promotion in 2004 to take market share from Grace
Bros. and David Jonesand take advantage of the growth inthe available
marketfor quality luggage.<br />
<br />
4) Determine the location for a new quality luggage store and negotiate
a lease for a location which has a proven track record of available
market within Hide & Chic's target segment for quality luggage.<br />
<br />
5) Time the transition from Riverside to the new location to coincide
with the expected upturn in the national economy in 2004. Rely upon
break even sales for the next twelve months.
</span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-78112592104940188182006-09-22T16:46:00.000+02:002014-06-09T09:59:58.534+02:00Entrepreneur's web site<span style="font-size: small;"><span style="font-family: Arial; font-size: small;">I originally wrote this article, “Entrepreneur’s web site” in June 2003.<br />
<br />
A group of three Australian friends were thinking about forming a small
business partnership to be called "Books 'R' Us." The idea for the name
came from the store Toys 'R' Us, which car ried a wide assortment of
toys. This new company would do the same for books. In fact, the
friends were planning to offer as many books as possible at a 20
percent discount off the list price. Once they had set up their small
book store, they would create a Web page on the Internet and offer to
sell any book in their listing at a discount. Since the partners could
order books at a significant discount from publishers, their only major
problem, as they see it, would be to have these books available. They
had very little working capital, so they couldn’t afford to buy the
books and store them at their facility. However, they intended to
sidestep this problem by playing the role of book broker merely to
bring buyers and sellers together. When someone visited the Books 'R'
Us Web site and ordered a book, the store would take this order, place
it with the respective publisher, have the latter send the book
directly to the customer, and then remit payment to the publisher. And
since the customer would pay for the book in advance using a credit
card, the bookstore would avoid a cash outlay.<br />
<br />
The basic idea for this business had been presented to a number of
knowledgeable people, and they all agreed that it could work well if
“Books 'R' Us” could generate sufficient or ders from its Web page.
This is why the potential partners were determined to create a page
that was attractive and kept people coming back to see what was new.
One of the features was to be a random drawing every day to send one
winner a free book from the current New York Times best-seller list.
The winner's name and his or her book choice would be displayed on the
page for a week so that everyone who visited the site would know who
the latest win ners were and would be encouraged to enter the drawing.
Every entry would be eligible for a period of seven days. So people who
return to the site every week to enter could par ticipate in the
contest every day.<br />
<br />
The group also intended to make available as many of the publishers'
titles as possible. Since publishers often dis tributed their book
lists on CD-ROMs, this was not a problem. However, the group wanted to
list the titlesby subject (mystery, drama, history, humour, cooking,
gen eral interest, and so on) and author and not just by pub lisher. So
Books 'R' Us may need to modify the material from the publishers.<br />
<br />
Finally, the group had considered that publishers have their own Web
pages, so someone who wanted to buy a book from a major publisher
did not have to visit the Books 'R' Us Web site or any other on-line
bookstore to buy this book. Nevertheless, these publisher Web pages
carried only the publisher's titles, while the group would carry as
many of these publisher offerings as possible in one site.<br />
<br />
I advised the group on its business plan. I told them what I thought of
a Books 'R' Us Web page. I made recommendations for
improvement. I gave reasons why someone would buy from the
part ners rather than visit a publisher's Internet site and pur chase
directly. Of these reasons, I recommend one that the group should
emphasize most heavily. I suggested how the friends could do this
through their Web page. Finally, I identified and offered additional
recommendations to the three potential partners. Two of these are
described.<br />
<br />
An evaluation of the introduction of a “Books 'R' Us” website is best
done by looking at the opportunities and threats faced by the
group of three friends thinking about the small business partnership.
Opportunities exist with a growing economy, government support, a
product easily marketed using the internet and an established market of
Australian online book buyers. However, global and local
competition needs to be considered.<br />
<br />
<b>Opportunities</b><br />
<br />
The Australian GDP growth is forecasted to increase from 3.0 percent
this year to 3.5 percent in 2004 and unemployment has fallen slightly
from 6.3 percent last year to 6.1 percent this year, according to The
Economist (2003).<br />
<br />
An article in Financial Review (2003) reports that the Small Business
Minister for Australia, Joe Hockey, was present at the launch of the
e-businessguide in Melbourne, last week. This is part of a $6.5 million
federal government package to encourage small businesses to go online.
At the same launch, it was stated that 'almost half of Australia's
present economic growth was caused by communication technology' by
Communications Minister, Richard Alston.<br />
<br />
Spector (2000, p. 29) gives a major reason why Jeff Bezos of Amazon
chose to sell books on the internet as his first product is that
'everybody understands what a book is. You didn't have to explain
product specifications; the book you would buy on the internet would be
the same book you could buy at a bricks-and-mortar store. By contrast,
if Bezos wanted to sell electronics on the internet, he would have to
show side-by-side comparisons of the models, product reviews...'.<br />
<br />
Australian online book retailer Ozbooks claims in Internet Business
News (2002) that Australians spent more than AUD 120 million in 2001
ordering books online from U.S. sites Amazon.com and Barnes and Noble.
The company also states that many of the books ordered internationally
could have been purchased from www.ozbooks.com at a lower cost and with
faster delivery.<br />
<br />
<b>Threats</b><br />
<br />
The world's largest online book retailer, Amazon, has operations
located in Austria, Canada, France, Germany, Japan, U.K. and U.S. but
not in Australia. Books ordered by Australians, from Amazon take two to
six weeks to arrive.<br />
<br />
There are many online book retailers already operating in Australia and
a search for the word 'book' at the Australian site of Google gives
1,140,000 entries. A search for the words 'books on line' gives 291,000
entries. These figures are not surprising, given the low market entry
cost of online book retailing.<br />
<br />
Several Australian online book retailers pay a regular fee to internet
search engine companies to be located on the first page of search
results connected with buying a book on line. Sites such as
www.buyaustralian.com, www.readersrefuge.com.au, www.getonce.com.au,
qbdthebookshop.com.au are examples of these web sites.<br />
<br />
From the above analysis, it is evident that a market exists for the
online service being considered by the three friends. Competition from
already established companies has to be taken into account when
they create a marketing plan to diversify their service offering from
that of the competition.<br />
<br />
<b>Three reasons why someone would buy from the “Books 'R' Us” web site rather than the publisher's internet site<br />
<br />
</b>The group of three friends have identified three features for their
web site to differentiate it from that of the publisher's internet site
and to create a reason for someone to buy from the “Books 'R' Us”
website, rather than the publisher's internet site. Two of the features
are based upon the two selling rules described by Hodgetts and Kuratko
(2001, p.32). The third feature is that of differentiation, as
recommendedby Kotler (2003, p. 315).<br />
<br />
The first selling rule is that the internet company should make it easy
for people to find the site. By choosing the name "Books 'R' Us", the
group of three friends have managed to include the category of product
they sell within their company name and web site. The name is short,
easily remembered and identifies the product sold in either a category
search or an alphabetical search.<br />
<br />
The second selling rule is to keep potential customers coming back.
According to the case study in Hodgetts and Kuratko (2001, p.50), one
of the “Books 'R' Us” features on the web site is to be a random
drawing everyday to send one winner a free book from the current New
York Times best-seller list.<br />
<br />
The winner's name and his or her book choice will be displayed on the
page for a week so that everyone who visits the site will know who the
latest winners are and will be encouraged to enter the drawing. Every
entry will be eligible for seven days. So people who return to the same
site every week to enter can participate every day.<br />
<br />
The third feature of differentiation is provided by the pricing policy,
breadth of product range and breadth of product information to be
provided by “Books 'R' Us“. The case study states that 'the friends are
planning to offer as many books as possible at a 20 percent discount
off the list price.' This provides a comparative advantage against the
publisher's internet site, where books are sold at list price. The
product range at the publisher's internet site is limited to those
books sold by the publisher whereas the Books 'R' Us web site will
feature books from many publishers. The case study also states that
'the group wants to list the titles [sold at the “Books 'R 'Us” web
site] by subject (mystery, drama, history, humour, cooking, general
interest, and so on) and author and not just by publisher.' These
features give further reasons why someone would buy from the “Books 'R'
Us” web site rather than the publisher's internet site.<br />
<br />
<b>Recommendations in relation to launching the web site</b><br />
<br />
Seven recommendations are made to “Books 'R' Us” in relation to
launching their web site. They are associated with the market,
segmentation, book variety, returns policy, supplier agreements,
pricing and promotion.<br />
<br />
The group of friends need to determine who their target or served
market will be. Assuming that they will not, at this stage, receive
orders internationally then they are restricted to the Australian
population of approximately 20 million. Of this population, a market of
(say) two million actual and potential customers exists. The available
market of consumers who will be aware of Books 'R' Us, read books and
buy online may only be (say) 100,000 people. The group of friends need
to decide upon a strategy of marketing to the whole available market or
a target market within the available market. Their
penetrated market needs to be at least several thousand consumers to
provide sufficient income for the group of three friends to pay for
salaries, shop rent, utilities, financing, inventory, advertising, etc.
If the group are able to segment their market geographically then they
may achieve a larger market share in their city of operations to
counterweight a lower national market share.<br />
<br />
Assuming that the group of friends takes advantage of their shop
location for geographic segmentation then demographic, psychographic
and behavioural segmentation can be done to further create the target
market. Market surveys using secondary information can be used to
determine the reading preferences of major segments. This would form
the basis of choice of segmentation to create the inventory stocked
within the premises and listed online.<br />
<br />
Based upon the above target market, the variety of books to be listed
can be chosen. Additional factors to be considered in creating the
listed variety of books are profit margins per book and promotions for
books having an unusually high appeal, e.g. Harry Potter.<br />
<br />
The group of friends need to formulate and publish a returns policy. As
they receive the purchase order, yet the publisher distributes the
books, responsibilities need to be clearly defined.<br />
<br />
Agreements need to be signed with each book publisher that they choose
to represent. The case study states that 'the friends are planning to
offer as many books as possible at a 20 percent discount off the list
price.' Each publisher will have a different discount structure for
retailers ranging from 10 percent to 50 percent and the discount amount
will be related to sales volume figures and monetary value by “Books
'R' Us“. Additionally, payment terms of net monthly account, upon
invoice, etc. need to be agreed with each book publisher.<br />
<br />
The implications of the fixed 20 percent discount pricing policy need
to be determined by “Books 'R' Us“. Although simple to administer and
advertise, the group of friends may find themselves selling below cost
if demand is high for books having a low retail discount from the
publisher. Alternatively, customers may be lost if books having a
high retail discount are priced above their competition. Alternative
pricing methods of mark-up pricing, target-return pricing, perceived
value pricing, etc. should be considered.<br />
<br />
Considering the promotion of “Books 'R' Us“, the decision of the group
of friends to set up a small physical bookstore is a good one. It
provides further differentiation from other local virtual online book
retailers and increases customer confidence in the anticipated level of
service. The bookstore also acts as free advertising for the web site
to passing trade. This would be enhanced by placing advertisements in
local journals, magazines and newspapers to get around the problem of
letting the target market easily know the web site address.<br />
<br />
<b>List of references</b><br />
<br />
'Australians order books from U.S. web sites', Internet Business News, 20 May 2002<br />
<br />
'Economic and financial indicators', The Economist, 31 May - 6 June 2003.<br />
<br />
Hodgetts, R.M. & Kuratko, D.F. 2001, Effective Small Business Management, Harcourt, Florida<br />
<br />
Kotler, P. 2003, Marketing Management, Pearson, New Jersey<br />
<br />
'Small business told to find productivity online', Financial Review, 24 June 2003.<br />
<br />
Spector, R. 2000, Amazon.com: get big fast, HarperCollins, New York.</span><br />
</span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-82773889374137281712006-09-21T12:18:00.000+02:002014-06-09T10:00:31.033+02:00Entrepreneur interview<span style="font-size: x-small;"><br />
I originally wrote this article, “Entrepreneur interview” in July 2003.<br />
<br />
I interviewed Robin, the owner of a small travel business, in July
2003. It was an enjoyable experience and we discussed the business
generally, business turning points, human resources, marketing, IT,
owner skills and outside sources.<br />
<br />
<b>The business</b><br />
<br />
Insight Vacations (Singapore) Pvt Ltd is a small enterprise located in
the Suntec City area of Singapore. It operates within the travel
industry. Robin runs the business and he is a wholesaler of holiday
tours. Products are supplied to Robin by TIC (The Travel Corporation)
and he retails them to travel agents. The company also reaches out to
other countries in Asia, through agency agreements, to enable the sale
of TIC products beyond Singapore. There are twenty employees of the
company and the business was established in 1987. Belat (2000)
succinctly describes Robin's products by quoting an employee as saying
that "Insight Vacations offers unforgettable good memories like seeing
the sunset over San Marco , Venice from your gondola, mixing with
locals at a late night cafe in Champs Elysee, soaring above Swiss
mountains in a cable car to the summit of Mt. Pilatus".<br />
<br />
TTC produces several branded products and Robin markets three of them,
from Singapore, to travel agents in Asia. They are Busabout, Contiki
Holidays and Insight Vacations.<br />
<br />
Busabout is a flexible "hop-on / hop-off" style coach transport network for independent travellers.<br />
<br />
Contiki Holidays are for 18 to 35 year olds. They are guided tours throughout the world, using all forms of transportation.<br />
<br />
Insight Vacations are worldwide coach tours. They incorporate centrally
located hotels, sightseeing inclusions and quality transportation.<br />
<br />
The travel industry has undergone many changes in the last decade and
will continue to do so at an ever increasing pace. Mergers and
acquisitions of travel companies have created large global operators
able to undercut the prices of smaller enterprises. Some of the smaller
companies, having been in existence for half a century, have either
ceased trading or have been acquired by larger companies. Low market
entry costs have seen businesses come and go, particularly in the last
five years.<br />
<br />
The definition and roles of supplier, wholesaler, retailer and customer
continue to overlap and are being re-moulded within the travel
industry. Suppliers, like airlines, now selldirect to the end-user,
cutting out the travel agent. Supplier commissions to travel agents
have been reduced or capped. Technology has accelerated this change
through the use of the internet. Customers are even now able to
offer a price that they are willing to pay for a travel service, via
the internet, and providers can bid for custom at auctions.<br />
<br />
In addition to the internal changes taking place within the travel
industry, external factors have impacted heavily in the last five
years. Many of these external forces have been without precedence and
have caused havoc within the tourism industry. Global recession,
regional financial crisis, war, terrorism and disease have all created
unique challenges within the last five years. These events have
affected the travel sector of business more than any other industry.
Monthly revenue declines of between 50% and 90% have been experienced
by companies during this period.<br />
<br />
The year 2003 has been most difficult for Robin and Insight Vacations (S) Pvt Ltd.<br />
<br />
The International Herald Tribune (2003) quotes Lian Chia Liang at J.P.
Morgan Chase in Singapore as saying that the [Singapore] economy would
not grow any faster than 0.9 percent in 2003. This is consistent with
the government's forecast of growth resuming in the second half of 2003
to achieve yearly growth of between 0.5 percent and 2.5 percent. This
is after the GDP shrank at an annualised 11.8 percent rate from the
previous second quarter due to recession, war and the outbreak of SARS.
Evidence of Singapore's economy being already on the rebound is given
by Aggarwal and Chiam (2003) and they state that "[Singapore] exports
surged 18.7 percent last month [June 2003] from a year ago, and the
country's struggling tourism industry is set to soar once more."<br />
<br />
<b>Turning points</b><br />
<br />
Recent events during the fist half of 2003 created nervousness amongst
potential travellers about the security of their holidays. This was
predominantly caused by many flight cancellations during this uncertain
period. Hoon (2003) reports that Insight Vacations restored confidence
amongst their customers by guaranteeing every departure on all
available tours up to the end of July 2003.<br />
<br />
The company reduced their operating expenses during the first half of
2003 to match a decline in revenue. This was achieved by placing staff
on a four-day week. As sales picked up, staff were returned to a normal
working week in June 2003. Singapore Airlines reduced their air
fares towards the end of the second half of 2003 and this contributed
to an increase in bookings for Robin.<br />
<br />
Insight Vacations' Winter 2003/2004 programme was issued two months
early in 2003. This gave customers a longer time to plan their
end-of-year vacation and should attract customers who delayed summer
holidays due to the uncertainties that existed in the early half of
this year.<br />
<br />
Robin had an innovative idea in the midst of the recent travel industry
troubles, in April 2003, to cater for a very small niche market.
Travel Weekly East (2003) reported that "Robin, Insight Vacations, is
quick to seize an opportunity when he sees one. With most hotels and
travel businesses running empty due to the SARS crisis, he is urging
his travel industry colleagues to 'Take a break, Go Bohemian'. The
offer is specially targeted at general managers of hotels who have
asked most staff to go on leave during this period. 'I thought why not
give the general manager a break too. It is depressing for them to be
around here,' said Robin. He is urging them to take advantage of it's
special travel trade rebate and go on it's nine-day Bohemian tour
featuring three nights in Vienna, two nights in Budapest, one night in
Bratislava and two nights in Prague."<br />
<br />
Insight Vacations' market research of it's customers in 2002 created a
product change. Travel Gazette Asia (2002b) quotes Robin as saying,
'We've found an increased demand for longer stays in cities and our
consumer research highlights that clients want to get under the skin of
the destinations they visit. As a result, we've expanded our Country
Roads programme in 2003 by 33 percent to include 12 itineraries. As we
move forward into 2004 and 2005, we plan to grow this popular series."
The magazine also states that Insight has listened to the market and
has inserted a mid-priced product between it's existing first-class
tours and budget tours. It's called SuperSaver and aims to offer
first class touring but on a budget.<br />
<br />
A 'Passport to Knowledge' campaign was introduced by Insight Vacations
in December 2000 and was reported by Tan (2000). The scheme encourages
travel agents to sell more of Or Robin's products by introducing a
rewards system. Travel agents are able to collect points every time
they book a customer on an Insight Vacations tour. These points can
then be redeemed to receive free places on one of InsightVacations'
European or U.S. tours. The scheme is designed to be both motivational
and educational. A new sales guide, 'The Art of Touring in Style' was
issued to travel agents and it identifies the unique points of Insight
Vacations' products. In it's report on the scheme, the TTG magazine
quotes Robin, "The sales guide would provide the necessary knowledge to
facilitate closing sales, while the Passport to Knowledge is aimed at
assisting our colleagues in the trade to better understand the
destination and our products." A 40 percent growth in business was
achieved in 2000 and a 30 percent growth was expected in 2001. However,
the impact of terrorism in September 2001 reduced the growth to 5
percent.<br />
<br />
Insight Vacations (S) pvt Ltd is still in the growth stage of it's
business life cycle. The Singapore island population is expected to
slightly decline over the next decade, creating a smaller market.
However, the potential and available markets (within the market) are
expected to increase. Media, peer pressure, curiosity and a quest for
adventure are factors which will increase the set of consumers who have
interest, income and access to the tours offered by the company.
Language Travel Magazine (2000) quotes Robin as saying, "As consumers
get more discerning, getting information from a host of sources, many
are looking for off-the-beaten-track destinations. "<br />
<br />
In contrast to Singapore's declining population, the total Asian market
continues to expand. The impact of technology also increases the
available Asian market for Insight Vacations (Singapore) Pvt Ltd's
products. The company is in a good position to serve this expanding
market and already has representative offices in Brunei, China, Hong
Kong, India, Indonesia-Japan, Korea, Malaysia, Pakistan, Philippines,
Taiwan and Thailand.<br />
<br />
<b>Human resource management</b><br />
<br />
Robin is passionate about the training of his staff and from 4 percent
to 5 percent of the business operating costs are allocated to staff
training. This is through sponsorship of his employees to attend
Diploma or Degree courses related to travel and tourism.<br />
<br />
"I personally feel strongly about training and retraining… …if everyone
in the industry trains 20 percent of their staff, the level of
professionalism will rise. Then, worries about one agency poaching
trained staff from another agency will go away", says Robin in Travel
Trade Gazette Asia (1999b).<br />
<br />
Robin commented upon the issue of retaining quality staff in the travel
business in Travel Trade Gazette Asia (2001). He expressed his
opinion that career development and the industry's image are linked to
compensation, which is currently S$1,200 to S$1,500 per month for those
with no experience. This is comparable with other industries. Robin
attributes the perceived lack of travel industry job prestige to image
and human resource management. Attrition, due to job stress, is at
similarly high levels in law and medicine - although salary levels are
higher in these professions. He says that travel specialists must work
harder to retain commission levels, instead of giving commission away
to achieve a sale. The resulting retained profits could then be used to
increase salary levels and retain staff. Insight Vacations (Singapore)
pvt Ltd are given a day off on their birthday. This perk is very
popular with Robin's staff. He also makes a special effort to nominate
staff for national awards, such as Model Worker. Staff who decide to
further their careers beyond Insight Vacations for better prospects are
allowed to leave gracefully by Robin. Although unfortunate for the
company, he says that his ex-employees are the best salesmen for the
company in their future endeavours.<br />
<br />
Competency management programmes are conducted within Robin's company and he has identified 22 skill sets required of his staff.<br />
<br />
Through the networks mentioned later in this article, Robin is able to
identify potential future employees. He comes into contact with these
candidates through his work external to the company and when students
attend his offices during industrial attachments for a few months. This
is an ideal opportunity to judge the capabilities of a potential future
member of his workforce. He doesn't need to advertise in the newspaper
to attract candidates.<br />
<br />
Robin conducts appraisals with all of his staff. The appraisals are
held collectively, off-site, on a monthly basis at such locations as
Sentosa Island. Management by objectives is used, where the objectives
are common, as opposed to being individualistic.<br />
<br />
<b>Marketing</b><br />
<br />
The marketing strategy of Insight Vacations (Singapore) Pvt Ltd is
illustrated by the components of the marketing mix. The three TIC
products give variety and attract different target markets.<br />
<br />
<b>Segmentation variables</b><br />
<br />
<b>Busabout</b><br />
Geographic - Asian consumer via agent<br />
Demographic - under 35 years, single, low income<br />
Psychographic - culture orientated lifestyle, outdoor orientated lifestyle<br />
Behavioural - service benefits, economy benefits<br />
<br />
<b>Contiki</b><br />
Geographic - Asian consumer via agent<br />
Demographic - under 35 years, single, medium/high income<br />
Psychographic - sports orientated lifestyle, outdoor orientated lifestyle<br />
Behavioural - service benefits<br />
<br />
<b>Insight Vacations</b><br />
Geographic - Asian consumer via agent<br />
Demographic - above 35 years, married, high income<br />
Psychographic - culture orientated lifestyle<br />
Behavioural - quality benefits, service benefits<br />
<br />
Departure guarantees and a meet and greet service offers private car
transfers at Heathrow Airport for passengers booked on Insight's First
Class Tours to Britain and Europe.<br />
<br />
Insight Vacations tours are priced at US$10 more per day on average
than what other tour operators are charging. However, the company
includes many features that most other operators charge as optional
extras.<br />
<br />
Insight Vacations (S) pvt Ltd's products are promoted through travel
agents. Travel Trade Gazette (2002a) reports upon a newly introduced
commission structure from Insight Vacations (Singapore) pvt Ltd which
gave travel agents up to 17 percent commission on certain tours booked
in 2002. The commission would be paid in 2003. Previously,
commission was 10 percent and 15 percent for high volume. There used to
be no incentive to sell tours for larger passenger numbers. Now the
commission is on a sliding scale from 10 to 17 percent for 15 to 91
passengers, respectively.<br />
<br />
<b>Information technology</b><br />
<br />
Information technology, and specifically the internet, has created many
changes within the travel industry that the business operates. Robin
attended a seminar, "Travel Agents Surviving the 21st Century" in which
it was discussed that leisure travel will change, with better informed
individual travellers overtaking group tours. From the seminar, Travel
Trade Gazette Asia (1999a) quotes Robin as saying, "The consumer will
be more informed than the travel agent because of the information which
is available to them via the internet. Individual leisure travel will
grow faster than group travel and because of that, agents will need to
know more about events, destinations and highly-specialised tours, such
as ecotourism, which are available."<br />
<br />
When interviewed on My Angel.com's 'Hospitality & Tourism PowWow'
in May 2000, Robin was asked for his opinion on travel providers being
in a sunset industry because the internet allowed individuals to do
their own bookings. Robin replied that, "Contrary to speculation that
Travel Industry being a sunset industry, the internet is going to speed
up its development. Whilst some IT Savvy travellers may attempt to plan
their own itinerary etc, how many would bother to spend hours on their
computer screen scrolling and search for the best combination? It may
be simple for a hotel booking or a simple point to point air
reservation but if one were to try planning a 15 days vacation to
Europe for their family, I think engaging the service of a travel
consultant is a far easier option" - My Angel.com (2000). In the same
interview, he said that the internet was changing the way that Insight
Vacations was carrying out it's business. The internet had enabled
customers to be more knowledgeable about the products they were buying.
Travel specialists had to be even more knowledgeable so that customers
would pay a good fee to save time and money.<br />
<br />
<b>Owner skills</b><br />
<br />
Robin had ten years of experience with Singapore Airlines before
running Insight Vacations (Singapore) Pvt Ltd. His prior jobs were in
technical supplies, marketing, tourism development, advertising and
promotion. Transferring the skills he learned from Singapore Airlines
has been of benefit to the running of Insight Vacations (Singapore) Pvt
Ltd. He is also a Fellow of the Chartered Institute of Marketing, holds
and MBA and DBA from Hull University.<br />
<br />
<b>Outside sources</b><br />
<br />
Many outside sources have attracted Robin over the last decade. He has
held many positions within NATAS (National Association of Travel
Agents, Singapore), is a director of the Tourism Management Institute
of Singapore and was Chairman of Singapore's Chartered Institute of
Marketing in 1999. Robin has also served as external examiner and panel
member for Singapore's several polytechnics and is a part-time evening
lecturer for Southern Cross University.<br />
<br />
Robin acknowledges the new ideas that new employees bring to the
company, particularly in the area of computing and computer
applications.<br />
<br />
Finally, a motivational company was brought in recently to work with
Insight Vacations (Singapore) Pvt Ltd. A six week programme was held to
identify a temporary area of weakness within the sales function. The
programme highlighted difficulties that existed and steps were taken to
remedy the situation.<br />
<br />
<b>List of references</b><br />
<br />
'Agency fees to combat technology', Language Travel Magazine, January,
2000. Retrieved from
http://www.hothousemedia.com/ltmlltmbackissues/jan00web/jan00
travelnews.pdf.<br />
<br />
Aggarwal, N. & Chiam, C., 'Singapore's economy on the rebound', The Straits Times, July 18, 2003.<br />
<br />
Belat, K. 2000, 'Brunei: European tours by motorcoach', The Borneo Bulletin, January 27, p. 1.<br />
<br />
'Book more, earn more', Travel Trade Gazette Asia, August 23, 2002a.
Retrieved from
http://ttg.com.sg/currentlarchive/2002/0823-29/ne0820022313.html.<br />
<br />
Hoon, Y.S. 2003, 'Insight sees resurgence in US bookings but Asia
"still slow"', Travel Weekly East, May 23,2003. Retrieved from
http://travelweeklyeast.com/news_articlecfm?id=9035.<br />
<br />
'Insight offers more', Travel Trade Gazette Asia, November 29, 2002b.
Retrieved from
http://www.ttg.com.sg/currentlarchive/2002/1129-05/pr1120022901.html.<br />
<br />
'Insight's Yap offers "Bohemian Break" to hoteliers', Travel Weekly
East, April 11, 2003. Retrieved from
http://travelweeklyeast.comlnews_articlecfm?id=8664.<br />
<br />
'IT-savvy agents to gain', Travel Trade Gazette Asia, September 24,
1999a. Retrieved from http://80-proquest.umLcom.ezproxy.scu.edu.au.<br />
<br />
'Learning the Tourism 2-step', Hospitality & Tourism Pow Wow - My
Angel.com , May 26,2000. Retrieved from
http://www.myangel.comlforumlhospitality/Robin Yap - Transcript.shtml.<br />
<br />
'Singapore economy contracts at record rate', International Herald Tribune, July 10, 2003.<br />
<br />
Tan, W. 2000, 'Insight incentivises agents', Travel Trade Gazette Asia,
December 15, 2000. Retrieved from
http://80-gateway.proquest.com.ezproxy.scu.edu.au.<br />
<br />
'Training part of bigger plan', Travel Trade Gazette Asia, April 16,
1999b. Retrieved from http://80-proquest.umi.com.ezproxy.scu.edu.au.<br />
<br />
'Trying to make it all worthwhile', Travel Trade Gazette Asia, May 4,
2001. Retrieved from
http://www.ttg.com.sg/currentlarchive/2001/0504-10/co0520010402.html.</span>
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-64900209353032773642006-09-20T19:31:00.000+02:002014-06-09T10:00:59.035+02:00Entrepreneur interviews<span style="font-size: x-small;">I originally wrote this article, “Entrepreneur interviews” in April 2004.<br />
<br />
I interviewed two entrepreneurs during Spring 2004. They were both
ethnic minorities and owned the same type of business, but one was a
female entrepreneur and the other was a male entrepreneur. The
interviewees were asked questions regarding (a) entrepreneurial growth,
(b) female entrepreneurs, and (c) ethnic entrepreneurs.<br />
<br />
The purpose of the interviews was to compare and contrast the two
different people and to see how well their characteristics and
experiences matched those published in entrepreneurial literature.<br />
<br />
Entrepreneurial growth plans for both interviewees contrasted each
other. However, both entrepreneurs closely matched the findings of
previous researchers. The female entrepreneur demonstrated caution,
whereas the male entrepreneur displayed enthusiastic plans for growth;
some of which had come to fruition. The male ethnic entrepreneur didn't
conform to the literature view that ethnic entrepreneurs are more
satisfied with lower wages than non-ethnic entrepreneurs.<br />
<br />
The female entrepreneur's approach to risk-taking and experience with
support and role conflicts, closely followed the literature view. She
had good support from her spouse, was a conservative risk-taker and the
satisfaction she received from running her business had a positive
impact on her family life. This contrasted with the male entrepreneur
receiving support from friends, taking moderate risks and spending only
half the week nights with his spouse and family.<br />
<br />
The interviewee responses to questions associated with ethnic minority
entrepreneurs demonstrated that the passage of time, in a market of
non-ethnic customers, erodes the ethnic minority characteristics, e.g.
low wage acceptability, internal financing. In a period of within (say)
a decade, the ethnic minority entrepreneur may absorb the culture of
the host country, if working outside of the ethnic community.<br />
<br />
Both interviewees broadly conformed to the views of the entrepreneurial
literature regarding ethnic minorities. They both started businesses in
the service sector and they both chose a profession that they had prior
experience in. However, whilst the literature supports the view that
ethnic minority finance for start-up is usually internally sourced,
only the female entrepreneur was self-funded.<br />
<br />
<b>Introduction</b><br />
<br />
I interviewed two entrepreneurs during April 2004. The topics of
discussion were limited to entrepreneurial growth, female entrepreneurs
and ethnic entrepreneurs. Both entrepreneurs owned beauty salons and
were ethnic minorities. Amy was female and was a hairdresser in
Singapore. Cedric was in Malaysia.<br />
<br />
Amy was originally from Malaysia, but had settled with her husband in
Singapore a few years ago. She had run a small beauty parlour, for
almost 2 years, within a condominium block and had a staff of three.<br />
<br />
Cedric emigrated from Syria in 1984 and started his business 20 years
ago. He had 30 employees and leased 2 retail units to provide his
service of hairdressing, massage and spa therapy.<br />
<br />
<b>Entrepreneurial growth</b><br />
<br />
The two entrepreneurs were asked the two questions of how they viewed
the growth of their business and what their thoughts were on retaining
business earnings versus making personal financial withdrawals. Both
entrepreneurs had very different attitudes to growth.<br />
<br />
<b>Growth plan</b><br />
<br />
Amy leased a small (200 square feet) unit from a condominium owner. She
had been in business for almost 2 years. Her immediate goal was to
increase the utilization of her current resources of space and labour.
She had no immediate plans to grow the business beyond 3 staff, until
demand fully consumed the existing resources.<br />
<br />
Cedric leased two units (2000 square feet total) from a shopping mall
owner. He had been in business for more than 20 years and had 30 staff.
His idea was to open more outlets in different geographic locations and
to diversify with different services in the same market and different
products I services in different markets. For example, he had been
interested in designing, manufacturing and marketing automated beauty
products and he had recently increased the square footage of his
business to expand the services to massage and spa therapy.
Although there were many years difference in the maturity of the two
businesses, it could be argued that Amy's firm be classified as a
lifestyle-business. The characteristic that distinguished
Cedric's business was that he was thinking strategically, as identified
by Burns and Harrison (1996:49), about the direction and scope of the
business over the longer term. Cedric was also following the guidance
of Kuratko and Hodgetts (2004:549), who state that firms who fail to
innovate will die and that Cedric was complementing current offerings
with work on new product and service developments. However, Amy
appeared to demonstrate more understanding of where her business was
today.<br />
<br />
<b>Compensation</b><br />
<br />
Amy withdrew fixed monthly compensation from her business, by way of a
salary. Although not disclosed, the amount was small at this stage of
her business. She expected to withdraw a larger wage when profits
increased and to spend a little more on assets for her salon.<br />
<br />
Cedric withdrew monthly compensation from his business and supplemented
these regular withdrawals with occasional bonuses if he thought that
the business was doing particularly well, so that he could reap some of
the rewards that he said that he was entitled to, for his hard work.<br />
<br />
Amy was Malay and had settled in Singapore. She displayed a
characteristic described by Light (1984) where immigrants would be more
satisfied than native-born workers with low profits from small
businesses because of wage differences between their origin and
destination countries. The inverse relationship between small business
growth and the entrepreneur's compensation is described by Churchill
and Lewis (1992:273) as occurring during the success stage of an
enterprise. These authors pose the question of whether the owner
"wishes to commit to their time and risk the accumulated equity of the
business in order to grow or instead prefer to savour some of the
benefits of success?" They recognize that all too often the owner wants
both and this appears to be the situation that Cedric found himself in.
Cedric is Syrian and emigrated to Malaysia 25 years ago and his
approach to compensation, in conflict with Light's findings could,
perhaps, be explained by a dilution of his original immigrant values
over 25 years in a host country.<br />
<br />
<b>Female entrepreneurs</b><br />
<br />
The two salon owners were asked three questions to compare and contrast
between female entrepreneur and male entrepreneur experiences with
regard to (a) support, (b) role-conflicts and (c) risk-taking. The
female entrepreneurial traits published in the literature were
supported by the findings.<br />
<br />
<b>Support</b><br />
<br />
Amy had many personal friends who visited her salon, whilst she worked
6 days per week and they gave her support. But her greatest supporter
was her husband, who also had a financial interest in the
business. Cedric had a network of friends in the same type of
business and his greatest support was from his extended family and
friends. His wife was a full-time lawyer and had little spare time for
interest in the business. Additionally, Cedric's son, Cecil, had
been taken on board and was beginning to be a source of support for his
father. Brockhaus and Horwitz (1986:39) report that Hisrich and
O'Brien found that female entrepreneurs had very supportive parents and
husbands, which was Amy's situation. Hisrich and Brush (1986:6),
in a survey of ethnic minority entrepreneurs, found that spouses were
their biggest supporters, followed by business associates, friends and
other relatives. Whilst Amy typifies the findings of Hisrich and Brush,
Cedric does not. This could be due to Cedric being male and, although
still being a minority, having lost much of his ethnicity. However,
Cedric's situation is best described by Hisrich (1986:72), where he
states that, "men usually list outside advisors as most important
supporters with the spouse being second. Women list their spouses
first, close friends second, and business associates third."<br />
<br />
<b>Role conflicts</b><br />
<br />
Amy had one child and had taken one month maternity leave from the
business during the birth and had a maid to look after the baby girl
till kindergarten. She, without fail, took every Tuesday off work to
spend time with her daughter, Glenda.<br />
<br />
Cedric had three children in their twenties, two of whom still lived at
the family home. He spent three nights a week, 120 miles away from
home, competing in hairdressing competitions. It was also a second
source of income to Cedric.<br />
<br />
Kuratko and Hodgetts (2004:680) summarize the findings of two surveys
among female entrepreneurs regarding role conflicts. They report that
"female entrepreneurship can be the most successful professional outlet
for reducing [work/home role] conflict if autonomy and satisfaction are
present." Amy's situation was in accordance with their findings and
contrasted with Cedric's circumstances.<br />
<br />
<b>Risk-taking</b><br />
<br />
Amy described herself as being a low risk taker and this was evidenced
by her frugal salon layout and conservative attitude towards growth.
She was unwilling to invest more funds into the business until she was
100% sure of it's success. Cedric said that he was forced to take
risks to retain his competitive position. For example, he had taken out
a moderate commercial loan to expand his business to include a massage
and spa therapy salon, next door to the location of his original
business. He said that he hadtaken this action because all of his
competition had similar enhanced facilities and that he feared losing
business if he didn't expand into these related markets.<br />
<br />
The above comments by Amy and Cedric conform to the observation by
Hisrich (1986:79) who states that, "in general, women entrepreneurs
have a conservative risk taking posture" and that businesses started by
women entrepreneurs will not likely grow to a significant size. But
Hisrich also asks if size is a measure of success and comments that the
realism and caution exhibited by women business owners may actually
ensure the success of their business over time.<br />
<br />
<b>Ethnic entrepreneurs</b><br />
<br />
The two entrepreneurs were asked three questions regarding the ethnic
minority impact of being a Malay in Singapore and a Syrian in Malaysia.
The three questions asked about (a) how the type of venture was chosen,
(b) what motivated each entrepreneur, and (c) how the start-up finance
was obtained. The literature supports much of the entrepreneurs'
experiences, although Cedric displayed some distinctive characteristics
not generally found in minority entrepreneurs, but found in male
entrepreneurs.<br />
<br />
<b>Nature of venture</b><br />
<br />
Amy had chosen to open a hairdressing salon because she had previously
worked as a hairdresser. She had been employed as a stylist by a couple
of employers before she decided to start-up her own business.<br />
<br />
Cedric, also, had chosen to open a hairdressing salon because he had
previously worked as a hairdresser for the first five years when he
emigrated to Malaysia from Syria. He furthermore said that the cost of
starting-up a salon was much lower than for other business ideas that
he had.<br />
<br />
Amy and Cedric's common business choice supported the findings of
Hisrich (1986:72), Brockhaus and Horwitz (1986:39), that women are more
likely to start a business in a service related area, and that of
Aldrich and Waldinger (1990: 112), who state that most ethnic
enterprises are found in the service sector. Additionally, both these
small enterprises served non-ethic populations, where the opportunities
were much greater than if they served an ethnic community's needs. The
fact that Amy and Cedric had previous skill in their line of work
supported the survey results of Hisrich and Brush (1986:4). These
authors found that the majority of the minority entrepreneurs they
surveyed had prior experience in their fields of endeavour. This
supports previous findings that entrepreneurs tend to start businesses
in the fields in which they have worked.<br />
<br />
<b>Start-up motivation</b><br />
<br />
Amy had two motivations for starting her own business. Firstly, she had
wanted to achieve something in her life, and “being her own boss” was
something that she'd always wanted to do. Secondly, she had felt that
she could do just as well on her own as working for someone else.<br />
<br />
Cedric had also wanted the achievement of self-employment but, as
husband and father of three children, he also had the need to raise his
income to increase his family's standard of living to that which he and
his family desired. In the interim time since arriving in Malaysia, he
had been working for Syrian and Indian business owners and had thought
that employing people to work for him would be the way to increase his
income.<br />
<br />
The experiences of Amy and Cedric support the view of Aldrich and
Waldinger (1990:125) regarding prior work and, particularly for Cedric,
employer type. The authors identify that immigrant workers often begin
as temporary workers in small businesses and that the potential owner
is an employee in a co-ethnic or family member's business.
<br />
<br />
<b>Start-up finance</b><br />
<br />
Amy's start-up capital had been provided by herself and her husband.
They had savings Which they had used to establish her venture.<br />
<br />
Cedric did not have a great deal of personal capital at the time when
he decided to open his salon. Instead, he had taken out a commercial
loan from a Malaysian bank, using the family's home as security for the
loan. He has since paid off this loan.<br />
<br />
Cedric's situation contrasts with that noted by Aldrich and Waldinger
(1990:125), whereby the author's state that, “immigrant workers ...
seek jobs that provide opportunities to work long hours and accumulate
savings." However, Hisrich (1986:69) accurately describes Amy and
Cedric's start-up financial situation when he identifies that male and
female entrepreneurs differ in the area of start-up financing. He
comments that, “while males often list investors, bank loans, or
personal loans in addition to personal funds as sources of start-up
capital, women in nearly all cases have relied solely on personal
assets or savings.<br />
<b><br />
List of references</b><br />
<br />
Aldrich, H. & Waldinger, R. 1990, 'Ethnicity and entrepreneurship', Annual Review of Sociology, No. 16 pp. 111-135.<br />
<br />
Brockhaus, R.H. &Horwitz, P.S. 1986, 'The psychology of the
entrepreneurs' in Sexton, D.L. & Smilor, R.W. (Eds), The Art and
Science of Entrepreneurship, Cambridge, MA: Balinger Publishing pp.
25-48.<br />
<br />
Burns, P. & Harrison, J. 1996, 'Growth' in Burns, P. &
Dewhurst, J. (Eds) Small Business and Entrepreneurship, 2nd edn,
London: Macmillan pp.40-72<br />
<br />
Churchill, N.C. & Lewis, V.L. 1992, 'The five s~ages of small
business growth' in Sahlman, W.A. & Stevenson, H.H. (Eds), The
Entrepreneurial Venture: Readings, Boston, MA: Harvard Business School
Publications pp. 263-275.<br />
<br />
Hisrich, R. D. 1986, 'The woman entrepreneur: Characteristics, skills,
problems, and prescriptions for success', in Sexton,D. & Smilor,
R., The Art and Science of Entrepreneurship, Massachusetts: Ballinger,
pp. 61-81<br />
<br />
Hisrich, R.D. & Brush, C. 1986, 'Characteristics of the minority
entrepreneur', Journal of Small Business Management, Vol. 24, October,
pp. 1-8. Kuratko, D.F. & Hodgetts, R.M. 2004,
Entrepreneurship: Theory, Process, and Practice, 6th edn. Ohio: South
Western<br />
<br />
Light, I. 1984, 'Immigrant and ethnic enterprise in North Ameri~Ethnic Racial Stud. 7:195-216<br />
</span>
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-49404034119791081002006-09-19T14:36:00.000+02:002014-06-09T10:01:29.411+02:00Concepts of entrepreneurship<span style="font-size: small;"><br />
I originally wrote this article, “Concepts of entrepreneurship” in March 2004.<br />
<br />
Entrepreneur
traits, creativity, innovation, business planning and growth management
are five of the main concepts of entrepreneurship. Lists of
characteristics common to entrepreneurs have been published by many
authors but others suggest that previous experiences are more
important. Entrepreneurial creativity requires a paradigm shift and
there are many techniques available to help the entrepreneur to see
things in a different perspective, to come up with new ideas.
Innovation involves implementing newly created ideas and the process
can be classified as invention, extension, duplication and synthesis.
Strategic planning is used to assess the entrepreneur's position in
external/internal environments, identify key success
factors/competencies and to implement a strategy. Finally, the issue of
growth management requires the entrepreneur to settle on what size of
company he is happy with, how much direct control is afforded to him
and how entrepreneurial spirit can be retained in a growing business.<br />
<br />
<strong>ENTREPRENEUR TRAITS</strong><br />
<br />
Many
authors have published lists of characteristics that they consider to
be displayed by entrepreneurs. Cunningham and Lischeron (1991) have
grouped these contributions into six schools of thought. They classify
these as the; "Great Person", Psychological, Classical, Management,
Leadership and Intrapreneurship schools of thought.<br />
<br />
<strong>"Great person"</strong> - Born entrepreneurs, e.g. Fords, Rockefeller, Trump.<br />
<strong>Psychological -</strong> Entrepreneurial personality, behaviour developed over time.<br />
<strong>Classical - </strong>Entrepreneurial key factors are innovation and creativity.<br />
<strong>Management - </strong>Entrepreneurs can be developed or trained in the classroom.<br />
<strong>Leadership - </strong>Attract people to support a vision and transform it into reality.<br />
<strong>Intrapreneurship - </strong>Encouraging people to work in semi-autonomous units.<br />
<br />
However,
much criticism is levelled at these theories because many of the
characteristics are not unique to entrepreneurs and can be found in
successful managers and executives. Liles (1974:43) proposes that
"certain kinds of experiences and situational conditions - rather than
personality or ego - are the major determinants of whether or not an
individual becomes an entrepreneur" and Bailey (2003) questions whether
entrepreneurs possess different characteristics or whether they are
merely products of unique situational factors. This view is also
supported by O'Neile (1989), who affirms that the entrepreneur is a
"product of his historical and environmental circumstances." The choice
to become an entrepreneur must be influenced by events that led to the
decision, claims Brockhaus and Horwitz (1986). They suggest that
previous experience has an effect. These previous experiences could be
positive, such as role models and education, or they could be negative
displacements. Refugees and migrants may choose entrepreneurship
if gaining employment is difficult. Job dissatisfaction or job loss may
be other stimuli to select entrepreneurship.<br />
<br />
<strong>CREATIVITY</strong><br />
<br />
Entrepreneurship
can be partly described as a combination of creativity followed by
innovation, where creativity is the act of 'thinking' new things,
coming up with ideas and innovation is 'doing' new things or
implementing the newly created ideas. Creativity is also concerned with
new ways of looking at opportunities and new approaches to solving
problems. This may require the entrepreneur to shift paradigms and
discard old assumptions and perspectives. Mukerjea (2003), in "Brain
Symphony", describes sixteen techniques that can be used by
entrepreneurs to stimulate creativity:<br />
<br />
<strong>Visual Gym - </strong>Creating scenes through imagination, used by Nikola Tesla.<br />
<strong>Torrence Tests - </strong>Reverse, substitute, modify, adapt, new uses, combine, eliminate, simplify.<br />
<strong>Random' Riting - </strong>Paragraph creation from randomly selected words.<br />
<strong>Cinquains - </strong>Noun, two adjectives, three verbs, four word statement, noun.<br />
<strong>Matchmaking - </strong>Attribute matrices, linking, lists and morphological analysis.<br />
<strong>Radiant Thinking - </strong>Word association to branches radiating from the centre.<br />
<strong>Metaphorical-</strong>Analogical Thinking - Problem, analogy, attributes, emergent ideas.<br />
<strong>Cut n' Paste - </strong>Collage of cut-out images with captions.<br />
<strong>Abstract Designs - </strong>Creative interpretation of instructions for drawing objects.<br />
<strong>Object Analogy - </strong>Use ordinary objects to draw analogies for problem solving.<br />
<strong>Freewheeling - </strong>Combine randomly selected objects to produce new objects.<br />
<strong>Mentamorphosis - </strong>Infusing oneself into theactual form of the central problem.<br />
<strong>Ideavisuals - </strong>Picture codes and storyboarding, used by Wait Disney.<br />
<strong>Kaleidoscoping - </strong>Mixing and matching synonyms of the key problem words.<br />
<strong>SitSol Reversal - </strong>Reverse the situation and focus on the negatives.<br />
<strong>Fishboning - </strong>Cause and effect diagram for clarifying ambiguities.<br />
<br />
Another
technique is to “surround yourself with people who are different from
you. Always ask for help and another point of view - even when you may
not think that you need it. You'll often be surprised that there is a
better way to look at the original idea", says Gillian Franklin,
according to Turner (2003).Once the entrepreneur has created, or
discovered, new ideas then they are evaluated against each other as a
candidate for innovation.<br />
<br />
<strong>INNOVATION</strong><br />
<br />
Schumpeter
(1934) identifies the entrepreneur's challenge as discovering and
implementing new ideas. He asserts that innovation is a unique feature
which separates entrepreneurs from managers. It's stated that this is
achieved by (1) developing new products or services, (2) developing new
methods of production, (3) identifying new markets, (4) discovering new
sources of supply, and (5) developing new forms of organizations.<br />
<br />
The
innovation process can be categorized into four basic types, suggests
Kuratko and Hodgetts (2004). These are; invention, extension,
duplication and synthesis. Novel products or services are 'inventions',
and the application of a current concept to a different application is
an 'extension'. An improvement to an already existing concept is a
'duplication' and forming a new application from existing concepts is
'synthesis'.<br />
<br />
<strong>BUSINESS PLANNING</strong><br />
<br />
Entrepreneurs
are repeatedly monitoring windows of opportunity. These windows are
continuously opening and closing and strategic planning is required to
assess if the opportunity is worthwhile for the entrepreneur and how it
should be successfully exploited. Whilst strategic planning is
essential to ensure successful operation, it is a particularly useful
tool when the entrepreneur's business is growing, it serves a niche
market or business performance is improving. There are many schools of
strategic management thought available to the entrepreneur and
Mintzberg (1990:112) illustrates the Design School Model.<br />
<br /><img align="right" src="http://i9.tinypic.com/30dayb7.jpg" />The <strong>Design School Model</strong> can be described as having eleven components:<br />
<br />
<strong>External appraisal</strong>
- An examination of the external elements influences the entrepreneur's
strategy options. This involves investigating customers, competitors,
market and the environment. Where the environment is political,
economic, society, technology and ecology considerations.<br />
<br />
<strong>Threats and opportunities in the environment</strong>
- The external appraisal reveals the opportunities that the
entrepreneur can exploit and the threats he faces. Opportunities are
regarded as positive trends and threats are negative trends.<br />
<br />
<strong>Key success factors</strong>
- Key success factors are competitive assets or competences that the
entrepreneur needs to compete successfully in his chosen industry. An
absence of strategic necessities is a weakness and possession of
strategic strengths will give advantage to the entrepreneur.<br />
<br />
<strong>Internal appraisal</strong>
- An examination of the skills of the entrepreneur's employees,
resources, innovations and financial position discloses how the
business is constrained by it's capabilities and resources.<br />
<br />
<strong>Strengths and weaknesses of the organization</strong>
- Any activities that the entrepreneur does well are identified as
strengths from the internal appraisal. Any lack of resources or
activities that the entrepreneur does not do well are identified as
weaknesses.<br />
<br />
<strong>Distinctive competencies or assets</strong> - Distinctive competencies are the activities that the entrepreneur does exceptionally well.<br />
<br />
<strong>Social responsibility</strong>
- Social responsibility is the entrepreneur's obligation, beyond that
required by the law and economics, to pursue long-term goals that are
good for society.<br />
<br />
<strong>Managerial values</strong> - This
describes how the entrepreneur's managers establish, promote and
practice the business values. The building of team spirit, influencing
marketing efforts, shaping of employee behaviour and guidance for
manager's decisions and actions are examples of the main purposes of
managerial values.<br />
<br />
<strong>Creation of strategy</strong> -
Strategic alternative strategies need to be developed by the
entrepreneur for evaluation. These strategies should take advantage of
environmental opportunities and exploit the company's strengths.<br />
<br />
<strong>Evaluation and choice of strategy</strong>
-Some of the criteria used for selection of a strategy from
alternatives are scenario consideration, sustainable competitive
advantage pursuit, organizational vision and objectives consistency,
feasibility and the relationship to the other strategies of the
entrepreneur.<br />
<br />
<strong>Implementation of strategy</strong> - For
the entrepreneur to succeed, the chosen strategy must be implemented
and this involves converting strategic alternatives into an operating
plan.<br />
<br />
The final stage of business planning is to actually
implement the strategic plan and four approaches are suggested.
Strengths and weaknesses can be identified on a year-to-year basis in
an opportunity management approach. Activities can be carried out
sequentially in a milestone planning approach with achievable goals
along the way. Expert theory can be used in a strategic model approach
which states how the plan should be prepared and executed. Significant
variables, venture phase and the entrepreneur's growth preferences can
be applied to a contingency model.<br />
<br />
<strong>MANAGING GROWTH</strong><br />
<br />
The
entrepreneur's management of the growth of the business raises many
important issues. Amongst these are; activity level, retaining
entrepreneurial spirit, delegation, and ownership. The ability, need
and opportunity will determine the business growth.<br />
<br />
First and
foremost, the entrepreneur has to make the big decision as to what
level of activity he wants for the business. Churchill and Lewis
(1992) categorize the entrepreneur's business growth into the five
stages of existence, survival, success, take off, and maturity. So, the
entrepreneur must want to move from each stage to the next, otherwise
he must remain at a stage where he is comfortable with the level of
activity.<br />
<br />
The high entrepreneurial spirit that exists in a small
business can erode as the business grows in size, unless a conscious
effort is made to avoid the adverse effects of bureaucratization. This
can be achieved by creating entrepreneurial momentum that exists within
the business and which, in itself, becomes a driving force of
entrepreneurship.The business cannot grow unless the entrepreneur is
able to effectively delegate. This can create a problem for many
entrepreneurs who might fear that they are losing control of the
business by giving greater responsibility to their staff. The act of
delegation is made easier if the entrepreneur is able to create work
procedures for standardactivities like accounting, dispatch, etc.<br />
<br />
The
finalmain issue of growth management is that of ownership. It is not
possible for most entrepreneurs to achieve growth with their own
limited financial resources and the surplus cash flow of the business,
especially in the early years. Working capital requirements increase
dramatically with increasing growth rates because of the need to outlay
capital for expenditure before revenue is received. For this
reason, the entrepreneur must raise capital through debt or dilution of
ownership. Many entrepreneurs fear that shareholders or venture
capitalists will influence the management of their venture or, in the
extreme, remove them from the business.<br />
<br />
<strong>References</strong><br />
<br />
Bailey, J. 2003, 'The right stuff', Business Review Weekly, 4-10 September, pp. 32-34, 36.<br />
<br />
Brockhaus,
R.H. & Horwitz, P.S. 1986, 'The psychology of the entrepreneurs' in
Sexton, D.L. & Smilor, R.W. (Eds), The Art and Science of
Entrepreneurship, Cambridge, MA: Ballinger Publishing pp. 25-48.<br />
<br />
Churchhill,
N.C. & Lewis, V.L. 1992, 'The five stages of business growth' in
Sahlman, W.A. & Stevenson, H.H. (Eds), The Entrepreneurial Venture:
Readings, Boston, MA: Harvard Business School Publications pp. 263-275.<br />
<br />
Cunningham,
J.B. & Lischeron, J. 1991, 'Defining entrepreneurship', Journal of
Small Business Management, Vol. 29, January, pp. 45-59.Kuratko, D.F.
& Hodgetts, R.M. 2004, Entrepreneurship: Theory, process, and
Practice, 6th edn. Ohio: South Western.<br />
<br />
Liles, P. R. 1974, 'Who are the entrepreneurs?', MSU Business Topics, Vol. 22, No. 1 pp. 43-55.<br />
<br />
Mintzberg,
H. 1990, 'Strategy Formation - Schools of Thought', in J.W.
Frederickson (ed) Perspectives on Strategic Management, Harper
Business, New York.<br />
<br />
Mukerjea, D. 2093, Brain Symphony, Horizon Books pte Ltd, Singapore.<br />
<br />
O'Neile,
M.J. 1989, 'The entrepreneur in economic thought', Armidale, NSW:
Department of Accounting and Financial Management University of New
England.<br />
<br />
Schumpeter, J.A. 1934, The Theory of Economic Development, Harvard University Press, Cambridge, Mass., p.56.<br />
<br />
Turner, R. 27hey just did it', Boss Magazine, April, pp. 55-56, 59-60, 64-70.<br />
</span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-50722693338814531792006-09-10T11:00:00.000+02:002014-06-09T10:02:05.648+02:00Control valve seismic analysis<span style="font-size: x-small;"><img align="right" src="http://i9.tinypic.com/44s19jb.jpg" />I was asked to carry out this 16” angle control valve seismic analysis for one of the world’s leading engineering companies.<br />
<br /><b>
1.0 Summary of findings<br />
<br />
2.0 Introduction<br />
<br />
3.0 Identification of susceptible features to be analysed<br />
<br />
3.1 Body studs<br />
<br />
3.2 Area behind outlet flange<br />
<br />
4.0 Identification of operational loads <br />
<br />
4.1 Pressure of the line fluid<br />
<br />
4.2 Tightening of the body stud nuts<br />
<br />
4.3 Mass of the valve, actuator and bonnet<br />
<br />
5.0 Calculations<br />
<br />
5.1.0 Stresses imposed on the body studs by the action of operating loads and seismic acceleration, along the horizontal axis<br />
5.1.1 Stresses caused by the hydrostatic end thrust or gasket seating<br />
5.1.2 Bending stress due to the actuator<br />
5.1.3 Bending stress due to the bonnet<br />
5.1.4 Bending stress due to the body<br />
5.1.5 Direct stress due to the actuator weight<br />
5.1.6 Direct stress due to the bonnet weight<br />
5.1.7 Direct stress due to the body weight<br />
5.1.8 Direct stress due to the actuator thrust<br />
5.1.9 Summation of stresses<br />
<br />
5.2.0 Stresses imposed on the body studs by the action of operating loads and seismic acceleration, along the vertical axis<br />
5.2.1 Stresses caused by the hydrostatic end thrust or gasket seating<br />
5.2.2 Direct stress caused by the body under the influence of acceleration due to gravity plus seismic effects<br />
5.2.3 Direct stress caused by the actuator under the influence of acceleration due to gravity plus seismic effects<br />
5.2.4 Direct stress caused by the bonnet under the influence of acceleration due to gravity plus seismic effects<br />
5.2.5 Direct stress due to the actuator thrust<br />
5.2.6 Summation of stresses<br />
<br />
5.3.0 Stresses imposed on the area behind the outlet flange by the
action of operating loads and seismic acceleration along the horizontal
axis<br />
5.3.1 Longitudinal stress caused by the internal pressure<br />
5.3.2 Bending stress due to the actuator<br />
5.3.3 Bending stress due to the bonnet<br />
5.3.4 Bending stress due to the body<br />
5.3.5 Direct stress due to the actuator weight<br />
5.3.6 Direct stress due to the bonnet weight<br />
5.3.7 Direct stress due to the body weight<br />
5.3.8 Direct stress due to the actuator thrust<br />
5.3.9 Summation of stresses<br />
<br />
5.4.0 Stresses imposed on the area behind the outlet flange by the
action of operatingloads and seismic acceleration along the vertical
axis<br />
5.4.1 Longitudinal stress caused by the Internal pressure<br />
5.4.2 Direct stress caused by the body under the influence of gravity and seismic effects<br />
5.4.3 Direct stress caused by the bonnet under the influence of gravity and seismic effects<br />
5.4.4 Direct stress caused by the actuator under the influence of gravity and seismic effects<br />
5.4.5 Direct stress due to the actuator thrust<br />
5.4.6 Summation of stresses<br />
<br />
6.0 Results<br />
<br />
1.0 Summary of findings</b>
<br />
<br />
The 16" angle control valve will perform it's intended duty during an
earthquake having a seismic acceleration of 0.81g in the horizontal
direction, and during an earthquake having a seismic acceleration of
0.81g in the vertical direction. There will be no rupture of the valve
body nor failure of the studs at the valve body/ bonnet joint.<br />
<br /><b>
2.0 Introduction</b><br />
<br />
I consider the performance of a 16" angle control valve subjected to
both horizontal and vertical seismic forces together with normal
operating loads. Two regions are identified as being susceptible
to damage during seismic events.<br />
<br />
The maximum tensile stress is calculated for the two susceptible areas
for normal operating loads plus seismic loading along the horizontal
axis and for normal operating loads plus seismic loading along the
vertical axis.<br />
<br />
Component stresses are determined by accepted axial loading stress
theory, bending stress theory, cylinder stress theory and bolt load
theory.<br />
<br />
These stresses are summated and compared with the yield stress of the
material being considered to show that the total tensile stress is not
in excess of the yield stress for non-pressurised components and not in
excess of 90% of the yield stress for pressurised components.<br />
<br />
The following assumptions are made in this analysis :<br />
<br />
(1) The design seismic acceleration of 0.81g acts in the horizontal
direction or vertical direction separately and not simultaneously.<br />
<br />
(2) The pipe work and equipment adjacent to the valve exert no force or moment to it.<br />
<br />
(3) The component stresses are all tensile and not compressive.<br />
<br />
(4) The changes of section near to the region under consideration are such that negligable concentration of stress occurs.<br />
<br /><b>
3.0 Identification of susceptible features to be analysed</b><br />
<br />
The two areas that we consider to be susceptible to seismic stresses are the body studs and the area behind the outlet flange.<br />
<br /><b><img align="right" src="http://i10.tinypic.com/447w3mf.jpg" />
3.1 Body studs</b><br />
<br />
The body studs are manufactured in chromium-molybdenum steel ASTM A320
Grade L7. This material has a minimum yield stress of 105,000 psi and a
minimum tensile strength of 125,000 psi There are 24 studs on a PCD
(pitch circle diameter) of 30-1/2"<br />
<br /><b>
3.2 Area behind the outlet flange</b><br />
<br /><img src="http://i9.tinypic.com/48xa0dv.jpg" />
The valve body is manufactured in carbon steel ASTM A350 LF2. This
material has a minimum yield stress of 36,000 psi and a minimum tensile
strength of 70,000 psi.<br />
<br /><b>
4.0 Identification of operational loads</b><br />
<br />
The valve would be subject to stresses caused by the pressure of the
line fluid, tightening of the body stud nuts and the mass of the valve
body, bonnet and actuator.<br />
<br /><b>
4.1 Pressure of the line fluid</b><br />
<br />
The maximum line pressure of the fluid is 1230 psig and this will act on all 'wetted parts'.<br />
<br /><b>
4.2 Tightening of the body stud nuts</b><br />
<br />
A torque is applied to the body stud nuts which is sufficient to provide the body/bonnet seal by loading the body studs.<br />
<br /><b>
4.3 Mass of the valve body, valve bonnet and actuator</b><br />
<br />
The mass of the valve body is 11,000 pounds and under the influence of
acceleration due to gravity and earthquakes, this would produce a force
and moment.<br />
<br />
The mass of the actuator is 1,330 pounds and this also would produce a force and moment due to the above.<br />
<br />
The mass of the valve bonnet is 1,200 pounds and under the influence of
acceleration due to gravity and earthquakes, this would produce a force
and moment.<br />
<br /><b>
5.0 Calculations</b><br />
<br />
Firstly, we consider the stresses imposed on the body studs by the
action of operating loads and seismic acceleration along the horizontal
and vertical axis.<br />
<br />
Secondly, we consider the stresses imposed on the area behind the outlet flange by the action of the above loads.<br />
<br /><b>
5.1 Stresses imposed on the body studs by the action of operating loads and seismic acceleration along the horizontal axis</b><br />
<br />
The body studs are subject to stresses caused by the hydrostatic end
thrust or gasket seating, bending due to the actuator, bending due to
the bonnet, bending due to the body, force due to the actuator, force
due to the bonnet, force due to the body and force due to the actuator
thrust.<br />
<br /><b>
5.1.1 Stress causedby the hydrostatic end thrust or gasket seating</b><br />
<br />
Using the method as described in Appendix 2 of the 'ASME Boiler and
Pressure vessel code - Section VIII, Division I', calculations shall be
made for each of the two design conditions of operating and gasket
seating and the more severe will control.<br />
<br />
The minimum required bolt load for operating conditions,<br />
<br />
Wm1 = 0.785G^2 x p + (2b x 3.14 GmP)<br />
<br />
where,<br />
<br />
G = 27.050<br />
P = 1,150 psig<br />
b = 0.3186<br />
m = 3.75<br />
<br />
Wm1 = 0.785 x 27.050^2 x 1150 + (2 x 0.3186 x 3.14 x 27.050 x 3.75 x 1150)<br />
<br />
Wm1 = 893,945 lbf<br />
<br />
The minimum required bolt load for gasket seating,<br />
<br />
Wm2 = 3.14 bGy<br />
<br />
Where,<br />
<br />
b = 0.3186 in<br />
G = 27.050 in <br />
Y = 7,600 psi<br />
<br />
Wm2 = 3.14 x 0.3186 x 27.050 x 7,600<br />
<br />
Wm2 = 205,663 lbf<br />
<br />
As the larger of the two loads is due to the operating conditions, we
consider the stress imposed on the studs due to hydrostatic end thrust,<br />
<br />
S1 = Wm1 / A<br />
<br />
Where,<br />
<br />
Wm1 = 893,945 lbf<br />
<br />
A = bolt area, 24 x 1.78 = 42.72 in^2<br />
<br />
S1 = 893,945 / 42.72<br />
<br />
S1 = 20,926 Ibf/in^2<br />
<br /><b>
5.1.2 Bending stress due to the actuator</b><br />
<br />
The bending stress due to the actuator under the influence of seismic acceleration is given by,<br />
<br />
S2 = (M / I) / Y<br />
<br />
Where,<br />
<br />
M = bending moment at stud, lbf in<br />
= mass of actuator x seismic acceleration x distance<br />
= (1330 / 32.2) x (0.81 x 32.2) x 59.25<br />
= 63,830 lbf in<br />
<br />
Y = distance from neutral axis to outermost fibre, in<br />
= 16.063 in<br />
<br />
I = second moment of area of twenty four studs, in^4<br />
<br />
=(1 + AL^2)<br />
= 24 x 0.2302 + 4 (1.78 x (1.9905^2 +5.8359^2 + 9.2836^2 + 12.0986^2 + 12.0986^2 + 14.08916^2 + 15.1195^2 ))<br />
= 4,973 in^4<br />
<br />
S2 = (63,820 / 4,973) x 16.063<br />
<br />
S2 = 206 lbf/in^2<br />
<br /><b>
5.1.3 Bending stress due to the bonnet</b><br />
<br />
The bending stress due to the bonnet under the influence of seismic acceleration is given by,<br />
<br />
S3 = (M / I) Y<br />
<br />
Where,<br />
<br />
M = bending moment of stud, ibf in<br />
= mass of bonnet x seismic acceleration x distance<br />
= (1,200 / 32.2) x (0.81 x 32.2) x 4<br />
= 3,888 lbf in<br />
<br />
Y =16.063 in<br />
I = 4,973 in^4<br />
<br />
S3 = (3,888 / 4,973) x 16.063<br />
<br />
S3 = 13 lbf/in^2<br />
<br /><b>
5.1.4 Bending stress due to the body</b><br />
<br />
The bending stress dueto the body under the influence of seismic acceleration is given by,<br />
<br />
S4 = (M / I) Y<br />
<br />
Where,<br />
<br />
M = bending moment at stud, Ibf in<br />
= mass of body x seismicacceleration x distance<br />
= (11,000 x 32.2) x (0.81 x 32.2) x 17.75<br />
<br />
= 158,153 lbf in<br />
<br />
Y = 16.063 in<br />
I = 4,973 in^4<br />
<br />
S4 = (158,153 / 4,973) x 16.063<br />
<br />
S4 = 511 Ibf/in^2<br />
<br /><b>
5.1.5 Direct stress due to actuator weight</b><br />
<br />
The direct stress imposed on the studs by the weight of the actuator is given by,<br />
<br />
S5 = W2 / A<br />
<br />
Where,<br />
<br />
W2 = Weight of actuator, 1,330 lbf<br />
A = bolt area, 42.72 in^2<br />
<br />
S5 = 1330 / 42.72<br />
S5 = 31 Ibf/in^2<br />
<br /><b>
5.1.6 Direct stress due to bonnet weight</b><br />
<br />
The direct stress imposed on the studs by the weight of the bonnet is given by,<br />
<br />
S6 = W3 / A<br />
<br />
Where,<br />
<br />
W3 = weight of bonnet, 1,200 lbf<br />
A = bolt area, 42.72 in^2<br />
<br />
S6 = 1200 / 42.72<br />
S6 = 28 lbf / in2<br />
<br /><b>
5.1.7 Direct stress due to the body weight</b><br />
<br />
The direct stress imposed on the studs by the weight of the body is given by,<br />
<br />
S7 = W1 / A<br />
<br />
Where,<br />
<br />
W1 = weight of body, 11,000 lbf<br />
A = bolt area, 42.72 in^2<br />
<br />
S7 = 11,000 / 42.72<br />
S7 = 258 Ibf/in^2<br />
<br /><b>
5.1.8 Direct stress due to actuator thrust</b><br />
<br />
The direct stress on the studs caused by the thrust of the actuator
when the valve is in the closed position and the valve is not filled
with line fluid is given by,<br />
<br />
S8 = F / A<br />
<br />
Where,<br />
<br />
F = maximum thrust of actuator, 15,600 lbf<br />
A = bolt area 42.72 in^2<br />
<br />
S8 = 15,600 / 4,272<br />
S8 = 365 Ibf/in^2<br />
<br /><b>
5.1.9 Summation of stresses</b><br />
<br />
Addition of the eight component stresses yields a total stress of :<br />
<br />
S = S1 + S2 + S3 + S4 + S5 + S6 + S7 + S8<br />
= 20,926 + 206 +13 + 511 + 31 + 28 + 258 + 365<br />
= 22,338 lbf/in^2<br />
. .<br />
The value of the total stress is less than 22% of the yield-stress for this non-pressurised component.<br />
<br /><b>
5.2 Stresses imposed on the body studs by the action of operating loads and seismic acceleration along the vertical axis</b><br />
<br />
The body studs are subject to stresses caused by the hydrostatic end
thrust or gasket seating, force due to the actuator, bonnet, body and
actuator thrust.<br />
<br /><b>
5.2.1 Stress caused by the hydrostatic end thrust or gasket seating</b><br />
<br />
The direct stress caused by the hydrostatic and thrust or gasket
seating calculation is as detailed in 5.1.1 yielding a stress of 20,926
lbf/in2.<br />
<br /><b>
5.2.2 Direct stress caused by the bodyunder the influence of acceleration due to gravity plus seismic effects</b><br />
<br />
The direct stress is given by,<br />
<br />
S9 = F / A<br />
<br />
Where,<br />
<br />
F = effective force due to body, Ibf<br />
<br />
=11,000 + (11,000 / 32.2) x (0.81 x 32.2)<br />
<br />
=19,910 lbf<br />
<br />
A = bolt area, 42.72 in^2<br />
<br />
S9 = 19,910 / 42.72<br />
S9 = 466 Ibf/in^2<br />
<br /><b>
5.2.3 Direct stress caused by the actuator under the influence of acceleration due to gravity and seismic effects</b><br />
<br />
The direct stress is given by,<br />
<br />
S10 = F / A<br />
<br />
Where,<br />
<br />
F = effective force due to actuator, lbf<br />
<br />
= 1,330 + (1,330 / 32.2) x (0.81 x 32.2)<br />
<br />
= 2,407 lbf<br />
<br />
A = bolt area, 42.72 in^2<br />
<br />
S10 = 2,407 / 42.72<br />
<br />
S10 = 56 lbf/in^2<br />
<br /><b>
5.2.4 Direct stress caused by the bonnet under the influence of acceleration due to gravity and seismic effects</b><br />
<br />
The direct stress is given by,<br />
<br />
S11 = F / A<br />
<br />
Where,<br />
<br />
F = effective force due to bonnet, lbf<br />
<br />
=1,200 + (1,200 / 32.2) x (0.81 x 32.2)<br />
<br />
= 2,172 lbf<br />
<br />
A = bolt area, 42.72 in^2<br />
<br />
S11 = 2,172 / 42.72<br />
<br />
S11 = 51 lbf/in^2<br />
<br /><b>
5.2.5 Direct stress due to the actuator thrust</b><br />
<br />
The direct stress on the studs, caused by the thrust of the actuator
when the valve is in the closed position and the valve is not filled 2
with line fluid, is as detailed in 5.1.8 yielding a stress of 365
lbf/in^2.<br />
<br /><b>
5.2.6 Summation of stresses</b><br />
<br />
Addition of the five component stresses yields a total stress of :<br />
<br />
S = S1 + S9 + S10 + S11 + S8<br />
= 20,926 + 466 + 2,407 + 51 + 365<br />
= 24,215 lbf/in^2<br />
<br />
The value of the total stress is less than 23% of the yield stress for this non-pressurised component.<br />
<br /><b>
5.3 Stresses imposed on the area behind the outlet flange by the action
of operating loads and seismic acceleration along the horizontal axis</b><br />
<br />
The area behind the outlet flange is subject to stresses caused by the
internal pressure, moment of the actuator,moment of the bonnet, moment
of the body, force due to the actuator, force due to the bonnet, force
due to the body and force due to the actuator thrust.<br />
<br /><b>
5.3.1 Longitudinal stress caused by internal pressure</b><br />
<br />
The longitudinal stress caused by the internal pressure is given by,<br />
<br />
S12 = P (AI / AM)<br />
<br />
Where,<br />
<br />
P = Maximum working pressure, 1,150 psig<br />
AI = inside areaof cross section in^2<br />
<br />
= Pi x (14.75^2 / 4)<br />
<br />
= 170.9 in^2<br />
<br />
Am = metal area of cross-section in^2<br />
<br />
= ( ((Pi x 19.25^2) / 4)) - ((Pi x 14.75^2) / 4)) )<br />
<br />
= 120.1 in^2<br />
<br />
S12 = 1,150 x (170.9 / 120.1)<br />
<br />
S12 = 1,636 lbf/in^2<br />
<br /><b>
5.3.2 Bending stress due to the actuator</b><br />
<br />
The bending stress due to the actuator, under the influence of seismic acceleration is given by,<br />
<br />
S13 = (M / Y) I<br />
<br />
Where,<br />
<br />
M = bending moment at cross-section, Ibf in<br />
= mass of actuator x seismic acceleration x distance<br />
= (1,330 / 32.2) x (0.81 x 32.2) x 91<br />
= 98,034 lbf in<br />
<br />
Y= distance from neutral axis to outermost fibre, in<br />
= 9.625 in<br />
<br />
I= second moment of area at cross section, in^4<br />
<br />
= Pi (19.25^4 - 14.75^4) / 64<br />
<br />
= 4,417 in^4<br />
<br />
S13 = (98,034 / 4,417) x 9.625<br />
<br />
S13 = 214 lbf in^2<br />
<br /><b>
5.3.3 Bending stress due to the bonnet</b><br />
<br />
The bending stress due to the bonnet under the influence of seismic acceleration is given by,<br />
<br />
S14 = (M / I) Y<br />
<br />
Where,<br />
<br />
M = bending moment at cross -section, Ibf in<br />
= mass of bonnet x seismic acceleration x distance<br />
= (1,200 / 32.2) x (0.81 x 32.2) x 35.75<br />
<br />
= 34,749 Ibf in<br />
<br />
Y = 9.625 in<br />
I = 4,417 in^4<br />
<br />
S14 = (34,749 / 4,417) x 9.625<br />
<br />
S14 = 76 lbf/in^2<br />
<br /><b>
5.3.4 Bending stress due to the body</b><br />
<br />
The bending stress due to the body under the influence of seismic acceleration is given by,<br />
<br />
S15 = (M / I) Y<br />
<br />
Where,<br />
<br />
M = bending moment at cross section, Ibf in<br />
= mass of body x seismic acceleration x distance<br />
= (11,000 x 32.2) x (0.81 x 32.2) x 20.375<br />
= 181,541 lbf in<br />
<br />
Y = 9.625 in<br />
I = 4417 in^4<br />
<br />
S15 = (181,541 / 4,417) lbf in x 9.625<br />
<br />
S15 = 396 lbf/in^2<br />
<br /><b>
5.3.5 Direct stress due to the actuator weight</b><br />
<br />
The direct stress due to the actuator weight is given by,<br />
<br />
S16 = W2 / A<br />
<br />
Where,<br />
<br />
W2 = weight of actuator, 1,330 lbf<br />
<br />
A = area of cross-section, 120 in^2<br />
<br />
S16 = 1,330 / 120<br />
<br />
S16= 11 lbf/in^2<br />
<br /><b>
5.3.6 Direct stress due to bonnet weight</b><br />
<br />
The direct stress due to bonnet weight is given by,<br />
<br />
S17 = W3 / A<br />
<br />
Where,<br />
<br />
W3 = weight of bonnet, 1,200 lbf<br />
A = 120 in2<br />
<br />
S17 = 1,200 / 120<br />
S17 = 10 lbf/in^2<br />
<br /><b>
5.3.7 Direct stress dueto body weight</b><br />
<br />
The direct stress due to the body weight is given by,<br />
<br />
S18 = W1 / A<br />
<br />
Where,<br />
<br />
W = weight of body, 11,000 lbf<br />
A = 120 in^2<br />
<br />
S18 = 11,000 / 120<br />
S18 = 92 lbf/in^2<br />
<br /><b>
5.3.8 Direct stress due to actuator thrust</b><br />
<br />
The direct stress on the cross-section caused by the thrust of the
actuator when the valve is in the closed position and the valve is not
filled with line fluid is given by,<br />
<br />
S19 = F / A<br />
<br />
Where,<br />
<br />
F = maximum thrust of actuator, 15,600 lbf<br />
A = 120 in^2<br />
<br />
S19 = 15,600 / 120<br />
S19 = 130 lbf/in^2<br />
<br /><b>
5.3.9 Summation of stresses</b><br />
<br />
Addition of the eight component stresses yields a total stress of,<br />
<br />
S = S12 + S13 + S14 + S15 + S16 + S17 + S18 + S19<br />
= 1,636 + 214 + 76 + 396 + 11 + 10 + 92 + 130<br />
= 2,565 Ibf/in^2<br />
<br />
The value of the total stress is less than 8% of the yield stress for this pressurised cross-section.<br />
<br /><b>
5.4 Stresses imposed on the area at he back of the outlet flange by the
action of operating loads and seismic acceleration along the vertical
axis</b><br />
<br />
The area at the back of the outlet flange is subject to stresses caused
by internal pressure, force due to the actuator, bonnet, body and
actuator thrust.<br />
<br /><b>
5.4.1 Longitudinal stress caused by the internal pressure</b><br />
<br />
The longitudinal stress caused by the internal pressure is the same as that calculated in 5.3.1 and is 1,636 Ibf/in^2.<br />
<br /><b>
5.4.2 Direct stress caused by the body, under the influence of acceleration due to gravity plus seismic effects</b><br />
<br />
The direct stress is given by,<br />
<br />
S20 = F / A<br />
<br />
Where,<br />
<br />
F = effective force due to the body, Ibf<br />
<br />
= 11,000 + (11,000 / 32.2) x ( 0.81 x 32.2)<br />
<br />
= 19,910 lbf<br />
<br />
= 120 in^2<br />
<br />
S20 = 19,910 / 120<br />
<br />
S20 = 166 lbf/in^2<br />
<br /><b>
5.4.3 Direct stress caused by the bonnet under the influence of acceleration due to gravity plus seismic effects</b><br />
<br />
The direct stress is given by,<br />
<br />
S21 = F / A<br />
<br />
Where,<br />
<br />
F= effective force due to the bonnet, Ibf<br />
<br />
= 1,200 + (1,200 / 32.2) x (0.81 x 32.2)<br />
<br />
= 2,172 Ibf<br />
<br />
A = 120 in^2<br />
<br />
S21 = 2,172 / 120<br />
<br />
S21 = 18 lbf/in^2<br />
<br /><b>
5.4.4 Direct stress caused by the actuator under the influence of acceleration due to gravity plus seismic effects</b><br />
<br />
The direct stress is given by,<br />
<br />
S22 =F / A<br />
<br />
Where,<br />
<br />
F = effective force due to the actuator, Ibf<br />
<br />
= 1,330 + (1,330 / 32.2) x (0.81 x 32.2)<br />
<br />
= 2,407 Ibf<br />
<br />
A2 = 120 in^2<br />
<br />
S22 = 2,407 / 120<br />
<br />
S22 = 20 Ibf/in^2<br />
<br /><b>
5.4.5 Direct stress due to actuator thrust</b><br />
<br />
The direct stress on the cross-section caused by the thrust of the
actuator when the valve is in the closed position and the valve is not
filled with line fluid is the same as that calculated in section 5.3.8
and being 130 Ibf/in^2.<br />
<br /><b>
5.4.6 Summation of stresses</b><br />
<br />
Addition of the five component stresses yields a total stress of :<br />
<br />
S = S12 + S20 + S21 + S22 + S19<br />
= 1,636 + 166 + 18 + 20 + 130<br />
= 1,970 Ibf/in^2<br />
<br />
The value of the total stress is less than 6% of the yield stress for this pressurised cross section.<br />
<br /><b>
6.0 Results</b><br />
<br />
The calculated total tensile stress in the body studs by the action of
operating loads and seismic acceleration along the horizontal axis is
22,338 lbf/in^2. Increasing this calculated value by 25% gives 27,923
lbf/in^2 which is less than 27% of the material yield stress ( 105,000
lbf/in^2).<br />
<br />
Under the action of seismic acceleration in the vertical direction the
calculated total tensile stress in the body studs is 24,215
lbf/in^2. Applying the 25% increase produces 30,269 lbf/in^2 which
is less than 29% of the material yield stress (105,000 lbf/in^2).<br />
<br />
Considering the region behind the outlet flange, our calculations
produce a total tensile stress in the section of 2565 lbf/in^2, for the
action of operating loads and seismic acceleration along the horizontal
axis. Increasing this calculated value by 25% gives 3206 lbf/in^2 which
is less than 9% of the yield stress of the material ( 36000 lbf/in^2).<br />
<br />
The calculated total tensile stress in the region behind the outlet
flange, subject to operating loads and seismic acceleration in the
vertical direction is 1970 lbf/in^2. Increasing this calculated value by
25% gives 2463 lbf/in^2, which is less than 7% of the material yield
stress (36000 lbf/in^2).<br />
</span>
Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com0tag:blogger.com,1999:blog-4936991779739408242.post-84310658166031869022006-09-01T14:50:00.000+02:002014-06-09T10:02:40.825+02:00Control valve cryogenic test procedure<span style="font-size: small;"><b><span style="font-family: arial;"><img align="right" src="http://i2.tinypic.com/27xezcm.jpg" height="519" width="350" /></span></b></span><span style="font-size: small;"><span style="font-family: arial;">I was asked to create this control valve cryogenic test procedure for one of the world’s leading engineering companies.</span><b><span style="font-family: arial;"><br />
<br />
1 Introduction</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">2 Location of tests in manufacturing programme</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">3 Test temperature of minus (-)196 Celsius</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">4 Test temperature above minus (-)196 Celsius</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">5 Equipment specifications</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">1 Introduction</span></b><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">The company has the facility to carry
out cryogenic testing of control valves at temperatures as low as minus
(-)196 Celsius. Tests conducted at these temperatures include:</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">(a) Seat leakage test</span><br style="font-family: arial;" />
<span style="font-family: arial;">(b) Gland leakage test</span><br style="font-family: arial;" />
<span style="font-family: arial;">(c) Body/bonnet joint leakage test</span><br style="font-family: arial;" />
<span style="font-family: arial;">(d) Mechanical operation test</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">The tests are carried out on the
valve when the required test temperature has been achieved and
maintained for one hour. This allows for a uniform temperature
distribution throughout the assembly. The allowable deviation
from the desired temperature is ±3 Celsius degrees over this period.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">There are two modes of operation for
the cryogenic test plant, depending upon the required test
temperature. Heat transfer is effected by immersing the test
valve in a bath of liquid nitrogen at its saturation temperature for a
test temperature of minus (-)196 Celsius.If the required test
temperature lies above minus (-)196 Celsius then an evaporator is used
and this creates heat transfer by passing a mixture of evaporated
nitrogen and cold air around the test valve.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<b><span style="font-family: arial;">2 Location of tests in manufacturing programme</span></b><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">All tests are carried out on the
assembled valve and actuator upon completion of the hydrostatic and
seat leakage tests. Prior to testing, the valve is fully
disassembled and degreased, ready for cryogenic testing. The
valve internal and external surfaces of the valve are to be free of
moisture, dirt and metal particles. The valve is fully
disassembled, to check for any permanent distortion of components, upon
completion of the test.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<b><span style="font-family: arial;">3 Test temperature of minus (-)196 Celsius</span></b><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;"><img align="left" src="http://i2.tinypic.com/27xf5a8.jpg" height="462" width="350" />Blank flanges, with ¼” NPT
connections, are bolted to the valve body and compress a PTFE gasket to
provide an efficient seal. Alternatively, for valves with butt
welded ends, blind hubs are used.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">The 1/4" metal tubing from the helium
cylinders is attached to the inlet side of the valve. The tubing has a
series of coils to increase the transfer of heat from the incoming
helium, thereby reducing the temperature difference between the helium
gas and the valve. At the outlet of the valve, 1/4" metal tubing
is connected to a bubble meter and flow meter. Calibrated
thermocouples are attached to the valve in five places :</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">(a) inlet blank flange (side)</span><br style="font-family: arial;" />
<span style="font-family: arial;">(b) inlet blank flange (top)</span><br style="font-family: arial;" />
<span style="font-family: arial;">(c) body/bonnet joint (body flange)</span><br style="font-family: arial;" />
<span style="font-family: arial;">(d) body stud/nut</span><br style="font-family: arial;" />
<span style="font-family: arial;">(e) actuator locking ring</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">The valve is carefully lowered into
the insulated cooling tank, prior to the admission of liquid
nitrogen. A sufficient clearance must exist between the valve and
the tank walls to allow for good circulation of the coolant.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">Proof tests of the valve are carried
out at ambient temperature to determine whether the test should
continue and these tests are identical to those to be done at the test
temperature. The results of these tests should be better or equal
to those required at the test temperature.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">Upon satisfactory completion of the
initial proving test, the valve is now ready to be cooled down to
(-)196 Celsius. Liquid nitrogen is poured into the insulated tank
up to the body/bonnet joint. Initially, rapid vaporisation of the
nitrogen takes place, making it necessary to frequently pour liquid
nitrogen into the vessel. As the valve temperature is reduced to
near the test temperature, only occasional 'topping up' is required to
maintain the liquid nitrogen slightly above the body/bonnet joint.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">When the test temperature has been
achieved (± 3 Celsius degrees), a period of one hour must elapse to
allow for the valve internals to reach the required temperature.
A purge of helium gas is required to be passed through the partially
open valve to prevent the ingress of moisture throughout the cooling
down operation.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">The position of the valve is chosen so that the packing box, located in the valve bonnet, is clear of the cold boil-off gas.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;"><img align="right" src="http://i1.tinypic.com/27xf7t0.jpg" height="465" width="350" />(A) Seat leakage test - With the
valve in the fully closed position, the helium gas pressure is raised
to the seat test pressure of the valve. The seat test pressure is
equal to the maximum shut-offpressure in service. This pressure
may not exceed the cold pressure rating of the valve. The valve
trim leakage (if any) is recorded over a ten minute period and must not
exceed a previously agreed value between the client and the company.
Typical values for single seated globe valves, expressed as a
percentage of the maximum flow coefficient (Cv), may be:</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">(a) 0.1000% metal piston rings</span><br style="font-family: arial;" />
<span style="font-family: arial;">(b) 0.0060% nitrile '0' rings, balanced design</span><br style="font-family: arial;" />
<span style="font-family: arial;">(c) 0.0050% p.t.f.e. lipseals</span><br style="font-family: arial;" />
<span style="font-family: arial;">(d) 0.0020% metal/metal (standard)</span><br style="font-family: arial;" />
<span style="font-family: arial;">(e) 0.0002% metal/metal (special lapped), solid design</span><br style="font-family: arial;" />
<span style="font-family: arial;">(f) 0.0001% soft face</span><br style="font-family: arial;" />
<span style="font-family: arial;">(g) bubble tight (special)</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">(B) Gland leakage test - With the
body pressurised to the seat leakage test pressure, a 50% (by volume)
solution of teepol/alcohol is brushed on to the top of the packing
box. Gland leakage, detected by the formation of bubbles, is not
allowed. It may be necessary to slightly adjust the packing box flange
nuts to achieve zero leakage because of component contraction during
'cool-down'.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">(C) Body/bonnet joint leakage test -
With the body pressurised to the seat leakage test pressure, careful
examination of the body/bonnet joint area is undertaken. The
body/bonnet joint is submerged below the surface of the liquid nitrogen
and any escape of helium gas (evidenced by bubbles) is not acceptable.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">(D) Mechanical operation test - With
no pressure in the valve body, i.e. just sufficient gas to prevent the
ingress of moisture, the valve is stroked twenty times. The valve
should travel over its entire stroke length ina smooth action, with no
jerks or jumpy action.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<b><span style="font-family: arial;">4 Test temperature of above (-)196 Celsius</span></b><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">The test valve is firmly supported on
a platform above the evaporator. Initial proving tests are
carried out at ambient temperature to determine whether to proceed with
the cryogenic test.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">Upon satisfactory completion of the
proving test, the evaporator is filled with liquid nitrogen. A
multi vane centrifugal fan draws air from the atmosphere and forces it
through a heat exchanger. This creates a reduction in the
temperature of the air and evaporation of the liquid nitrogen.
The mixture of air and nitrogen then flows past the test valve in such
a manner as to allow heat from the test valve to warm the mixture
again, thereby reducing the temperature of the test valve. The
temperature of the test valve is regulated by the action of the
centrifugal fan.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<span style="font-family: arial;">Various tests, as described in Section 3, are then carried out on the valve at the test temperature.</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<b><span style="font-family: arial;">5 Equipment specifications</span></b><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Fan</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Type : 9” diameter Halifax multi-vane centrifugal fan</span><br style="font-family: arial;" />
<span style="font-family: arial;">Outlet velocity : 4880 feet per minute</span><br style="font-family: arial;" />
<span style="font-family: arial;">Speed : 2300 revolutions per minute</span><br style="font-family: arial;" />
<span style="font-family: arial;">Static pressure : 1.75” water gauge</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Heat exchanger</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Tube diameter : 6” nominal</span><br style="font-family: arial;" />
<span style="font-family: arial;">Tube length : 29 feet immersed</span><br style="font-family: arial;" />
<span style="font-family: arial;">Evaporator Volume : 50 cubic feet</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Insulated tank</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Inside width : 1 foot</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside length : 3 feet</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside height : 2 feet</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Overhead crane facility</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Safe working load : 5 tonnes</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Insulated enclosure</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Insulation : 6" thick expanded polystyrene block</span><br style="font-family: arial;" />
<span style="font-family: arial;">Housing : softwood</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside width : 6 feet</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside length : 6 feet</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside height : 6 feet</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Insulated pit</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Insulation : 6" thick expanded polystyrene block</span><br style="font-family: arial;" />
<span style="font-family: arial;">Sides : Concrete</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside width : 6 feet</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside length : 6 feet</span><br style="font-family: arial;" />
<span style="font-family: arial;">Inside height : 6 feet</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Electrical equipment</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Five thermocouples</span><br style="font-family: arial;" />
<span style="font-family: arial;">Digital voltmeter</span><br style="font-family: arial;" />
<br style="font-family: arial;" />
<u><span style="font-family: arial;">Flow equipment</span></u><br style="font-family: arial;" />
<span style="font-family: arial;">Alcohol Bubble meter</span><br style="font-family: arial;" />
<span style="font-family: arial;">Positive displacement meter</span></span>Russell Davisonhttp://www.blogger.com/profile/12742970492442377079noreply@blogger.com1