Marketing Management for EMBA

8/3/2019 Marketing Management for EMBA

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AEREN FOUNDATIONS Maharashtra Govt. Reg. No.: F-11724

SUBJECT: MARKETING MANAGEMENT

COURSE : EMBA Total Marks : 80

1) Attempt any Four Cases

2) All cases carries equal marks.

ACAS

As markets become increasingly competitive it is essential that employers and employees have a

good working relationship and are pulling in the same direction. The employment relationship can

have a major effect on productivity and the success of a business.

It is just as important in the public sector where services are provided through the government -

including health and education. Increasingly, all types of organisations refer to how they aim to treat

staff, in descriptions of their overall ambitions. This helps them communicate respect for staff, to

people inside the organisation as well as to customers and potential employees. A reputation locallyas a fair employer is very important in attracting and retaining good employees.

Recognising that an independent, impartial third party can help the relationship between employers

and employees, the government set up Acas in 1974 in the aftermath of a period of troubled labour

relations. Over the last 30 years

Acas has built up an unparalleled reputation as an 'honest broker' and expert adviser. Acas' ambition

is to 'improve organisations and working life through better employment relations'.

The organisation's role is described by its full name Advisory, Conciliation and Arbitration Service

(now rarely used).

This also describes its statutory duties:

AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
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Advisory - it advises on good practice in developing effective workplaces that are efficient producers

of high quality goods and services because the employment relationship is right.

Conciliation - it finds common ground between employers and employees, helping each side to seethe other's point of view so they can solve a problem or resolve a dispute.

Arbitration - independent arbitrators listen to both sides and put forward a solution that they will both

either adopt (binding) or consider (non-binding) in a dispute.

Service - the organisation works together with all parties, from a neutralposition and seeks to providethe highest level of service itself.

Mediation is becoming the general term used to describe processes like conciliation and arbitration -

it is an alternative way to settle a dispute. The aim is to resolve problems without going through a

formal legal process such as a tribunal or court.

Many people associate Acas with large industrial disputes, but as this Case Study shows, its role is

much broader. Due to its independence and impartiality, Acas is trusted by both employers and

employees in workplaces. It is directed by a Council whose membersreflect the views of employers,employees and independent interests. For example, there is usually a member from both the CBI(employers) and the TUC (trade unions).

Acas is able to use that trust to work with organisations to improve employmentrelations and, if there is a breakdown in the employment relationship, to seek ways ofresolving it at an early stage.

Working towards effective workplaces

Acas believes that effective workplaces are determined by the right behaviour, supported by policies

and procedures. As part of its aim to improve workplaces, it has recently published a clear descriptionof its view of an effective workplace - The Acas Model Workplace. Acas is working withorganisations to move towards the Model.

Acas believes the key features of an effective workplace are:

Formal procedures for dealing with disciplinary matters, grievances and disputesthat managers and employees know about and use fairly.

Ambitions, goals and plans that employees know about and understand.

Managers who genuinely listen to and consider their employees' views soeveryone is actively involved in making important decisions.

A pay and reward system that is clear, fair and consistent.

A safe and healthy place to work.

People who feel valued so they can talk confidently about their work and learnfrom both successes and mistakes.

A good working relationship between management and employeerepresentatives that in turn helps build trust throughout the business.
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Fair treatment for everyone including being valued for their differences as part ofeveryday life.

Work organised so that it encourages initiative, innovation and people to worktogether.

An understanding that people have responsibilities outside work so they canopenly discuss ways of working that suit personal needs and the needs of the

business.

A culture where everyone is encouraged to learn new skills so they can look forward tofurther employment either in the business or elsewhere.

A company's performance is determined by that of its employees. They will be most effective if they

know where they stand (e.g. their duties, obligations and rights) and feel involved in the company'sfuture by taking part in decisions and being well informed. This is particularly important when

dealing with change.

Communication and consultationare essential to an effective workplace (as described) and:

improve organisational performance - time spent communicating at the outsetcan avoid any misunderstanding later

improve management performance and decision making - allowing employees toexpress their views can help managers arrive at decisions which can more readilybe accepted by employees as a whole

improve employees' performance and commitment - employees will performbetter if they are given regular, accurate information about their jobs

help develop greater trust

increase job satisfaction - employees are more likely to be motivated if they havea good understanding of their job and how it fits into the organisation as a whole.

These are two-way processes. Channels can include joint groups, team meetings, electronic, written,

one-to-one, displays, etc. Alternative Dispute Resolution Even the best-run companies can have

problems with employment relations and Acas is developing its services to help organisations resolve

these at an early stage - the 'prevention is better than cure' approach that Acas is keen to spread.Disputes can be costly - especially in staff time, disruption to the business and the effect they can

have on other employees. Tribunal hearings might also result in an award if the case is won by the

employee.

Acas, therefore, increasingly works to prevent employment issues turning into disputes - in other

words helping businesses get their employment relationship right. Its work in this area includes:

providing mediation services to help resolve conflict between individuals - bothemployee/employee and employee/employer

training company staff to provide their own mediation service.

Acas services
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Resolving large scale disputes

(collective conciliation)

Although it is the area that most people associate with Acas, only around 10% of its staff work onthis. The number of such disputes has been relatively stable over the last five years at around 1,300 a

year and Acas has traditionally become involved once parties have reached a stalemate. It is now

starting to work with organisations at an earlier stage.

Resolving disputes with individual employees

(individual conciliation)

When an employee believes s/he has been unfairly treated by an employer and they cannot resolve

the problem between them, the employee can take their complaint to an employment tribunal.

Employees now have around 100 rights covering aspects of employment such as holiday, workingtime, maternity leave and pay, flexible working and contracts of employment.

Acas has a duty to try to resolve the case before it goes to a tribunal hearing. Acas contacts both sidesin the dispute (this could be via representatives such as solicitors or union officers). This is to see if

the problem can be resolved through conciliation before reaching a tribunal hearing. In 2004/05 77%of cases were settled or withdrawn at this stage. This is the largest part of Acas' workload, although

the number of cases has been declining slowly in recent years. Currently there are around 80,000

cases a year.

The largest category (or jurisdiction) of applications to tribunals is claimsof unfair dismissal. Acashas an additional role in these cases because tribunal panels use the Acas Code of Practice on

Disciplinary and Grievance Procedures when deciding whether the dismissal has been handled in a

reasonable way. In October 2004 new legislation came into effect requiring all organisations to

follow minimum statutorydiscipline (where action is started by the employer) and grievance (wherethe employee starts the action) procedures. Tribunals still need to refer to the Acas Code for

reasonable behaviour guidance and the principles behind it.

Acas offers a choice in cases of unfair dismissal and where an employee believes their

request to work flexibly (e.g. part-time or during different hours) has not been dealt

with properly. If both parties agree, they can opt for Acas arbitration - the advantage

over a tribunal hearing being that it is less legalistic and not in public.

Training

Acas offers training to help employers introduce good practice and manage change. It will designcourses especially for an organisation. Typical subjects include tackling absence, managing

recruitmentand developing ways of working together effectively as a team, all of which contribute to

business goals.

Acas also offers standard sessions, specially designed for small businesses, which cover key pointsabout employing people. SMEs with fewer than 50 employees often do not have a human resources

(HR) management specialist. This lack of HR expertise is one reason why small businesses are

involved in a higher proportion of complaints to tribunals than would be expected from employmentstatistics.
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It also provides training via its website on a number of subjects such as handling discipline and

grievance for those who are unable to or do not want to attend one of its face-to-face sessions.

Advice and information

Acas' work in this area is growing. Acas uses a number of ways to deliver the information people

need to make important decisions and to give advice on what good practice looks like in day-to-day

life at work or how to improve the employment relationship. These include:

personal visits from Acas advisers

website

publications

helpline (08457 47 47 47).

Acas' helpline answers around 900,000 calls a year from employers, employees and

representatives on all sorts of employment matters.

Equality, diversity and effective workplaces

Equality and diversity

The workforce and working patterns are changing. The working population is getting older and there

are more women and men from different cultural and ethnic backgrounds. Employees rightly expectto be treated fairly and considerately. This expectation is generally supported by the law.

It is illegal to discriminate against people at work on the grounds of:

gender

race

disability

sexual orientation

religion or belief

being or not being a member of a trade union.

Later in 2006 age will be added. Valuing the diversity of employees is also important from a business

point of view. Companies with a diverse range of employees are better able to understand the needs

of a diverse range ofcustomers.

They are also best placed to recruit and retain staff in an increasingly diverse and

competitivelabourmarket. These factors affect company performance. The starting

point is a good equality and diversity policy with an action plan to back it up. Acas has

specialist advisers who give hands-on help putting these in place.
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Conclusion

Good working relationships are vital for every organisation. The health of the UK

economy is determined by the performance of all these organisations added together.

The government set up Acas to help employers and employees avoid disputes and

resolve them where necessary. As an impartial organisation trusted by all sides, Acas

encourages them to work closer together. Acas is increasingly concentrating its ownresources on helping organisations to avoid disputes in the first place through

informing, advising, training and working with individual businesses to create effective

workplaces.

Questions:

1. Acas gives its services to various organizations. What benefits of these services

reach

the customers of these organizations?

2. Explain the Acas services in terms of

a. soft skills improvement

b. goodwill.

3. What are the commercial gains resulting from the services of Acas.

AMWAY

Creating a corporate social responsibility strategy

Introduction

Amway is one of the world's largest direct sales organisations with over 3 million IndependentBusiness Owners (IBOs) in over 80 markets and territories. It is a family owned company with a

strong emphasis on family values. Its IBOs are mainly couples with many raising young families andtherefore have a strong bond with children. These families are more than happy to be partnered with

Amway, who as part of its Corporate Social ResponsibilityStrategy works with UNICEF, the United

Nations Children's fund.

IBOs sell Amway's own branded products. They are Amway's links with consumers and thecommunities in which they operate. This case study shows how Amway is a business that does more

than simply provide customers with good quality products. In addition it plays a key role in the

communities in which it operates.
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Businesses need to trade ethically i.e. in a principled way. Amway has put ethical behaviourat the

top of its agenda. Ethical behaviour is part ofCorporate Social Responsibility (CSR). This refers tobusiness organisation's wider responsibilities to society.

Amway's ethical beliefs are illustrated through the support of global causes. It defines a global cause

as 'a social issue affecting many people around the world engaged in a struggle or plight thatwarrants a charitable response'. This case study explains how Amway's One by One Campaign for

Children illustrates the businesses' commitment to children in need across the globe.

Amway's vision is 'To help people live better lives'.

There are various ways in which this vision is delivered.

Amway encourages staff and IBOs to support its One by One Campaign for Children.

Values are important to a company. It is what an organisation stands for e.g. being

trustworthy and honest, taking care for others, giving value for money, etc. An

important value for Amway is being a caring company. As a result, Amway believes

firmly in demonstrating that it cares, which is why it works with UNICEF. The values of

UNICEF and Amway are closely aligned. Amway recognises that it must build its

business based on 'relevance, simplicity and humanity'.

Meeting stakeholder needs

A stakeholder is a group or individual who has an interest in the decisions made by a

business. Amway's CSR strategy has been developed with the interests ofstakeholders

in mind. The key groups are:
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Each one of these stakeholders has particular concerns:

Amway takes corporate social responsibility seriously through its partnership with

UNICEF. The two key partners in this relationship are UNICEF and Amway.

Amway and UNICEF work in and for communities across the globe. They are therefore

natural partners.

Growth and responsibility
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An understanding of how Amway operates as an organisation gives a clearer picture of the

contribution it can make to helping children in need across the globe.

Amway distributes a range of branded products. These products are sold by IBOs worldwide. TheIBOs are self employed and are highly motivated. They work to Amway's Rules of Conduct and

Code ofEthics which are about being honest and responsible in trading. IBOs sell to people that they

know or meet. They can introduce others to the Amway business.

Typical products that IBOs sell include:

personal care - fragrances, body care

skin care and cosmetics

durables such as cookware and water treatments systems

nutrition and wellness products such as food supplements, food and drinks.

IBOs play a key part in helping Amway to deliver its global Cause Programme.

Amway launched the One by One Campaign for Children in 2002 across the whole organisation. This

programme:

helps Amway to bring its vision to life

declares what the company stands for

builds trust and respect in Amway brands

establishes Corporate Social Responsibility to a high level.

Examples of activities under the One by One program include:

helping to set up a boat school for fishermen's children in China

helping to organise a Children's Day Party for 3,000 orphans

providing Braille books for blind children in India.

Clearly the programme fits with the partnership with UNICEF and is a key motivating tool for IBOs

who share the vision.

As a business Amway is able to grow by:

More IBOs joining the Amway business opportunity - Amway's IBOs live and tradein over 80 markets and territories worldwide.

IBOs selling more products - Sales by IBOs increase. This is partly because IBOsare entrepreneurial and committed to their work. It is also as a result of thesupport and range of products provided by Amway.

Motivating IBOs - People are motivated if they believe in the products they selland the company they represent. IBOs are pleased to work for a company with ahigh reputation.
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There is a natural fit between Amway's desire to meet people's needs and the way that

UNICEF champions the needs of the world's children.

This fit exists in a number of ways as both Amway and UNICEF:

are global organisations

benefit from a high level of public and consumer trust

are dedicated to helping people live better lives.

Developing a strategy

A strategy is an organisational plan. Implementing a strategy involves putting that plan

into action. The strategy enables an organisation to turn its values into action.

Strategies are designed for the whole of an organisation. Strategies are principally created by senior

managers in an organisation. However, effective strategies involve discussion and communicationwith a range of interested parties. The views of IBOs are thus very important in creating Amway's

strategies.

Amway's strategies for corporate social responsibility are cascaded through the

organisation, as shown below:

Amway's global strategy involves creating responsible plans that make a difference in everyone's

lives. However, the strategy is flexible. In other words in deciding on a cause that IBOs could partner

it was essential to research their views. A key element of this was research into a cause that wouldmotivate them - the research showed that the solution was a cause that helped children. There was a

clear fit between Amway's aims to help children and UNICEF's 'Immunisation Plus' programme for

children.

From the outset, Amway set out some clearobjectivesfor its strategy. These were to:
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build loyalty and pride among IBOs and employees

enhance Amway's reputation as a caring organisation

make a real difference to human lives.

Every year 1.7 million children die worldwide from avoidable infectious diseases. This situation isespecially grave for the world's poorest countries and poses a threat to the lives and well-being of

children and families. Many children could still be alive if they had been vaccinated.

For under 12 a child can be vaccinated against these diseases and has a fighting chance to reach

adulthood.

Contributing to UNICEF's world child immunisation programme therefore is a fitting focus for theactivities of Amway UK and its IBOs.

To date, Amway (UK) Ltd, its IBOs and employees have raised over 80,000 for UNICEF. Over

10,000 was raised for the Tsunami relief efforts alone.

The UK initiative is part of a pan-European fundraising campaign for children. It recognises the

importance of building good working relationships with UNICEF in each market in order to roll-outfundraising programmes to Amway's IBOs and theircustomers.

In 2001 Amway Europe's partnership with UNICEF became part of the Cause Strategy. In 2005

Amway UK's contribution to the partnership was deepened through the development of a corporate

partnership. This Corporate Partnership is a closer longer term relationship which benefits bothparties. Working together the two parties raise money for UNICEF. At the same time this helps to

build Amway's reputation.

The objective is to raise 500,000 Euros (approximately 325,000) every year until 2010

across Amway Europe.

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Communicating the strategy

Good, clear communication is essential in making sure that the CSR strategy aligns with company

business objectives. Communication also helps in putting the strategy into practice.

A number of communications media are used:

i. Face-to-face communication is very important. Regular meetings take place between UNICEF,Amway and its IBOs. Through meetings with UNICEF staff the leading IBOs are able to share thevision and objectives and then pass the message on in meetings with other IBOs. In 2005 Amway

(UK) Ltd and UNICEF UK organised an information day for IBO Leaders. They were able to hear

first hand experiences from UNICEF staff about their roles and UNICEF's work as well as where themoney goes.

ii. Printed material is also important. Amway produces a monthly magazine for all IBOs. Amagram is

Amway's European monthly title. It includes articles about the UK Partner Store and the UNICEF

Lily pin. (Pins are very popular collectors items in the Amway business opportunity). E-mailcommunication is also important in the company - as e-mail plays a significant part in keeping IBOs

up-to-date. Public Relations materials are also important, particularly at launch events for theinitiative.

iii. Online activities. There is a micro-site dedicated to the Amway UK UNICEF partnership on theUNICEF UK website. This can be found at www.unicef.org.uk/amway. Part of Amway's website is

also dedicated to supporting the partnership through the sale of UNICEF merchandise in the Partner

Store. This can be found at www.amivo.co.uk. The Amway and UNICEF UK Partner Store sells arange of UNICEF items such as:

greeting cards

multi-cultural cards and gifts

stationery and wrapping paper

toys for children

Make Poverty History wristbands.

However, Amway UK's support goes well beyond these activities. In addition, important events

include staff fundraising and raffles organised by IBOs.

UNICEF attends IBO major events (usually supported by 1000 or more IBOs) where

requested. A UNICEF stand outlines the work with speakers, literature and merchandise.


Conclusion

Amway is a family business. Its IBOs are people who want to make a difference in people's lives -

particularly those of children. Amway's aspirations fit closely with those of UNICEF. They are bothorganisations with a global reach that care about people - particularly the lives of and opportunities

for children. Amway's IBOs want to be part of a socially responsible organisation because they know

that this is the right way for businesses to behave.
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Social responsibility is thus a very important aspect of business. CSR is based on a

recognition that the interests of the community and of business are closely related.

Questions:

1. How does Amway manage to maintain global standards in marketingpolicies?

2. Explain Amway marketing principles in terms of personalized and localized

marketing3. What are the principles issues affecting marketing strategies?

Achieving Better Public Services - The Work of the Audit Commission

Introduction

Living in a safe community that provides such a wide range of public services is easy to take for

granted. Even as students, the list of all the products and facilities that are provided for you is endless.

The roads, schools and colleges, sports centres, parks, youth clubs, services of the police, hospitals,

ambulances, teachers and nurses are all supplied by public money to create a certain standard of life.

An 'audit' is a formal examination of a set of accounts to see that they are true and fair. It is also a

check of quality and efficiency. It involves a proces of finding things out. In the public sector where

public money has been raised from taxes and other sources, this is key as it helps to make sure it is

used properly. This case study looks at the work of the Audit Commission as well as the roles ofsome of the people who work for it. The Audit Commission is an independent public body that

ensures public money in areas such as local government, housing, health, criminal justice and fire and

rescue services is spent efficiently.

Although the Audit Commission is an independent body, it is accountable to the Office of the Deputy

Prime Minister (ODPM). This means that its actions must be explained to the ODPM.

By undertaking an audit of a local authority, auditors can find out if the accounts are correct. It can

also see whether money has been spent unlawfully. This is so it can confirm there has been no fraud.The Audit Commission can also inspect operations of the local authority to find out how they are

performing and whether they are effective.

If they find any problems, the auditors and inspectors report to the people who make

the highest decisions within that local authority. This is known as a process of

governance. Decisions are then made to improve the way that money is spent, to

provide better value for money that comes from taxation and other sources. This also

means better services for the public.
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The work of the Audit Commission is part of a wider process of making public services accountable.

In addition to its audits and inspection role, the Audit Commission also gives an overall judgement on

the quality of local government services. The way it does this is through its ComprehensivePerformance Assessment. The Audit Commission sees how well a local authority is delivering

services and then gives it a star rating, with no stars for a council that is performing poorly to four

stars for one that is a high performer. The star rating comes with a report that explains how it arrivedat the grade. Local authorities with three or four stars have to undergo fewer audits and inspections.

Auditors and inspectors need to understand the pressures on public services, and the challenges they

face if the Audit Commission is to do its job well.

Those who work for an organisation need to know where they are going, as well as the

direction that leads their organisation. This is often expressed as a mission statement.

The mission of the Audit Commission is 'To be a driving force in the improvement of

public services. We promote good practice and help those responsible for public

services to achieve better outcomes for citizens, with a focus on those people who need

public services most.'

Roles

Working for the Audit Commission gives individuals an opportunity to help make local services

better. This improves the lives of those who depend upon such services.

Within the Audit Commission, there are many different jobs with varying levels of duties. They maystart in junior posts, where staff might be involved with a range of administrative activities. It is

possible for them to move upwards to supervisory posts, where they might be managing teams of

people.

A principal auditor will carry out audits and supervise a team and have the duties oflooking after key areas of audits. They also help their trainees to gain their professional

accounting qualifications. An audit manager plays a key role in planning and managing

complex audits. This involves helping clients to develop a perception of issues and

provide service improvements to those living in local areas. A district auditor leads and

manages a team of auditors within a region in the UK, while building relationships with

the client. This will involve inspiring and motivating the team as they audit local

authorities, report their findings to members of the public and make proposals.


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There are three main areas in which the Audit Commission recruits. These are:

1. Financial audit - Financial auditors are mainly qualified accountants. They work in teams withclients, such as local authorities. Their work will involve them using accounting standards to judge

the effectiveness of public services, part of which may involve examining fraud and testing financial

systems.

2. Performance audit - These people will typically have worked in the public sector. They work withand support providers of public services in order to help them improve the quality of delivery.

3. Support - The Audit Commission employs many others who are there to ensure that

the core business is delivered well. Some of these people work in research posts and

within internal finance. Others work in human resources, information technology,

communications and legal.

Mini studies

Helen - project manager

Helen is a project manager in the Audit Commission. Before working for the company, she was a

recruitment consultant. She was firstly employed on a six-week contract but decided to stay becauseof the class of projects she was asked to work on. She feels that: 'It's been great having a chance to

prove to myself that I can apply my skills to totally unknown territory and still deliver.

The first project I was given was in the knowledge and information directorate. I was asked to

produce a series of best-practice guides for local authorities, based on facts gathered by our fieldstaff. My brief was...brief! I was just told to "make it happen", but actually that's the way I like to

work. I hired teams of consultants to conduct the research and produce the first drafts. I also

convened panels of internal and external experts, and redrafted the guides ready for publication.'Helen has had job-related training and she has taken part in a development centre. This was a day of

individual and group tests that gave her feedback on her strengths and weaknesses.

Arati - principal auditor

Arati studied law at the University of London. He joined the Audit Commission as a trainee auditorin the London region. He says that: 'From the outset I was given a lot of duties, which included

linking with a wide range of public bodies. Being flexible was crucial; I worked with different team

leaders and managers on many diverse aspects of audit. Aside from the audit of financial statements

and government returns, we also take on reviews of clients on their legal, fraud prevention andcorporate governance arrangements, and make recommendations accordingly. Within the course of

four years I had undertaken work for a wide range of clients. This included three London boroughs,

two health authorities, eight NHS Trusts and a police authority.


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As a trainee I was funded to undertake my professional training through CIPFA (the

Chartered Institute of Public Finance and Accountancy). The support that trainee

auditors get is excellent. I never had to worry about books and course materials, as

they were sent straight out to me. Working and studying at the same time is hard,

mainly during the summer when tight deadlines have to be met for health audits.

However, the training programme is both challenging and first-rate. I qualified in June

2004 and was then promoted to principal auditor.'

Competencies

In order to use staff well, modern organisations focus their attention upon specialist

skills, such as those required by the qualified accountants who work for the Audit

Commission. They also concentrate upon a range of other ways of behaving and doing

their job. Having this broad focus helps an organisation reach its mission more easily.

Core competencies are the standards that people have to accomplish if they are

accepted to perform for the Audit Commission at a certain level. The Audit Commission

has a variety of core competency headings at a range of levels. These depend upon the

particular role of each employee. For example, a competency profile at one levelrequires the following core competencies.

Each is split into very specific requirements that they need to undertake their role:

understanding clients

managing the business

developing services

using judgment

communicating and relating to others

being technically knowledgeable and informed.

Training and development

Every member of staff at the Audit Commission has a personal development plan. Staff may be given

on-the-job training in the workplace.

This is where training courses and workshops are run for specific events. They can also get the

opportunity to do off-the-job training outside the place of work. The chances the Audit Commissionprovides for self-development may involve secondments of three to six months with clients, such as

local authorities or the National Audit Office. There are also openings for employees to take

professional qualifications, such as CIPFA.

The competency-based system and the personal development plan enable employees

to take responsibility for their own growth. This means that the area in which they work

uses and develops their talents. This results in high-quality output and work.


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Conclusion

The Audit Commission has a vital role in helping to improve public services by auditing

financial information, efficiency and value. To do this well, it needs good-quality staff,

not just in the area of accounting, but also in a host of other different roles.

Competencies and training are all geared to ensuring that its activities and advice are

of the highest quality. This is so everyone in society can benefit from its activities.

Questions:

1. What are the principle tasks of the Audit Commission?2. How is the quality of the service at Audit commission maintained up to

mark? Where does marketing strategy feature in overall qualityassessment?

3. Describe the hierarchy of Audit Commission and the respective roles interms of accountability.

Calculating the risks in making investment decisions

Introduction

Investment decisions involve weighing up the risk and the likely rewards of various options. It is

often the riskiest alternatives that yield the highest possible gains while the least risky options mayyield smaller rewards. Business decision makers therefore have to weigh up risk so as to provide the

most suitable rewards for stakeholders including shareholders and customers.

The starting point is a company's overall aim which then filters down into a strategy, creating a

balanced portfolio made up of numerous investments. This Case Study examines the processesinvolved in weighing up risks in order to create a balanced portfolio at BG Group, one of the leading

energy businesses in the UK. The Case Study illustrates typical stages involved in deciding whether

to bid for the right to explore for and develop new gas fields and, importantly, how much to bid.

Before weighing up the risks, ethics are an integral part of BG Group's considerations - i.e. makingmorally correct decisions, whether these be concerned with environmental issues, health and safety or

any other decision involving the difference between 'right and wrong' behaviour. In other words the

'best' investment decision will balance economic, social and environmental considerations.

More than just finance

Ethical decisions are integral in making investment decisions. BG Group's Statement of BusinessPrinciples sets out the fundamental values and ethical principles within which the Company operates.

BG Group will only enter countries where the Company can operate in accordance with its Business

Principles.


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The example below gives an outline of the important statistical and financial procedures involved in

making an investment decision. However, it is important to emphasise the weight given to non-financial factors involved in decision making. Gas is the cleanest fossil fuel, but any form of energy

production involves some form of environmental cost, e.g. the sight of windfarms located in fields, or

harmful release of greenhouse gases when burning fossil fuels.

BG Group will only bid to explore if it can operate within its ethical guidelines. The

Company always seeks to apply its Business Principles. This can sometimes be difficultsince natural gas resources are found in countries at different stages of economic,

environmental, political and social development.

Calculating the risks in making investment decisions

BG Group

The gas industry is today in the private and public sector and there are a number of companies

competing in the industry. Some of these companies are government owned. Others are owned by

private shareholders who appoint directors to represent their interest. The directors appointprofessional managers to run the business. Like electricity and telecommunications, gas is a 'network

industry'. In the case of gas, consumers are linked to a central network of gas pipelines.

BG Group is an integrated business in that it has activities across the whole range of gas operations,

from the reservoir to the customer. BG Group's exploration and production (E&P) business finds anddevelops gas reserves.

Natural gas is delivered to customers either by BG Group's transmission and distribution (T&D)

business using pipelines or by the liquefied natural gas (LNG) business via LNG ships. BG Group'spower business focuses on the creation of electricity by natural gas-fired power generation plants.

The illustration above shows the gas chain indicating the various links in an integrated businessinvolved in bringing gas to final consumers.

Demand for gas is projected to grow at an increasing rate over the next decade, outstripping thegrowth in demand for other major sources of energy.

As an energy source, gas is a relatively clean fossil fuel, abundant and is increasingly

becoming the fuel of choice for consumers, on both environmental and economic

grounds.

Field development

The gas business has a number of characteristics that are particularly important in relation toinvestment decision making:

It is very capital intensive so that decisions may typically involve a spend ofseveral hundred million pounds.

There are long lead times between the start of a project and the receipt ofearnings from that project, typically over five years from first investment to firstrevenue.


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The taxation and contract structure is unique to the energy industry and iscomplex. Gas is a finite resource for a nation. Its exploitation is of strategicimportance to the host government for some time.

Governments own the rights to minerals found on land (onshore) and under water (offshore) in their

countries. Governments divide the ground into exploration 'blocks' and invite energy companies tobid for the right to explore for oil and gas in those blocks. To earn the right to explore a block, the

energy company commits to a work programme, which describes the steps it will take in order to find

oil/gas. The energy company's investment and expertise helps governments access the mineral wealthbeneath the ground.

BG Group makes important decisions as to whether or not to apply for the right to explore for new

gas fields and how much to bid.

Key Risks

Shown below are some of the key risks in a typical gas project and the experts responsible foraddressing those risks:

geologists and geophysicists evaluate the risks around volume and the chance offinding those volumes

engineers examine facility and well design, costs, production rates

HSSE managers assess health, safety, security and environmental risks

economists analyse market demand and price, government and partner commercial

terms.

Investment appraisal

Discounted cash flow is an important technique for investment appraisal. The

discounted cash flow approach is a way of valuing the future returns on investment by

assessing the values of these returns in terms of their value today. It places emphasis

on the cost of funds tied up in a project by considering the timing of cash flows.

For example, we all instinctively know that 1 in the hand today is worth more than a

promise of 1 in the future. This is because:

Inflation may lower the real value of money.

The money cannot be put to constructive use in the meantime (i.e. earninginterest in the bank or applied to another project).

There is always the risk that unforeseen circumstances will prevent you receivingthe amount you have been promised.

Appraising investments using the discounted cashflow method allows the Company to

undertake a capital allocation process, which involves ranking projects and selecting

those that add the most value to the Company. It therefore incurs the opportunity cost
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of those projects that add value but cannot be financed as sufficient funds are not

available to undertake them.

Ultimately, the value of any investment is the present value of the future free cash

flows - Net Present Value (NPV) - that the investment is expected to generate.

Therefore, it is necessary to forecast the economic cashflows and discount them

appropriately to allow for the fact that they will not be received until some time in the

future. BG Group uses a discount rate that reflects the return its investors (shareholdersand banks) expect for investing in a non risk free activity (compared to depositing

money in a bank account).

The NPV calculation always assumes the project is a success. However, there is a

chance that no oil or gas is present (geological risk), this risk must therefore be

reflected in the valuation. This is achieved by assigning probabilities to the values of

successful and unsuccessful outcomes. The sum of these risked values is the Expected

Monetary Value (EMV).

The EMV calculation can be illustrated by a decision tree. Decision trees are a simple

way of choosing from alternative courses of action when faced with uncertainty. The

basic procedure for constructing a decision tree is to set out a series of alternative

branches of the tree and then to calculate the probability of the event occurring and the

likely money value of the return.

In a decision tree, it is possible to distinguish between points of decision and points

where chance and probability (uncertainty) may come into play.

For example, this process can be used to illustrate possible returns from drilling a well

and then exploiting a gas field.

The diagram below shows how inputs from geologists, engineers and others underpin

the economic analysis and ultimately the calculation of value.
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These inputs relate to both internal and external data:

Internal - technical data - relating to the costs involved in developing the block,e.g. the costs of building and developing the gas platforms, likely volume andquality of hydrocarbons.

External - commercial data - about the future demand for, and price of, gas aswell as likely tax changes, and information about local markets and other data.

Economists can then develop models projecting the likely costs and revenues of

developing new fields.

Essential components of these models are:

revenues (price x volume)

costs

government take (e.g. taxes because the blocks that companies bid for aregovernment property).

Revenues - costs - government take = the net cashflows which are discounted to give

the NPV.

BG Group then uses all of this information to calculate the EMV of decisions.

The EMV is equal to:

EMV = (NPV of success x chance of success) plus (NPV of failure x chance of failure)

The following example uses estimated returns expected from BG Group committing

itself to drilling one exploration well. The net present cost will be 16m. There is a 16%

chance that the three year project will be a success, yielding a return at NPV of 114m.

First of all we work forward across the diagram from the decision fork where the choice

is: "drill exploration well" or "don't drill exploration well".
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Next, we set out the probabilities of gas being discovered and the NPV of success or

failure (these are based on the geologists' and economists' calculations).

If the well is not drilled there will be a return of 0. If the exploration well is drilled and

no gas is found there will be a loss of 16m. There is an 84% chance of this being the

case.

If the exploration well is drilled and gas is found there will be a gain of 114m. There is

a 16% chance of this happening.

We can now work out the EMV if the decision is made to go ahead with exploiting the

field.

Therefore, on a risked basis drilling the well is attractive on economic grounds in that it

generates a positive EMV. The opportunity would be presented to management to

compete for funds in the capital allocation process.

Portfolio considerations

At this phase of the investment decision a number of factors must be considered. The overriding goalof the company is to create shareholder value. In order to achieve the optimal growth for anacceptable level of risk the company invests on a portfolio basis. This means that it will invest in a

number of different wells and at times share the costs and working interest with partners in order to

improve the risk/reward balance and stay within a budget. Because the returns of these individual

wells are likely to be uncorrelated or weakly correlated (e.g. failure in one exploration well isunlikely to affect the chance of success of another) the risk of the overall portfolio is lower than that

of an individual well. This is especially important at the exploration stage due to the high risk of

failure.

In addition to this idea of investing in projects which help to reduce the overall risk

profile of the Company, decision makers must consider the strategic fit to the current


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business and where the company's skills and expertise lie. Only after considering all of

these factors can a decision be made on whether on not to invest in a particular project.

Conclusion

The gas market is an exciting one to be involved in. The world's demand for energy is

growing rapidly and it is imperative that it is supplied with clean energy reserves by

principled companies. BG Group is a major world player in this market and it constantlyneeds to make the right sorts of investment decisions which balance the needs of global

consumers, its shareholders, the communities in which it operates, governments and

other stakeholders.

Questions:

1. What importance is attached to the ethical issues in the BG Group, shouldthey be considered important at all.

2. Comment on the investment strategies and policies of the BG Group.

3. How is the appraisal system in the BG Group implemented. Is it sound?

Quality through standardsIntroduction

BSI was the pioneer in creating standards. It is the UK's National Standards Body - the world's first.

It also plays a prominent role in the developmentof global standards.

BSI:

leads in the creation of standards

tests and certifies products and services

is one of the organizations that assesses QualityManagement Systems (QMS).

Businesses gain an advantage over rivals and also gain a high reputation by producing

high quality goods and services. Using standards helps businesses to do this. The

standards are based on best practice - for example, in handling environmental waste or

storing data.
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BSI provides certificates such as the Kitemark.

The Kitemark shows that a product or service conforms to rigorous standards for safety and

performance and has been tested against them. It is a trusted symbol found on objects people can takefor granted every day, such as electrical plugs and double glazed windows. It is also on objects we all

rely on in an emergency, e.g. fire extinguishers and surgeons' gloves.

BSI works with all types of organizations:

The following table shows a breakdown of companies, by sector, that are licenced byBSI as a result of meeting the international standard for Quality Management Systems

(QMS) (ISO 9001).

This case study focuses on the benefits of quality and how an organization designs and

implements a quality system.
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What is quality?

Quality is defined by the customer. A quality product or service is one that meets customer

requirements. Not all customers have the same requirements so two contrasting products may both beseen as quality products by their users. For example, one house-owner may be happy with a standard

light bulb - they would see this as a quality product. Another customer may want an energy efficient

light bulb with a longer life expectancy - this would be their view of quality. Quality can therefore be

defined as being fit for the customer's purpose.

There are three main ways in which a business can create quality:

Market research involves a business in finding out what its customers want and expect. It can be

carried out with a small group of customers, asking them to provide detailed information aboutproducts and services. The research should reveal what the customer' view of quality is and whether

they are getting it. Obtaining lots of information from a small panel of customers is called qualitative

research.

Market research can also be carried out with large numbers of customers throughquestionnaires. This is called quantitative research. Working to best practice standards

is another way an organization can create quality. BSI works with industry specialists to

create these standards. For example, it delivers the confidence of customers in a

business through BS 7799. This is the standard for a company's management of

information security. BSI developed this standard in 1995 to establish best practice for

capturing, storing and handling data. This British Standard became the basis for the

International Standard ISO/IEC17799. Today companies worldwide are seeking

certification for their security management systems.

Why is quality important?

The most successful organizations are those that givecustomerswhat they want. Satisfied customers

are loyal to those suppliers they feel best understand their requirements. As a result they will makerepeat purchases and will recommend a business to their friends.

There are two main types of customers for a business:

end customers - people like you and me, looking to buy an iPod or plasma screentelevision
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organizational customers - for example, a company recording audio CDs wouldbuy in blank CDs, record music to them and sell them on as a finished product.

When you buy a piece of electrical equipment, you will want to know a lot of information about itsspecification. Obvious information that you will be looking for include:

Is it safe?

Does it do what I want?

Does it meet the required standards?

As a customer you will have a lot more confidence in products you know have been tested and meet

British, European and International Standards. In the same way, your school will want to purchasegym and science lab equipment that meets the specifications of the safety standards.

Businesses thereforebenefitfrom working with BSI to meet standards, because:

Standards protect consumers' fundamental right to safety, the right to be

informed and the right to choose. These rights relate to products, services,processes and materials.

Standardization promotes effective research and development, and makesproducts easier to use.

Standardization relies on all sections of society being involved in standards,providing an opportunity for everyone to share knowledge and make their voiceheard.

Businesses that do not focus on quality will quickly find that there are costs to be paid. Examples of

these costs include waste due to products being badly made and therefore not being able to sell them.The reputation of a business will quickly deteriorate as a result of poor quality work.

It is very important for UK businesses to be associated with quality. Today, there is

greater competition from abroad. Standards are continually changing so it is important

for businesses to keep up. For example, ISO 9001 which is outlined in Section 4, started

out originally as a British Standard, BS 5750 in 1979. It was developed as an

international standard and became known as ISO 9001 in 1987. Today, the latest

edition (2000) has been adopted by more than 400,000 organizations across the globe.

Implementing a quality system internal

A system is a group of interrelated parts that make up a whole. A quality system therefore consists of

parts (such as policies and processes) designed to ensure quality.

A variety of organizations work with BSI to create standards for QMS. The standard specifiesrequirements for a QMS where an organization:

i. needs to show that it can consistently provide products that:

a) meet customerrequirements

b) meet any legal requirements.
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ii. aims to improve customer satisfaction as a result of applying the system. This includes continually

improving the system.

ISO 9001 sets out eight quality management principles. These include:

customer focus

leadership - a commitment to quality by the leaders of the organization

involvement of people - everyone in the organization having a part to play

making sure that those processes which create quality are identified

continual improvement of the system.

In practical terms, organizations wishing to apply QMS take the following steps:

1. Read and understand the standard. They read through the literature and discuss any issues with

BSI.

2. Use supporting literature and software tools to help understand, develop and implement QMS.

3. Involve top management (heavily) in developing a quality management plan. Typically a QualityManager will be responsible for the initiative.

4. The Quality Manager can be trained in ways of implementing the standard.

5. The QMS is then created and put into practice.

6. When the organization feels confident it is meeting the standard, it informs an

assessor, who will assess the effectiveness of the QMS. If it meets the standard a

certificate will be awarded. This is subject to regular reviews.

Implementing a quality system external
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Internal systems are ones that are built inside an organization. However, in addition, modern

businesses need to build external systems. External systems are those that involve people outside theorganization - e.g. suppliers.

Today, many businesses have long supply chains in which they source materials, parts and finished

goods from across the globe.

Take, for example, a modern plasma screen television. Some of the components may come fromIndia, others from China, or Eastern European countries. These separate components will then beassembled into a sub-assembly i.e. part of the finished television. This sub-assembly may take place

in India, whilst a number of parts may then be transported and delivered to a final assembly plant in

Wales.

This has led to a change in attitude. Instead of a company having a 'them' and 'us'

attitude - where 'them' are the suppliers, it now makes sense to see the process as a

shared one in which everyone relies on each other. This is known as interdependence.

Conclusion

In world trade, for buyers and sellers to work together there must be trust. Standardscan provide thenecessary bridge of confidence and understanding that builds mutual trust, helping trade to thrive.

Sales are the lifeblood of any business, so the implementation of standards helps sales. This is the

case whatever the size of the business or the sector they are operating in.

Following are case study samples of the implementation ofquality:

About JC Garland & Co

Garlands is a leading UK provider ofoutsourcedcustomercontact services. Its services range fromcustomer service to debt collection, customer retention, technical assistance, cross-selling, staff

accounts, creditmanagement, customer registrations and many other back office functions.

The company owns five prestigious contact centres, and is the second largestprivate sectoremployee

in the Tees Valley with over 3,000 staff.

Prior to implementing a quality management system, the policies and procedures used originated

from a variety of sources. Some met specific needs - e.g. legal requirements for Taxation,

Accountancy, Health & Safety and Employment - some had evolved over time, while others were

adopted to service specific client requirements.

As a growing number of organizations required their suppliers to be 'Quality Registered' management

decided to pursue ISO 9001:2000 accreditation. It saw clearbenefits in accreditation - but were keen

not lose the company's strong corporate identity.

All company procedures and processes were extensively reviewed internally and a formal QualityManagement System (called Everest) was established to comply with the requirements of the

standard.
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BSI undertook pre-assessment audits. Garlands gauged the effectiveness of the system and

determined what improvements were needed. In February 2005, a formal accreditation audit wasundertaken and Garlands was recommended for registration.

After receiving the formal registration certificate Chey Garland, Chief Executive of Garlands Call

Centres, said

"Gaining ISO 9001:2000 certification isn't just nice to have, it's vital to the success of our business. Itwill enable us to expand in important sectors such as financial services and Government, whereorganisations frequently require proof that their business partners can adhere to tough quality

standards. It will open up significant new business opportunities."

On-going internal audits and regular BSI continuous assessment visits ensure that Garlands maintainshigh standards, continues to conduct best practice and is able to establish areas of continual

improvement.

About MC Fire Protection Ltd

MC Fire Protection was established by Mike Chilman, and has earned an impressive reputation whilstworking within the fire industry based in Bicester, Oxfordshire. It employs a team responsible forcovering the supply, installation and maintenance of Fire Extinguishers and Fire Alarm Systems,

together with a consultancy service covering all aspects of fireriskmanagement.

New contracts are currently being driven by Insurance companies and changes in European and

British legislation, which are partially responsible for increasing sales.

Businesses are legally required to take steps to protect themselves, staff and customers from dangers

like fire. Fire protection often relies on equipment like fire extinguishers and alarms. These have to

comply with the fire safety standards. This provides the reassurance that the equipment will do its

job.

Companies offering fire risk assessments and consultancy services use these as industry standards.

By obtaining ISO 9001 registration they are able to show that the whole service offered is

professional and high quality.

Mike Chilman, MD, explains why:

"In 2004, our competitors were starting to publicise the fact that they complied with it.

A lot of businesses choose to trade with companies that comply with recognized

standards ahead of those who don't. On a practical level ISO 9001 has made positive

changes with improvements to our workshop, supply chain and record-keeping. All thestandards we apply have brought us extra reassurance. They help us to show that we're

more professional, while our customers are assured that the services we provide are

high quality. I would recommend standards to other businesses in the fire-protection

industry - in fact, it's becoming more and more of a necessity".

Questions:

1. Is the standardization process unique for companies and organizations ofdifferent fields? Justify your answer.

2. What contribution to an organization success and improvement is madeby BSI?
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3. Do you find this particular organization UK centric?

Using promotional strategies to connect with stakeholders

Young people leaving compulsory schooling must be motivated to continue learning and gain useful

work skills. It is a big problem in all areas if many 16 to 19 year olds are neither in education nor inemployment. This is wasting talent and storing up social problems. The Connexions Card helps to

address this. The project is being delivered through a Public Private Partnership (PPP) between the

Department for Education & Skills (DfES) and Capita. The Connexions Card is specifically targetedat 16 to 19 year olds. Cardholders are rewarded for their achievement and participation in learning

through exciting and innovative rewards.

To target a specific youth market involves marketing communications. All businesses

must consider the needs of their target markets. The Connexions Card needs to

communicate clear benefits to a variety of stakeholders. How will young people benefit

from the Card? How will teachers, parents or trainers benefit? Marketing

communications must be built upon key messages about the Connexions Card.

Communications to the various stakeholders must be consistent and work in anintegrated manner and so support the overall aims of the Card. This study illustrates

the application of some key marketing tools.

Stakeholders

Every business organisation has people or groups who have an interest in what it does. These are

'stakeholders'. It matters to these groups what happens with a business and how it happens. Like all

businesses, the Connexions Card has a number of different stakeholders, each with differing needs.Promotional messages about Connexions Card must register with each one.

Whilst the benefit of holding a Connexions Card applies to young people, to reach them means

communicating with learning centres. These are the first stakeholder group. Learning centres are theschools, colleges or work based trainers who provide learning. Collectively it is important thatteaching professionals understand how the Connexions Card could be an incentive for their young

people. The aim is that young people will be motivated to attend their learning centre and be more

likely to reach their full potential.

Connexions cardholders are able to earn points which are then exchanged for a wide range of rewardssuch as study guides, stationery, fashion accessories, money-off vouchers, books and travel tickets.

This means that Connexions Card must have a number of reward partners. These businesses are

prepared to offer suitably attractive rewards. Companies like BSM, Pentel, Orange, Letts and Arrivaall offer rewards. Another benefit from the Card is the discounts a cardholder gets. This means that

some businesses are discount partners. Many high street names offer discounts to cardholdersincluding: Topshop & Topman, Blockbuster, Miss Selfridge, Hollywood Bowl and Silverscreen.

Collectively, these business partners are a second group of stakeholders. Their interest is that theConnexions Card succeeds and brings young people to them, as customers. There are good PR

opportunities involved in being associated with good causes. They have a stake in the success of the

Card.

The most important stakeholders are young people (aged 16-19) themselves. They must know whythe Connexions Card is a great thing to have. The Card must make itself well known. It must keep in

touch.


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To promote the Connexions Card to its target market and to various stakeholder groups, a number of

methods are used. Some of these are said to be 'below-the-line', others 'above-the-line'.

Below-the-line - Non-media advertising or promotion when no commission hasbeen paid to the advertising agency. Includes direct mail, point of sale displays,giveaways.

Above-the-line - Advertising for which a payment is made and for which

commission is paid to the advertising agency.

The Connexions Card team employs a combination of methods, mainly below-the-line,

keeping it in direct control.

BELOW-THE-LINE

Telephone

The Connexions Card team employs Business Development Managers to set up appointments with

learning centres interested in offering the Card. The telephone is the preferred means of doing this.

Using the telephone, people get to know each other, and can instantly set up meetings.

Once the Card scheme is set up, an Account Manager manages the relationship. Learning centresreceive updates and raise queries. The telephone is a quick and cost effective communication tool.

Face-to-Face

Sometimes business relationships need more than telephone interaction. People need to meet face-to-

face to gain better understanding. The Connexions Card offers many benefits to young people andlearning centres, and meetings help learning centres to understand these.

Literature

Written literature plays a big role. This has to be tailored to different audiences. The Connexions

Card team has conducted primary research to help it create better literature about the Card. This is

known to have enhanced the effectiveness of these tools.

New cardholders receive a welcome pack. This is written in language that is more likely to appeal to

the target group. The look and feel of the pack is attractive. The benefits and potential gains are made

clear. For the target group, the welcome pack must act as a motivator as well as an explanation.

The learning centres need a different set of messages in their promotional literature. How toencourage take-up of the Card, the process involved, contacts and when to promote it will be key

information. The Connexions Card team knows that it is often through enthusiastic staff that the Card

will have an impact.

Poster campaigns are used to reach everyone in learning centres. Posters obviously need to drawattention to the exciting benefits of the Card. These remind existing cardholders of the discounts and

rewards available to them and potential new cardholders are persuaded to enquire. The image of the

Card needs to be positive and vibrant. Posters have to be imaginatively designed.
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Letter

Email has overtaken the necessity for a paper-based letter in many cases. Today Connexions Card

writes to cardholders only for administration purposes. Letters however have the benefit of beingformal, reasonably cost effective and direct. A letter can have an impact but this is very hard to

measure.

Direct Mail

Not all Connexions cardholders have an email address. Some people have limited Internet access.The Connexions Card team on occasion will directly mail specific rewards information to

cardholders. This is done only to those who have given them permission to do so. Connexions Card

does not mount direct mail campaigns to a mass audience in order to encourage young people toapply for a Connexions Card. Mounting such a campaign involves using mailing lists. In such a

diverse target group, mailing lists are hard to create or source.

PR

The Connexions Card team can make use ofpublic relations. This is done by issuing media releases.This is a good, low cost tool. The results of these can be measured in column inches. Comparisonswith the costs of newspaper advertising space show that free PR coverage is very good value. The

number of publicat

Marketing Management for EMBA

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