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So, how would you feel? Re-assured or spied upon? It’s a good ethical question.

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We mentioned in a previous blog about Nike publicising their CSR (Corporate Social Responsibility) policies on their website.

Asda, Britain’s second biggest supermarket chain has gone one step further in being transparent with regard to their CSR policies.

In the past they have been criticized by some campaigners for the low wages and poor conditions that were present at some of their clothes manufacturing locations in Bangladesh. Their company website states that as part of their efforts to increase transparency it has now put in webcams at two if its clothing factories in Bangladesh.

This should help reassure customers that they are treating their suppliers ethically and are not employing them under “sweatshop conditions”. The webcam shows clothes being made and you can clearly see the conditions that are present.

The supermarket chain has said that it has also installed webcams at its head office and at an automated cow milking machine at one of their suppliers.

Press reports however have indicated that not everyone is happy with the webcams with some people arguing that it is a case of spying on the workers as opposed to proving how ethical and transparent the company is. Either way, it’s certainly a novel way to utilise technology.

I guess the question we should be asking ourselves though is how would we feel if we had a webcam looking at us at our workplace – would we feel reassured or spied upon?

The latest adventure of “Harry Potter and the case of the extending tail”.

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Earlier this week Bloomsbury released their latest set of financial results. Bloomsbury are a publisher and their list of titles includes the ubiquitous Harry Potter books.

Their 2009 results showed a fall in pre-tax profits of 35% with earnings falling from £11.6 million to £7.7 million.

As keen muggles know (if you don’t know what a muggle is then ask somebody that has read a Harry Potter book!), there hasn’t been a new Harry Potter book for a while now and such was the success of them that without new ones coming into the pipeline there was bound to be an impact on the results.

Students will be aware of the product life cycle where products go through different stages ranging from introduction, growth, maturity and ultimately to decline. The decline stage of the product life cycle is often referred to as the “tail”.

Efforts are often made to extend the tail by use of the marketing mix (product, price, place and promotion).

Bloomsbury have announced that in November of this year they are planning on re-releasing all seven Harry Potter books.

Will the stories be different?

No they won’t but what will be different are the covers. Each book cover will be illustrated by artist Clare Melinsky. In other words, the product will remain largely the same (in terms of the story) but there will be small changes (the “collectors” covers).

This is a good example of amending the Product within the marketing mix to extend the tail.

Of course, the launch date of November 2010 is no accident as I’m sure there will be some happy people on Christmas day opening some new gift sets of Harry Potter books.

Baking a profit but is the future product or market (or both)?

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In our last blog entry we discussed the impact of the “lipstick factor” on the performance of some cosmetic companies in the recession. Another company that has performed well in the current challenging business environment is Greggs bakery.

Those of you that are in the UK have probably heard of the Newcastle based bakery chain, Greggs. Despite there being a recession the chain has achieved impressive results. Yesterday they announced their results for the 53 weeks to 2 January 2010 with sales up 5% to £658 million and profits up 8% to nearly £50 million.

Greggs were reported as saying that their success was down to “great quality, great taste and great value” and it’s no doubt that customers wanting value in this recession have helped them achieve their impressive results.

Greggs would make a great case study for ACCA paper P3 and the papers in the enterprise pillar of the CIMA exams. For example, Ansoff’s Matrix (or the product-market mix as it is commonly known) could be discussed (click here for our ExPress notes on P3 which provide more details on Ansoff’s matrix).

Highlighting a couple of areas within the product – market mix we can see:

1.    Present product, present market.

Greggs is predominantly UK based but they also had operations in Belgium. In other words, they were selling their existing products in an existing market (Belgium). The options in Ansoff’s matrix for this area are withdrawal, consolidation and penetration. The operations in Belgium were loss making and the view was that this would not change in the foreseeable future so Greggs decided to withdraw from the Belgium market.

2.    New product, present market.

Greggs has said that they have removed all artificial colours and trans fats from their products. In other words they are introducing new healthier products in their existing markets. This is an example of product development.

3.    Present product, new market.

There are currently in excess of 1,400 Greggs stores in the UK. Greggs are planning on opening another 600 stores in the next few years. This is a classic case of market development where existing products are released in new markets.

Bakeries can very much be considered to be a traditional industry but if Greggs has anything to do with it then it will become a growth industry as well.

Lipstick and the recession. What’s the link?

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In one of our previous blogs concerning the strategy papers and the importance of being aware of current issues we highlighted the impact of the recession on the number of people that went to cinemas (the number increased as it was seen as a relatively cheaper form of entertainment compared to eating out at restaurants or attending theater).

I was recently buying some cosmetics and got talking to the department manager. She told me about another somewhat unexpected sales success in the current recession.

Namely, that sales of cosmetics have increased. Whilst many women are reducing expenditure on most fashion products the sales of cosmetics has increased significantly. Cosmetics have shown the highest growth in the British beauty market with reports of a 7% rise to £1.2 billion.

Apparently, this scenario is called the “lipstick factor” and originated in the Great Depression of the 1930s when women were eager to look their best to land a scarce job. Reports say that the average woman in the UK in 2010 now has over £70 of cosmetics in her handbag.

So, despite there being a recession on, should the advice be “keep smiling”?

Avatar, 3D TV and the product lifecycle…

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The science fiction film Avatar which was written and directed by James Cameron has been in the press a lot recently and has had some good write ups by some of the critics. It is an incredibly successful film and today it was announced that it has overtaken Titanic to become the highest grossing movie of all time with worldwide takings of nearly USD2 billion since its premier in London in mid December last year.

Last night I decided to go and see it to see what all the fuss was about. I must admit that I was impressed. The special effects were excellent and with the film being shown in 3D it certainly did create an impact.

3D films have been around for a number of years now and started back in the 1950s with early prototypes of 3D movies including such classics as the 1950s monster movie the “Creature from the Black Lagoon”! Technology has progressed a lot since then though and at last month’s Consumer Electronics Show in Las Vegas there were a number of firms presenting their latest 3D televisions.

This is a useful example of what we would find in the product lifecycle. If you go back over the history of televisions you will find a series of lifecycles. The timeline of televisions has gone from Black & White, through “traditional” colour, to plasma and LCD.

Although the product lifecycle will vary on a geographic region by region basis, in a lot of countries the lifecycle of the “traditional style colour TV” is in decline whilst the lifecycle of the LCD TV is in the growth or maturity stages. What about the new 3D TVs that are being launched this year? It’s safe to say that these are in the introduction stage. As a result the marketing mix of these TVs will be different from the other stages. “Place” for example will be at a limited number of locations and as for “Price” then it’s not rocket science to guess that they will be priced at a premium above the other types of TV that are at different stages of their lifecycles!

CIMA results and performance with a smile…

First of all congratulations to all CIMA students that received their exam results yesterday and were successful. Your hard work paid off so very well done! We’ve heard from a number of you that were successful and those are always the best type of emails to receive from students!

If your results weren’t as expected though and you didn’t pass then better luck next time.

Various papers have performance management within the syllabus. A rather unusual method of managing performance was recently reported by the press.

Japan’s Keihin Express Railway Co., in an effort to promote a friendlier customer service, has implemented something called “smile scanners” at its stations to assess the smiles of their employees!

Employees have to look into a camera every day and have their smiles scored by a computer that analyses their facial features and gives feedback. The quality of the smile is reportedly rated on a scale ranging from 100 to zero.

Is it effective? Can the scanner distinguish between an artificial and a genuine smile? The jury is still out.

While we at ExP love technology, we’re not sure we would submit to such assessment, at least not before our morning coffee!

Remember the short term and long term

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One item that people should be aware of is that management accounting and financial management are similar to the extent that they are both concerned with resource usage. But there are differences.

I was lucky enough to have recently flown on the new Airbus A380 super jumbo and that got me thinking about some of the financial management issues that Airbus face. Designing and producing the A380 must have been a phenomenal exercise and a real testament to man’s engineering skills. It’s capable of carrying over 800 passengers and has a range of nearly 15,000 km. It’s a fantastic machine.

But what has this all got to do with the difference between management accounting and financial management? One difference is that management accounting tends to deal in short-term timescales whereas financial management is generally more concerned with the longer term. Whilst the longer term is generally considered to be more than one year be aware that certain industries and companies have a distinctly longer “long-term”.

From inception to delivery the A380 took nearly 10 years and the long term view taken by Airbus is certainly longer than some businesses in for example the IT or fashion industries. Some of the businesses in these industries have distinctly shorter “long-terms”.

Anyway, despite the millions spent on design and development of the A380 there was one disappointing thing about my flight and that was I fell asleep during the film and missed the ending…

RBS directors threaten to resign

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In terms of examples of risk management and corporate governance, UK based banking group Royal Bank of Scotland (RBS) just gives and gives.  It’s an unfolding story that continues to grow.

RBS was a big success story in the last decade, showing very fast growth and taking over bigger banks such as Nat West.  Its considerable returns appear to have been won, rather predictably, by taking a high level of risk.  Previous blog entries have mused on the wisdom of having fired their risk manager.

The banking group was saved from collapse by receiving vast emergency support from the UK government.  This was controversial but almost everybody agrees that it was necessary in order to avoid a collapse of the entire banking system.  Such a collapse would certainly have made the recession very much worse.

The British public thus became an involuntary shareholder in RBS.  Indeed, the UK government now holds a controlling interest in RBS, though it’s been keen to avoid interfering much in the management of the bank.

The image of bankers in the UK at the moment is very tarnished. Most people who have an opinion on senior bank staff have an unfavourable opinion; often seeing them as people who were over-rewarded for taking excessive risks.  Many resent having to bail out a bank ruined by unwise risk management.

So it came as a surprise to many when the directors of RBS said that they intended giving bonuses and pay increases to many staff last week.  This provoked anger from the government and outrage from the public. The RBS board stated that they would resign if they weren’t allowed to pay the bonuses, as failing to pay people well would result in loss of talented staff.

It has to be questioned whether the board have ever studied stakeholder management and the Mendelow matrix. With 70% of the ordinary shares, the government is a key player; the views of the public must be respected.  If that means the synchronised departure of the board of RBS, so be it.  Bankers’ salaries and bonuses have been in an inflationary spiral in recent years and some bank must be the first to bring their salaries into the realm of sustainable expenses.

It will be interesting to see if the directors follow through on their threat, back down or are even removed from office by the shareholders (ie the government).  Whatever the outcome, their credibility is arguably much tarnished.

It’s music to the ears…

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I’m a keen concert goer and enjoy listening to all types of music. In my opinion one of the most pleasing sounds on the ear is that of a piano.

Last month, Kemble and Co., the only remaining large scale UK piano manufacturer stopped production in the UK. Its main shareholder Yamaha transferred operations to Asia.

Whilst there is a debate amongst music aficionados around the world as to whether the sound of instruments is different depending on where it was manufactured, what is interesting from a strategy paper point of view is to think about why Yamaha made the decision to transfer production to Asia. There could well be a question in the exam involving relocating production to another country. So why did Yamaha move the production location?

The reason is clearly due to cost savings due to economies of scale, synergies and utilising spare capacity at some of their other production facilities in Asia.

In 2 years time, Kemble is due to celebrate its 100th birthday. It will still celebrate its birthday but they will be blowing out the candles on the cake in Asia and not the UK.

Royal Bank of Scotland. Where were the non-executives?

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Royal Bank of Scotland (the UK based banking group) has had its fair share of troubles of late.  It made some acquisitions that in retrospect were a clear mistake, such as its purchase of ABN Amro.  It failed to manage risk properly, having chosen to fire its risk manager; allegedly for making too much noise about the company taking too many risks.  The result of this all was a taxpayer bail out and the enforced departure of its chief executive, Sir Fred Goodwin.

At the time it became obvious that stakeholders were going to require a good degree of blood letting at board level, the bank’s chairman discussed the situation with Sir Fred.  As a result, Sir Fred chose to resign, taking his right to an annual pension of £703,000 with him.  Had he been fired, his pension rights would have been closer to zero.

Much public comment and anger followed, with virtually all of this aimed at the outgoing CEO.  But where were the non-executives?  The general duties of non-executive director are:

Remuneration: decide appropriate pay (including pensions) for executive directors in the circumstances.

Internal control and risk management supervision.  History shows that this is at least questionable.

Scrutinise the executive directors.

Strategy: contribute to strategy.

Sir Fred Goodwin was entitled to his pension.  He later voluntarily chose to waive £200,000 per year, but universal legal opinion is that he would have been entitled to the full amount, because the non-executives allowed him to resign.

Perhaps the press and the public are venting their frustration and anger too much at the executive directors?