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Instructor: Michael Cooke Address : Office: IC room 817 Class hours:Tuesday 09:00-12:00 Class Location: IC room.

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Presentation on theme: "Instructor: Michael Cooke Address : Office: IC room 817 Class hours:Tuesday 09:00-12:00 Class Location: IC room."— Presentation transcript:

1 Instructor: Michael Cooke Address : Office: IC room 817 Class hours:Tuesday 09:00-12:00 Class Location: IC room 822

2 In the News – Fixed Costs How Much Does It Cost? In April, University of California San Francisco researchers set out to find out how much an appendectomy cost among 19,000 patients in California. An appendectomy varied in price from $1,529 to $182,955, the researchers wrote in the study published in the journal Archives of Internal Medicine. For some reasons that are probably quite legitimate, they pad these prices to cover what economists might call fixed costs," McBride said (Timothy McBride, a professor and health policy analyst at Washington University in St. Louis). These include such items as uncompensated care and staff costs, he said. Hospital prices can therefore vary depending on whether the hospital is a teaching hospital, sees more patients with chronic disease or offers only basic care. Patients shouldn't be afraid to ask questions, and -- if necessary - - ask for a price reduction. "It's kind of like an opening bid if you went into an auto store," McBride said of hospital billing. "Very few people now pay the sticker price." ABC News

3 A Company Founded in 1761 Faber-Castell is the largest maker of wood-encased pencils in the world About half the companys German production is exported, mostly to other countries in the euro zone Faber-Castell illustrates how midsize companies, which account for about 60 percent of Germanys jobs, are able to stay competitive in the global marketplace It has focused on design and engineering, learned how to turn everyday products into luxury goods, and keeps key production in Germany Faber-Castell and many other German companies make a point of keeping manufacturing in Germany. They see it as central to preserving the link between design, engineering and the factory floor They also keep the know-how in Germany. Faber-Castell will not give the know-how for their best pencils away to China, for example. Faber-Castell has survived technology shifts They were founded in 1761 when graphite pencils were a novelty When Count Anton took over the business in 1978, after the death of his father, Count Roland von Faber-Castell, the company was a leading maker of slide rules. That was soon laid to waste by the electronic calculator. Then, in the 1980s, the advent of computer-assisted design soon gutted the market for its mechanical drawing products. Source: NY Times 3 Dec 13

4 Turning Points The point about paradigm shifts, as Thomas Kuhn pointed out in The Structure of Scientific Revolutions, is that they dont happen often Paradigm: philosophical or theoretical framework Paradigm shift: fundamental change in an individual's or a society's view of how things work in the world Major changes are slow, because even when a new insight is right (dazzlingly right in hindsight) vested interests and inertia resist its adoption. There are six slow-acting drivers of historical change in our time, as in most of recorded history. A common error is to focus on only one. They are: 1. Technological innovation; 2. The spread of ideas and institutions; 3. The tendency of even good political systems to degenerate; 4. Demographics; 5. Supplies of essential commodities; 6. Climate change. One simple way of thinking about the world is to say that wealth, and with it power, are shifting from the West. In that sense, the real turning point was not Nov. 9, 1989 (end of the Cold War ), but 1979, the year Deng Xiaoping visited the United States and Chinas economic reforms began in earnest. Wars change historys direction most decisively. November 30, 2012 Turning Points By NIALL FERGUSON

5 Niall Fergusons View of the Near Future Political Systems and Demographics More than 300 million Chinese adults have wealth between $10,000 and $100,000, and nearly 20 million have wealth above $100,000. These people are discovering that property needs to be protected by the rule of law, and that the biggest threat to that is a corruption. Nearly always overlooked by political scientists is the tendency of systems to degenerate as rent-seeking special interests grow and civic virtue yields. Rent seeking: Rent-seeking behavior would include lobbying government for tax, spending or regulatory policies that bring monetary benefits or other advantages at the expense of taxpayers, consumers or others in economic competition with the rent seeker. Rent seeking tends to hurt innovative activities more than production.* In many Western countries there has been a decline in the rule of law. In the United States, the World Bank reports declines since 2000 in the control of corruption, regulatory quality, accountability and government effectiveness. Much of the developed world today reminds me of what Adam Smith said about China in The Wealth of Nations (1776): It has reached a stationary state in which growth is near zero and prosperity is enjoyed only by a corrupt bureaucratic elite. Because of immigration, fertility and inefficient health care, the United States is aging much less quickly than countries like Japan and Germany. By 2050 more than a third of Japanese will be 65 or over. For Germany the figure will be 31 percent. In China, more than a quarter of the population will be older than 64. But for the United States, the figure will be just 21 percent. Chinas labor force will start to shrink in the 2020s. That will not happen in the United States. *


7 Reasons for Wage Divergence In Figure 3.5: US wage divergence accelerated in the digital era (computer mass marketing began in the early 1980s). The increase in the relative demand for skilled labor is closely correlated with advances in technology, particularly digital technologies. Some technologies (like robotics, numerically controlled machines, computerized inventory control, and automatic transcription) have been substituting for routine tasks, displacing those workers. Other technologies (like data visualization, analytics, high-speed communications, and rapid prototyping) have amplified the contributions of more abstract and data-driven reasoning, increasing the value of those jobs. Technology changes the share of total income for the skilled vs. unskilled, for superstars vs. the rest, and for capital vs. labor. Digital technologies increase the size and scope of media and other markets. These technologies replicate not only information (such as music) business processes as well. The talents, insights, or decisions of a single person can now dominate a national or even global market. Good, but not great, local competitors are crowded out of their markets. A few superstars in each field can now earn much more than they did in earlier decades. Consumers are often willing to pay a premium for the very best. If technology exists for a single seller to cheaply replicate his or her services, then the top-quality provider can capture most of the market. The next-best provider might be almost as good yet get only a tiny fraction of the revenue.

8 How Technology Changed Incomes in the Music Industry Before the era of recorded music, the very best singer might have filled a large concert hall but would only be able to reach thousands of listeners over the course of a year at most. Each city might have its own local stars, with a few top performers touring nationally. Even the best singer in a large nation could reach only a relatively small fraction of the potential listening audience. After music could be recorded and distributed at a very low marginal cost, a few top performers could capture much of the revenue in every market. With digital technologies, entrepreneurs, top executives, entertainment stars, and financial executives have been able to distribute their talents across global markets.

9 Historic Trends in Automation The 20th century was marked by accelerating mechanization of agriculture and of factory work. The most productive firms reinvented and reorganized decision rights, incentives systems, information flows, hiring systems, and other aspects of the firm to get the most from technology. This required different skill levels in the workforce. Whole production processes, and even industries, were reengineered to exploit new information technologies. Each dollar of computer hardware was often the catalyst for more than $10 of investment in organizational capital to take advantage of the information technologies. Low factory wages in China have not insulated those workers from being undercut by new machinery and the resulting organizational and institutional changes. Foxconn, announced they plan to purchase 1 million robots over the next three years to replace much of their workforce. Robots will take routine jobs like painting, welding, and basic assembly.

10 Adjusting to Changes in the Economy Over time, a well-functioning economy should be able to adjust to the new reallocations of income. For instance, about 90% of Americans worked in agriculture in 1800; by 1900 it was 41%, and by 2000 it was just 2%. As workers left farms over the course of two centuries, other sectors created new jobs. Whole new industries sprang up to employed former farm workers. Shift in income from labor to capital or from many to a few with high skills leads to a reduction in overall demand. The wealthy tend to save more of each marginal dollar than laborers. In the short run this reduces consumption. Corporate profits as a share of US GDP are at 50-year highs. Compensation to labor in all forms, including wages and benefits, is at a 50-year low The ratio of CEO pay to average worker pay has increased from 70 in 1990 to 300 in 2005, and much of this growth is linked to the greater use of IT. Aided by digital technologies, entrepreneurs, CEOs, entertainment stars, and financial executives have been able to leverage their talents across global markets and gain enormous financial rewards.

11 Divergence between Wages and Profit

12 Wholly Owned Subsidiaries Benefits: Greatest control and higher profits Host market perceives strong commitment to the local market by the company Allows the investor to manage and control marketing, production, and sourcing decisions Often faster to set up than a joint venture Risks: Risks of full ownership, such as absorbing all losses Developing a foreign presence without the support of a third party Risks of currency devaluation, nationalization or expropriation Issues of cultural and economic sovereignty of the host country (reduce this risk by local hiring, sourcing) Copyright (c) 2007 John Wiley & Sons, Inc. 12

13 Contract Manufacturing (Outsourcing) Companies specialize in manufacturing for other companies Benefits: Labor cost advantages Tax, energy, raw materials, and overhead savings Lower political and economic risk Focus on core competencies (such as product design, marketing) Access to manufacturing expertise Quicker access to markets (no need to build factories) Risks: Contract manufacturer may become a future competitor Conflicts of interest if the manufacturer has similar products May lack flexibility (contractor often has other commitments) Backlash from the companys home-market employees regarding HR and labor issues Issues of quality and production standards Reducing the risks Keep proprietary design item manufacture in-house Have contingency plans for changes in demand Many students quoted this slide on the midterm exam. KKUIC students can do better.

14 Project Purple 2 New York Times 21 January, 2012 From Apple had been working on a project code-named Purple 2 How do you completely re-imagine the cell-phone? How do you design it at the highest quality, with a glass screen, while mass producing quickly and cheaply enough to earn a significant profit? Apple executives decided to assemble in China The Chinese government had agreed to subsidies for a glass-cutting factory needed by Apple The factory had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day. Now the entire supply chain is in China – an ecosystem has evolved in support iPhones contain hundreds of parts, 90 percent of which are manufactured outside the USA. Advanced semiconductors come from Germany and Taiwan Memory from Korea and Japan, Display panels and circuitry from Korea and Taiwan, Chipsets from Europe Rare metals from Africa and Asia. All of an iPhone it is put together in China, usually by Foxconn, a Taiwanese company For technology companies, the cost of labor is small compared with the expense of buying parts and managing complex supply chains Apple executives believe American workers do not have the engineering skills the company needs or factories with sufficient speed and flexibility Companies that work with Apple, like Corning, also go abroad

15 Why does Apple choose to assemble iPhones in China? Scale of operations Supply chains Skilled technical workforce, including engineers Clusters of excellence Response times Think of how 2011 floods in Thailand affected other manufacturers Labor is not a big component of the total cost Apple employs 47,000 (35,000 in retail and customer support) in the USA. Apples contractors employ 700,000 outside the USA Apples profits accrue to shareholders across the world Apple is a true global company Sales span the globe Software created in USA Marketing created and managed in USA Supply chains span the globe iPhones assembled in China by a Taiwanese company Some components made in USA by S. Korean company (Samsung) Glass made in Japanese factories by an American company (Corning) squeezed-middle-class.html?pagewanted=print squeezed-middle-class.html?pagewanted=print

16 Factory Working Conditions Foxconn is Chinas largest private employer (1,400,000 employees). In March 2012, a critical meeting occurred between Foxconns top executives and a high- ranking Apple official. The companies committed themselves wide-ranging reforms. It promised to reduce work hours and significantly increase wages. The reforms could create a ripple that benefits tens of millions of workers across the electronics industry. Apple, last year has tripled its corporate social responsibility staff, and has re-evaluated how it works with manufacturers, and has reached out to worker advocacy groups it once rebuffed. Shifts under way in China may prove transformative to global manufacturing say officials at over a dozen electronics companies. No one inside Intel wants to end up in a factory that treats people badly, that ends up on the front page. Nike has convened public meetings of labor, human rights, environmental and business leaders to discuss how to improve overseas factories. Gap Inc. has invited outside organizations to critique its purchasing practices. Patagonia shares its factory audits with competitors and has been a supporter of a an audit report clearinghouse. But Hewlett-Packard hopes that by improving living conditions, turnover and training costs will fall. If the people turn over every three months, think what that does to your quality, said a Hewlett-Packard executive. Often, the quality-of-life improvements requested by Western executives reduce a suppliers profit. Within Apple, executives often believe improvements should be financed by suppliers, whereas suppliers say changes are not feasible unless Apple pays more. Employees complained in March when Foxconn announced that workers hours would be reduced to Chinas legal limits. Some companies raise wages to compensate for lost overtime. china.html?pagewanted=1&_r=1&nl=todaysheadlines&emc=edit_th_ &adxnnlx= PZLVTmAyNdxhOwHiwzXD4g&

17 Foxconn challenged as global reach grows Financial Times, 3 January, 2013 Contract manufacturer Foxconn has embarked on an ambitious expansion plan in Brazil, which could reach $12bn of investment. Many of the plants make Apple products to help avoid import taxes on electronic goods sent from China. The new factories in Brazil, where unions are historically strong, have faced challenges. Workers there have staged protests over everything from overcrowded transport to working hours and lack of career planning offered to employees. Strikes really arent that normal around here – it seems to be a problem just with Foxconn, said one local official. Working outside of China helps Foxconns customers get quicker turnaround and avoid some import taxes. It has also created a new set of challenges for the company. Foxconn employs more than 1m people worldwide. Foxconn often enters new geographical markets by taking over old factories once owned by its customers. The regimented style of management has sometimes caused conflicts when applied to cultures far different from the Chinese factory floors. The autocratic style has led to clashes even in China, where workers are gradually gaining power. The company recently made investments in Brazil, Mexico and Turkey, and has said it is planning projects in the US, Indonesia and Malaysia. Many similar companies are starting to move from a global manufacturing strategy to a more regional strategy, said a professor at Massachusetts Institute of Technology. Thats a completely different strategy from what we saw companies using years ago. For customers, Foxconns factories outside China allow them to cut transportation costs, avoid many import taxes, and get quick turnaround on orders. We are here to service customers, and that is why we do final assembly, internationally says one current Foxconn executive in Europe. Older operations in the US and Europe started when Foxconn took over factories from customers such as Sony or Hewlett-Packard that wanted to cut costs by doing less of their own manufacturing. Foxconns overseas operations have generally managed to avoid the violent conflicts experienced in China. Cultural differences are muted slightly as the majority of overseas managers are locals. Foxconn localizes production line workers and senior management, to have a good understanding of local culture.

18 Luring Factories to Relocate - 1 Brazilian politicians used subsidies and the threat of continued high tariffs on imports to persuade Foxconn, which makes electronic devices in Asia for dozens of technology companies, to start producing iPhones, iPads and other devices near Sao Paulo. A developing country like Brazil can adopt trade policies that would be difficult for the United States to do. Taking a hard line to reduce imports of technology goods and encourage domestic manufacturing could violate international trade agreements and set off a trade confrontation. Protectionism is bad policy, many economists argue. Everyone benefits if countries focus on what they do best. Trade barriers harm consumers by driving up prices. Trade barriers undermine competitiveness by shielding industries from the market forces that stimulate innovation. The debate is not just economic. Increasingly, it is political.

19 Luring Factories to Relocate - 2 The resurgence of American auto manufacturing in the 1980s is an example of how one industry created tens of thousands of good jobs. Since June 16, 1983, Nissan has produced more than seven million vehicles in the United States. It now employs 15,000 people in the USA. The Tennessee factory makes more than a half-million vehicles including the new all-electric Nissan Leaf. Other foreign carmakers built factories in America Honda, Toyota, Hyundai, BMW, Mercedes-Benz and, most recently, Volkswagen. The Nissan engine plant in TN, for instance, exports engines to Japan. Pressures were growing in 1979 for Nissan to break out of manufacturing in Japan. Currency fluctuations made exporting more expensive. Political pressure came from American anger as imports grabbed one-fourth of the United States market. In May 1981, Japan agreed to limit exports to America with a 7 percent reduction from 1980 while the United States imposed a 25 percent tax on imported pickup trucks.

20 Luring Factories to Relocate - 3 To train its new American engineers, Nissan flew workers to its Zama factory in eastern Japan. There the Nissan officials, assisted by English-speaking Japanese workers taught the intricacies of the companys production techniques to the Americans. At first, Nissan guarded against quality concerns by shipping components from Japan or buying from Japanese companies that set up operations nearby. Gradually, American parts makers were allowed to bid on supply contracts. The US Congress, passed a law in 1992 requiring auto makers to inform consumers of the percentage of parts in United States-made cars that came from North America, Asia or elsewhere. Nissans Japanese suppliers were encouraged to locate production in the USA.

21 Factory Innovation Companies with their research and manufacturing employees close together might be more innovative than businesses that develop a design and send it overseas for low-wage workers to make. Clusters of manufacturers, where workers and ideas can naturally flow between companies, may be more productive and innovative than if they were spread. Instead of a sequential process where you look at product design and then how to manufacture it, there is a simultaneous process. Experts are researching whether such strategies offer the same benefits for most businesses and examining how this might show up in national data on innovation, productivity and growth. Companies with products early in their life cycle seemed to benefit more than those with products on the market for years. Companies making especially complicated or advanced goods, from new medicines to new machines also benefit. Economists said that while the link between making and innovating within individual businesses was not yet well established, the link between making and innovating between different companies was. In a spillover effect: manufacturing companies near one another create a kind of commons. Workers exchange ideas when they socialize or when they switch jobs, taking their knowledge with them. Factories draw other companies, who compete to offer them goods and services. An MIT economist analyzed what happened to towns after large manufacturing plants, like a BMW factory, moved in. Other factories in the town became more productive. Wages rose, too /12/14/business/companies-see-high-tech-factories-as-fonts-of-ideas.html?nl=todaysheadlines&emc=edit_th_ &pagewanted=print

22 Hutchinson MN, population 14,000

23 Short Production Runs In 2011 Hutchinson Technologies moved component manufacturing from Minnesota, USA to Ayutthaya, Thailand Hutchinson produces disk drive components by the hundreds of millions annually The worlds biggest disk drive assembly operation is in Khorat Relocation to Thailand put them close to the major user 600 workers in Minnesota got layoff notices Baklund R&D LLC in Hutchinson, Minnesota is one of hundreds of small shops in the U.S. using new technology to meet demand for low volume, highly- customizable products The technology allows three-dimensional designs created on computers to be sent to industrial machines, which put down layers of materials to create parts or products Low volume typically means runs of products of more than 1,000, and less than 10,000, which is usually the minimum to get work done overseas at a factory in China As technology such as 3-D printing gets less expensive, it can also supplant manufacturers that dont adapt Growth in low-volume, high-variability production is catching the attention of companies such as Wal-Mart Stores Inc., said Wally Hopp, a professor at the University of Michigans Ross School of Business who has worked with the worlds largest retailer to study U.S. manufacturing trends. Youre seeing these mom-and-pop operations picking up manufacturing, doing it in a highly flexible, highly local kind of way, Hopp said in an interview. This is something thats going to affect the whole manufacturing economy. Bloomberg 7 November 2013 Ch 5 -23

24 Samsung's headquarters in Suwon, South Korea, is known as Digital City. The R&D building features tighter security than most airports, with security guards at metal detectors to search for USB sticks. Workers at Samsung's phone manufacturing plant in Gumi go to lunch in the free cafeteria. Many phone assembly workers are high school- educated women in their 20s. All wear uniforms of polo shirts and khakis or black pants during their shifts. Many live in subsidized apartments nearby. Cnet: Shara Tibken December 9, 2013

25 Samsungs product life cycles are very short In the year it takes Apple to release a new iPhone, Samsung typically unveils three or four "flagship" products, adding up to several dozens in all Samsung is nimble because it does almost everything within the company Samsung employs 62,000 engineers Building the parts (some of which it supplies to Apple) Assembling the devices (while Apple outsources) Company executives biggest fear is complacency At Digital City in Suwon the buildings all have signs in English that say "Create," "Challenge," and "Innovate" People inside Samsung describe the atmosphere as a state of "perpetual crisis," fostered by a persistent and underlying fear that the company might lose everything at any moment Many products had flaws when they were first introduced (early versions of the phones were bulldozed into a field) Cnet: by Shara Tibken December 9, 2013


27 Adapting to Rapid Change Cnet: by Shara Tibken December 9, 2013 Before 2007, Samsung workers put together devices in standard, assembly line fashion with each worker responsible for one task The company switched to a cellular system, in which each worker puts together an entire phone The approach has made Samsung faster at making multiple products, and It has made demand based production adjustments easier. Samsung seeks partners to develop technology - with software as a priority More than half of the 62,000 Korea based engineers work on software It tries to cut reliance on Google by developing an operating system (due in 2014) Samsung's Media Solutions Center software and services unit recently had their first developer conference in San Francisco, attended by 1,300 developers And about a year ago, it created the Open Innovation Center, a group focused on working with software and services startups and it opened development accelerators in California and New York Innovation has tended to happen when you have a small group of people with no legacy anything, just trying to solve big problems," said David Eun, Samsung executive vice president and OIC leader Groups of Samsung executives frequently visit important players in Silicon Valley to better understand trends in the industry (such as VC firm Andreessen Horowitz)

28 Strategy Implementation (David chapter 7) Strategy implementation requires shifting responsibility to lower levels of an organization Problems arise when decisions come as a surprise Must involve lower levels of an organization in strategy formulation Managers and employees are motivated by self interest more than organizational interests Importance of staff development objectives Development and promotion often against a managers narrow interest Rationale for objectives and strategies must be understood Competitor information Benchmarks against best in class competitors (or other industries) Competitor plans and performance External opportunities and threats Annual objectives are necessary for strategy implementation Basis for resource allocation Are used for evaluation of staff (and form a basis for incentives) Used for monitoring progress toward LTOs Establish priorities at different levels of the organization

29 Resource Allocation Resource allocation should be based on priorities established by annual objectives Allocation based on personal or political factors harms an organization Types of resources: Financial resources Physical resources Human resources Technological resources Employees rarely think systematically about resource allocation or strategy Effective allocation often prevented by: Politics Reluctance to take risks Overprotection of resources Lack of knowledge

30 Management Issues Central to Strategy Implementation Establish annual objectives Devise policies Allocate resources Alter existing organizational structure Restructure & reengineer Revise reward & incentive plans Minimize resistance to change Match managers to strategy Develop a strategy-supportive culture Adapt production/operations processes Develop an effective human resources function Downsize & furlough as needed Link performance & pay to strategies Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Table 7 -1

31 Structure dictates how objectives and policies will be established Structure dictates how resources will be allocated Structure based on function requires resources be allocated along functional lines A geographic structure will have geographic resource allocation Changes in strategy often lead to changes in organizational structure Consumer companies often have division structure Small firms are often organized by function Medium size firms may use division structure Large firms tend to use SBU or matrix structure As firms grow, they tend to become complex

32 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch 7 -32

33 Functional Structure Divisional Structure Strategic Business Unit Structure (SBU) Matrix Structure Key considerations include: How many levels of management? Span of control (how many people report to a manager?) Complexity (too many meetings with too many people – many small organizations fail as their informal structures hinder communication) Conflicts between parts of the organization

34 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Functional Structure Group tasks and activities by business function, such as R&D, Marketing, Operations, Finance The most common structure among small firms, but few large firms use this structure

35 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Functional Structure

36 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Divisional Structure Can be organized in one of four ways: – By geographic area – By product or service – By customer – By process Second most common among US companies

37 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Divisional Structure

38 Strategic Business Unit Structure (SBU) Over time a company may have too many products or divisions for a division structure (span of control problem) A solution is to group the divisions into strategic business units Delegate authority and responsibility for each unit to an executive The head of an SBU report to a COO or CEO Basically a multi-level division form (HQ->SBU->Division) Citigroup grew out of the idea of a financial supermarket and evolved into an SBU structure Requires an additional layer of highly compensated management Some parent companies do little more than provide capital and guide units (SBUs or Divisions) to a coordinated strategy. Ch 7 -38

39 The Costs of Complexity To settle a barrage of government legal actions over the last year, JPMorgan Chase has agreed to penalties that now total $20 billion, a sum that could cover the annual education budget of New York City. Some experts say companies like JPMorgan are so large and complex that it might be almost impossible to keep all employees in line. With respect to the big banks, it is not so much a culture problem but a complexity problem, said Kurt N. Schacht, a managing director at the CFA Institute, an organization that promotes ethics and standards at financial firms. We think these firms are so large that they are always going to be plagued by rogue operators. As a result, breaking up the banks to make them smaller might improve their cultures, some bank specialists contend. I think JPMorgan is too big to manage and it should be broken up, said Paul Miller, a bank analyst at FBR Capital Markets. The London whale incident, he said, showed that some employees at large banks may still try to maximize their compensation at the expense of the firm. There is too much of an incentive for an individual to cut corners. Quoted from chase/?nl=todaysheadlines&emc=edit_th_

40 Matrix Structure The most complex design, it enables resource sharing. Has both vertical and horizontal flows of authority and communication (functional elements and product or division elements) Suitable for rapidly changing environments Often used in project oriented organizations, with differing levels of authority vested in project managers Construction Research and Development Defense Healthcare Complex firms may use elements of several structural types GE has an SBU structure with four product related segments GE country units usually have a matrix structure, where local business heads report directly to their counterparts at headquarters (HQ), with a 'dotted line' connection to the country head. The new structure in India has everyone report to the country head.

41 Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall Ch Matrix Structure

42 Starbucks 2011Restructuring Starbucks combines division and functional elements in a matrix organization. In late 2011 the company announced a new corporate structure to accelerate its growth strategy. Starbucks said it will create a three-region organizational structure China and Asia Pacific The Americas EMEA (Europe, U.K., Middle East, Russia and Africa) A president for each region will oversee the company-operated retail business. Seattle Best Coffee will operate as an independent business unit under Jeff Hansberry. He will be SBC's president in addition to his current role as president of Global Consumer Products and Foodservice

43 Starbucks Organization Chart 2005 A Matrix Structure Starbucks combines division and function in a matrix organization.

44 Starbucks Long-Term Plans * Starbucks Corporation recently announced its long-term objectives for each of its segments; its entry into the tea industry and its initiatives to boost consumer relations. The company plans to take the following steps to ensure growth in the upcoming fiscal years.: Segment Specific Plans The Americas business has witnessed a substantial turnaround since the last couple of years. The segment witnessed 9% growth in net sales to $2.5 billion in the fourth quarter of 2012, driven by 7% growth in same-store sales and new store openings. The company intends to open more than 3,000 new stores and remodel many more in the next five years in order to capitalize on the strong demand for Starbucks products in America. Starbucks has also been witnessing strong performance in the China-Asia-Pacific segment. Net revenue grew 28% in the fourth quarter of 2012, driven by a 10% rise in same-store sales and new store openings. China, Thailand, Singapore and Australia all posted strong performances. The company believes China will become its second-largest market by 2014, surpassing Canada. The segment will have 4,000 stores by the end of 2013, of which 1,000 will be in Mainland China, 1,000 in Japan and 500 in Korea. China is one of the most important markets for Starbucks and the company plans to have 1,500 stores in 70 cities in Starbucks has opened its first three stores in India and plans to open a fourth store in early The company also intends to open its first store in Vietnam. Europe, Middle East and Africa segment witnessed a 2% decline in net revenue to $283.7 million in the fourth quarter of 2012, hurt by flat traffic and currency headwinds. However, revenue and profit is expected to improve significantly over the next five years. Also, the company intends to focus on brand building, generating more revenue from the existing stores and increasing licensing agreements. The Consumer Packaged Goods (CPG) segment includes the U.S. Foodservice business and also sells whole bean and ground coffees, premium Tazo teas, ready-to-drink beverages, Starbucks VIA Ready Brew, coffee and tea K-Cup packs, and Starbucks ice creams. This high- margin, high return on capital business reported 32% revenue growth in the fourth quarter of On November 14, 2012, Starbucks agreed to acquire Atlanta-based tea store chain Teavana Holdings, Inc. for $620 million in cash. The acquisition will bring together Starbucks expertise in real estate, style and store management and Teavanas competencies in global tea industry.

45 Despite the Depreciating Yen, Sony Struggles We see no sign of change in the companys failure to adjust its organizational structure and business strategy rapidly enough to deal with the current business climate, said an analyst at Deutsche Bank. Sony continues to struggle without an exit strategy from electronics, Atul Goyal of Jefferies LLC wrote Jan. 21, 2014 Japans biggest electronics exporter is hurting in the camera and camcorder businesses, as sophisticated mobile devices from Samsung and Apple Inc. eat into demand for the Sony devices. Sonys share of global TV sales fell to 7.5 percent in the third quarter last year from 8.1 percent the previous quarter. Sony has less share than Samsung Electronics Co. and LG Electronics Inc. Panasonic Corp. is Sonys closest Japanese peer. The company last year suspended consumer smartphone operations, stopped making plasma TVs and sold a majority stake in its health-care business as Panasonics CEO accelerates reform. Bloomberg 24 January 2014

46 Final Examination Thursday February 20 th in room 926 Paper dictionaries allowed 30% of the course grade Format similar to the midterm exam Focus on material we have covered since November May include some questions from early in the term Scale economies Agency problems Ch 5 -46

47 Likely Project Topics Thai silk Thai rubber and rubber products Thai rice Thai shrimp Thai cassava Thai tourist industry Choose a topic and a partner by 3-December Advise minute presentation form, papers accepted Look at the business using the Five Forces framework Suggest and support a strategy Due 28 January for presentations (changed to 4 Feb)

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