Unit 1: Business Economics (Practical work) 1. The Department of Accounts Payable Ford "Pressured by the strong Japanese competition, the giant Ford Motor Company had a serious problem: it had a lot of fat to cut. In the Accounts Payable Department (DCP), about five hundred employees were involved in a sea of paper to solve problems and pay providers. A total of 14 points from a variety of sources (receipt records, purchase orders, invoices, etc..) should be tested and matched with each other. A simple delay of any document meant hours and hours to find the correct information, late payments and annoyed suppliers. The process was conventional(Normal). The purchasing department (PD) sent a purchase order to the supplier, with copies to the Accounts Payable Department. When the material submitted by the provider arrived at the Ford reception, an employee filled in the form describing the received material and sent it to the Accounts Payable Department. Meanwhile, the supplier sent this same department the invoice. Thereafter, the Accounts Payable Department had to conciliate three documents: the purchase order (PO), the receipt form and vendor invoice. In 80% of cases, the conciliation was possible and the Accounts Payable Department issued the payment to the supplier. But 20% of the cases provided real confusion which meant loss of time for everyone. Ford decided to introduce a sophisticated and expensive computer system to speed up the process and achieved a 20% staff reduction. The euphoria lasted until Ford executives visited Mazda in Japan, of which Ford was buying part of the capital. Impressive: Mazda had only 5 employees in the Accounts Payable Department. Everything in this place flowed smoothly. Ford decided to reengineer the entire payment process to suppliers. everything changed with the reengineering. The bill and the three documents were removed. The paperwork was replaced by an agile, simple and fast process in which the verification and control was done directly on the computer. The shopping department computer issues an order to the supplier and reports it on an online database. Upon receipt of the material, it verifies the pending purchase in the database. If applicable, a button is pressed to report the arrival of the material and the computer automatically emits a cheque to the supplier on time. If not applicable, the material is returned to the supplier. In fact, the redesigning of the process almost eliminated the need for an accounts payable department. This department only kept 5% of the staff that it had before. Questions: a) The article shows some of the disadvantages of the bureaucratic model. Who is the author who invented the bureaucratic model or bureaucracy? What are the drawbacks or problems that bureaucracy may have? Which of these problems are reflected in the text? -The author who invented the bureaucratic model is Max Weber, The problems are excess of redtape, inefficiency and lack of coordination, lack of motivation, ridigity in decision making. b) What is reengineering? Of all the functions of management process, which is most affected by re-engineering -Reengineering is the redesigning of the work process. The most affected management process is the organization. Bill documents, and other documents.) 2. The firm and the organisation All types of organisations use the strategic vocabulary but this should be adapted for each case. Please compare these extracts from Nokia’s statements, the giant of communication, and the University of Kingston, a public institution in London, with 20,000 students. Nokia: The main purpose of the firm is to help people to feel near what they are concerned about. At any moment and place, Nokia believe in communication, in sharing and in the amazing potential of connecting the 2 billion of people that do it with the 4 billion that do not do it. If we focus on the people and we use technology to help people to feel closer to what they mind, then growth will come. In a world in which everyone can be connected, Nokia takes a very human approach of technology. For Nokia, the customers are our main priority. Focusing on the customers and understand them must always drive our daily behaviour. Nokia’s priority is to be the favourite partner of operators, retailers and firms. Nokia will keep on being a growing company in expansion towards new markets and businesses. A leading productivity level worldwide is critical for our future success. Our goal as Nokia trade mark is to become the most wanted by the customers. Aligned with these priorities, the Nokia’s business portfolio strategy is focused in five areas, each of which has five long term objectives: create winning devices, cover the entire consumer’s services in the Internet, offer solutions for businesses, generate scale in the networks and expand the professional services. There are three great assets in which Nokia will invest giving priority: brand and design, commitment with the customers’ satisfaction, technology and architecture. University of Kingston: The University of Kingston aspires to promote the participation in the higher education which is considered a democratic right; to try to excel in learning, education and research; to make a real creative potential and to encourage all its members’ imagination; and prepare all its students for effective contributions to society and economy. The University of Kingston aims to be an integral and social university. Our ambition is to create a university that is not constrained by the current possibilities but with a more ambitious vision of a better future. For that purpose, this higher education institution will try to design plans that allow to: Facilitate the same opportunities to all the current and future students for achieving their learning ambitions. Facilitate a complete range of high quality courses in a supporting environment that will empower the critical learning and develop personal, social and employment skills. Create authority in research and professional practice for the benefit of the people, the society and the economy. Develop links of collaboration with suppliers and groups of interest in the region, the nation and internationally. Make the university’s organisation, structure, culture and systems suitable for the mission and objectives achievement. Manage and develop the human, material and financial resources to achieve the best possible academic value in an efficient way. Source: www.nokia.com; Kingston University Plan, 2006-2010 (www.kingston.ac.uk). Question: Is Nokia a firm? And the University of Kingston? Name some examples of other organisations that are not usually considered firms. Answers: -Yes Nokia and University of Kingston are considered a firm. -Examples of other organizations that are not usually considered firms: Non-Governmental Organizations 3.- Business subsystem Read the text and identify which business subsystem, according to the proposal of Bueno, Cruz, Durán and Kast Rosenzweig theory, is more involved in the success of each company. Source: Iborra and others (2007). “Fundamentals of Business Management”. Excellent Companies in various Functional Systems COMPANY DESCRIPTION FUNCTIONAL SUBSYSTEM RELATIONSHIP WITH THE RESULTS IKEA Swedish furniture company founded in 1943. It seeks to be functional, with good design at affordable prices The Purchasing subsystem employs 8,000 people. 66% of purchases are in Europe, 33% in Asia and the rest in America. Through IKEA's 43 purchasing offices in 33 countries, on-site The advantages of supplier specialization and the generation of economies of scale provide advantages that allow affordable furniture. monitoring of suppliers is carried out, some 1,500 in 55 countries. DANONE Company dedicated to The company's R&D subsystem is carried out at DANONE Vitapole, the food sector the company's R&D center, located on the outskirts of Paris. It employs more than 600 people from 25 different countries, of which 500 are research and development and quality engineers. Innovation and development of new products. Great success of the Actimel range. New developments such as Danacol, Danonino Activia, Vitalinea, Densia, etc. Toyota Founded in 1937 by Sakichi Toyota. Third largest automobile company worldwide. Improvements in the compatibility between customer and qualityoriented systems with productive efficiency and production flexibility. Mercadona Supermarket food The financial subsystem, with its distribution company income and payment management, allows to finance of Valencian origin. plans to expand its activity with extremely efficient capital costs Excellent cash management and the relationship between customer and supplier accounts provide the necessary capital for the company's expansion plans. 3M Founded in 1902, the company is present in multiple sectors, innovating in almost every industry to help solve problems around the world Human Resources Subsystem: the 15% rule gives freedom to selfmanage 15% of work time in research, provides incentives to explore new inventions and products derived from them. The work environment favours and facilitates innovation. It has two professional careers: the managerial and the scientific. Generator of innovations such as Post-it or Scotch Brite. It is innovating for sectors such as transportation, health, electronics, etc. The ability to attract and retain good researchers allows them to keep pace with innovation Fundación ONCE ONCE was created in Marketing subsystem: the 1938 and is made up of advertising activity of this the Fundación ONCE company revolutionised the sales of the ONCE coupon and its awareness by the public. Thus, Excellent management of the advertising image. It allowed an extension of their way of obtaining income and their activities towards the The Production subsystem known as Toyotism or Just in Time revolutionised the automobile sector and mass production systems Compatibility of Customer-Oriented and QualityOriented Systems with efficiency in the production. and the CEOSA "the illusion of every day" was his disabled: training business corporation first known campaign. employment. 1) IKEA: A) according to the proposal of Bueno, Cruz, Durán the Subsystem Operations (Procurement, production, distribution and marketing function) is more involved on the success of IKEA. B) according to the proposal of Kast Rosenzweig theory, the subsystem Management is more involved on the success of IKEA. 2)DANONE: A) according to the proposal of Bueno, Cruz, Durán the Subsystem Operations is more involved on the success of Danone. B) according to the proposal of Kast Rosenzweig theory, the subsystem Technology is more involved on the success of Danone. 3)TOYOTA: A) according to the proposal of Bueno, Cruz, Durán the Subsystem Operations is more involved on the success of TOYOTA. B) according to the proposal of Kast Rosenzweig theory, the subsystem Technology is more involved on the success of TOYOTA. 4)Mercadona: A) according to the proposal of Bueno, Cruz, Durán the Subsystem Cycle Capital ( Investment and finance function) is more involved on the success of Mercadona. B) according to the proposal of Kast Rosenzweig theory, the subsystem Management is more involved on the success of Mercadona. 5)3M: A) according to the proposal of Bueno, Cruz, Durán the Subsystem Management is more involved on the success of 3M. B) according to the proposal of Kast Rosenzweig theory, the subsystem Psychosocial/Technology is more involved on the success of 3M. 6)Fundación ONCE: A) according to the proposal of Bueno, Cruz, Durán the Subsystem Operations/Management is more involved on the success of Fundación ONCE because of the advertisement image and activity. B) according to the proposal of Kast Rosenzweig theory, the subsystem Management is more involved on the success of Fundación ONCE. and 4. Taylorism and Fordism An increase in productivity in the production cycle (due to a technical, organisational, or other innovation) represents a substantial improvement in the process that allows progress to be made in its efficiency. Higher productivity basically allows to produce the same thing in less time (or with fewer workers), or to produce more in the same time (or with the same number of workers). Pre-capitalist societies normally went for the first option, but we have already seen that capitalist societies have no choice but to choose the second way. The fierce competition to which most companies are subjected pushes them to improve their production structures in order to sell cheaper than their competitors. This means that company managers are permanently concerned about achieving productivity improvements, hence, the survival of their business depends on it. At the beginning of the 20th century the repeated and important conflicts between workers and employers usually ended up temporarily blocking accumulation processes in companies. The workers demanded to improve their living and working conditions mainly through wage increases, which went against the interests of the employers. To achieve this purpose they called for strikes to stop production until their requests were heard. These work stoppages could be even more detrimental to the production cycle than a loss of profitability in the business caused by wage increases so that on many occasions the owners of the means of production ended up giving their arms to twist and negotiating with the unions of workers improvements in working conditions. And it is in this context that Taylorism or scientific organisation of work arises. Taylorism was a method of industrial organisation which purpose was to increase productivity thanks to a system of rational organization of work. It was based on the embodiment of the scientific method in work activities through the organised separation of tasks, their articulation in sequences and processes, and on the timing of these operations. This way the useless movements of the workers were eliminated and their work simplified. The workers began to perform very repetitive and simple activities that did not require great dexterity, so they could perform them quickly and efficiently. This new organisation of work brought significant increases in productivity. At the same time that production rose considerably, it was possible to improve the working conditions of the workers. However, very soon problems associated with this new form of work organization began to appear: in the factories where this organisational logic was implemented, the rate of production accelerated and exceeded the rate of consumption. Consumers (who at that time mainly belonged to the elite of society) took longer to buy products than it took for products to be manufactured. Since Taylorism consisted of a series of sequential activities whose duration was carefully measured, production could not be slowed down or stopped, and this implied that the final products were accumulating in the warehouses without being able to give them an immediate exit to the market. And as we know, if the company cannot get rid of what it has produced, it will not obtain the necessary profits to make its activity profitable and it will enter a profitability crisis. This was the problem that Henry Ford analysed a few years later. The American automaker realized that since the traditional consumers of high-tech products - such as automobiles - were primarily people with high purchasing power and there were not many, the number of potential consumers was very insufficient to provide an outlet with the production that in some years had multiplied by ten thanks to the new techniques of labor organisation. The solution he found to this problem was to increase the wages of his own workers so that they could buy the products that they made themselves. This is how Henry Ford himself explained it: “All the businesses of the rich would not be enough to make a single industry live. Here the class that buys is the working class, and it is necessary for it to become our ‘well-to-do’ class if we want to output our enormous production… the employees of an industry must be its best customers ”. This way, Fordism arose, which was precisely the combination of Taylorist forms with high salaries that allowed workers to join mass consumption and thus initially resolve this interruption in the accumulation cycle. Extracted from http://eduardogarzon.net/el-taylorismo-y-el-fordismo/ QUESTIONS: a) At the beginning of the text productivity is mentioned. What does this index measure? Is it a measure of effectiveness or efficiency? Is it a or an economic measure? How can a company improve its productivity -It measures how efficiently production inputs, such as labour and capital are being used in an economy to produce a given level of output. -It is a measure of efficiency. -It is an economic measure. -A company improve its productivity through separation of tasks, their articulation in sequences and processes, and on the timing of these operations. b) According to Taylor's approache regarding the rationalisation of work, is it about increasing productivity via inputs or via outputs? Explain your answer. -According to the to Taylor’s approache regarding the rationalization of work, it is about increasing productivity via inputs, because the approache is based on the embodiment of the scientific method in work activities like eliminating useless movements of the workers. c) Can an increase in inputs improve the productivity index, considering that the inputs are in the denominator of the index? Explain your answer. -No an increase in input without an output increase will not improve the productivity. The inputs are in the denominator which means more inputs will lead to less productivity. c) How does consumer income influence the company's profitability index? Can the profitability of the company worsen while improving its productivity? Explain your answer. -It does influence it positively or negatively because an increase of the consumer income will lead to higher purchase power, therefore a higher profitability index. -Yes, I think that the profitability of the company can worsen while improving its productivity if the rate of production accelerated and exceeded the rate of consumption. 5. Answer the following questions on unit 1 1. What is the material object of Business Economics? Does it coincide its subject material with other sciences'? If the above answer is yes, Can you cite a science with the same subject material? -The material object of Business Economics is the enterprise. 2. What does the principle of profitability mean? Could you give an example? -Profitability is a measurement of efficiency, it’s a business ability to produce a return on an investment based on its resources in comparison with an alternative investment. 3. Quote 3 methods used in business economics and explain them with an example. 4. What is meant by homeostasis? Example. Homeostasis means that the interaction continues till the objective is reached, or till the objective is changed in case the previous one is unreachable. 5. What does Feedback mean? -Feedback is a control mechanism, by which if the outputs differ from expected, the inputs are modified to redirect the system to this objective. 6. Is it true that for Business Economics the firm is a black box? Why or why not? Yes, firms are considered Black Box for Business Economics, Because it consists on a set of production activities with a finite set of inputs to be adjusted to generate a set of outputs corresponding to a maximal level of profits. 7. What two functions are included in the subsystem capital cycle? Explain it. -Investment Function and Finance Function. -The finance function manages a business finance and helps with decision-making. -The investment function can refer to any mechanism used for generating future income. 8. What is the subsystem of goals and values? -The goals and values subsystem contains the basic mission and vision of the organisation. 9. For traditional schools authors, Why was the man an economic being instead of a social one? -Because man was motivated economically. 10. According to Miztberg, who belongs to the focus of leadership styles, how is the job of a manager? -For Mitzberg, managers are responsible for the work of the people of their unit. Their actions in this regard constitute the leader role. 11. Is it true that the Administration is an element of the Organisation, and the Organisation, in turn, is a phase of the administration? Why or why not? -Yes, that’s true. Because the first meaning of organisation is an enterprise with personnel task goals and administration which makes it an element of it. And the phases of the administration are three: planning, organisation and control.
