For the purpose of this audit, you are asked to determine what kind of job the management team of the firm has done. The major point you will be graded on is your ability to reflect objectively and honestly; therefore, be brutally frank in reporting your findings.
If you were ever to find yourself in such a management position in a real organisation, what would you do differently and why? Did you experience any role conflicts and how did you handle them? What communication, decision-making, and cooperation efforts need improving?
Goals and Objectives
Some of the goals of the intelligent company include:
- Improving production through the use of technology.
- Improving employee turnover.
- Risk mitigation caused by fluctuations in a single market done by use of SBUs.
- Focusing on decisions equally to improve operations in every part of the organization.
- Acquiring new business ventures and identifying market opportunities by venturing into available market opportunities.
The managers of the company make rational decisions for example in marketing, export among others. According to my analysis, not all the strategies worked as planned as some customers complained about outdated technology. The SBUs struggle with marketing strategy as the sales drop in the Intelligent company. The intelligent company does not earn from investment which means there are no investments done.
The strategies that changed are about decision making which were not done on a rational basis in the SBUs. This is because the sales became lower than anticipated. The company decided not to buy inventory for this period because there is excess inventory which means that the production strategies were changed.
The firm managed to achieve some of its objectives in the following areas. There are increases in terms of revenue which shows that the firm is close to achieving its objectives. The human resource team has done a great job in recruitment, selection and training which in turn attracts high employee turnover.
The intelligent company has a prudent dividend policy. The Intelligent company adopts a dividend policy which is conservative as it takes consideration of financial and economic conditions. According to Baker, Weigand and Johnson 2015, prudent dividend policy comes about when a company deliberates on financial and economic considerations. The intelligent company managed to raise their stock price to $ 22.23 in period 9. Considering the fact that the company operates in a competitive industry, profit trend of the company, the young age of the Intelligent company, cash available and the future needs of the company to grow it has managed to offer a prudent dividend policy.
The prudent dividend policy of the Intelligent company is consistent in the last two periods because the dividends which were declared considered the same factors and therefore Intelligent company offered fair dividends to shareholders. In the last two periods, Intelligent company increased the stock prices.
The committee of stockholders will say that Intelligent company has been able to deliver the shareholders’ value by maximizing on their wealth thereby increasing dividends for its equity owners.
At this point, I can say that the firm is healthy. Looking at the industry in which Intelligent company is operating and the age of the company it has been able to make profits. The intelligent company was recently formed which means it uses a lot of its revenue in expansion and development but it is able to generate profit to shareholders which implies that it can do better in future.
Prudent Dividend Policy
The team did not cut the expenditures but instead, it increased the expenses. The cash outflows ($ 55810000) are almost the same as cash inflows ($ 6,692,000). The expenses for the new export area are high above the limit which is $ 100000, in area 1, for example, the export expenses are $ 3014000. The team in the last two periods increased their expenses which in return reduced their stock prices from$ 22.23 in period 9 to $ 10.65 in period 10. Increases in expenses in the Intelligent company is as a result of operating activities and the company’s bid in trying to complete its plan and objectives.
The intelligent company did not execute its strategy very well to address the stakeholders’ implications because the company team increased the expenses as the cash outflows and cash inflows are almost the same with a small difference of $100,000. The revenues show that the company is doing well but there are a lot of expenses in terms of cost of sales which means that the management does not use technology to reduce cost and improve quality. Also, the customers complain about outdated technology which portrays poor strategy implementation and execution.
Different stakeholders will complain about the management because the Intelligent company does not deliver well the shareholders' value, for instance, the company has no investment profits, (MacLean, 2011). The profits of the Intelligent company are not increasing at a good rate indicating that there is poor management. Different stakeholders will say that the company has a poor level of inventory management because the company has damaged goods in inventory and it also has excess inventory which means there is poor inventory management. Different stakeholders will complain about the management’s conflicting interest in the company, according to agency theory the management should represent the stakeholders by maximizing on their wealth to increase profits, on the contrary, the management appears like it represents their own selfish interest by not delivering well on shareholders’ value.
My advice to the new team would be that they should represent their principles well by maximizing on the shareholders’ wealth to increase profits and be able to attract investors confidence. Secondly, the management should try to reduce expenses through the use of technology to be able to make more profits. The management should venture in new export areas with fewer costs or using the least costs which is $ 100000. Thirdly the new management should try to improve on new technology to cut minimize complains about outdated technology. Forth the new management should focus on increasing the sales in different SBUs to increase profits to be able to increase the dividends to equity owners and lastly the new management should improve on inventory management to cut receipt of damaged goods and avoid having excess inventory which brings about wastage and reduction of space for useful items. The new team should be able to conduct proper planning to improve performance.
The managerial functions according to my analysis were handled to a very small extent. If there could be a proper drawing of plans, the Intelligent company could have coordinated on different company levels to get more profits. The Intelligent company was not organized well which made it have excess inventory and damaged goods in inventory. There is poor coordination of activities in the Intelligent company as we find that the SBUs did not make sales. Excess expenses also imply poor coordination of activities. I can also say that the internal controls were not strong and effective as the company was not able to generate cash from outside investments. The managerial functions are not as effective as it should because the performance standards did not do based on objectives of the Intelligent company and the problems affecting the Intelligent company have not been given the corrective measures.
I think many decisions that were made by the team were not rational. The company did not invest in new markets over the last two periods and ended up making minimal profits as such the decision-making process was not as per the goals of the Intelligent company, (Eisenfu?hr, Weber, & Langer 2010). The team stabbed in the dark while making the SBUs decisions as the SBUs made the company to incur more expenses because of poor analysis of the decision. The intelligent company did not buy new market research which is an irrational decision because the company decision makers did not consider the alternative ways that Intelligent company could use in generating profits and they ended up missing new market information about things like competition, products substitutes and new market development. The above choices of decisions made Intelligent company management did not reduce costs and maximize on shareholders’ value.
Some of the decisions made by the Intelligent company were rational. The human resource department paid standard wages plus employee benefits which increased the company employee turnover rate to 8.3%. The decision by the company not to buy goods for the next period is rational because the company will be able to use the excess inventory in store and in return cut expenses and lower wastage of goods in inventory.
Ethics are moral standards that guide how people behave. Upholding ethical standards while making decisions involve some form of determination, (Husted, Husted, Scotto & Wolf 2015). I think the company did not uphold good ethical standards while making decisions because according to moral philosophy, decisions made while upholding ethical standards results to good outcome, for example, a high level of profits, reduced expenses, high rate of investments among others. The decision made by SBUs operations was unethical as the Intelligent company did not show any commitment to make sure the SBUs generated sales. The other unethical decision was that technology was not properly evaluated and be able to project future risks as customers ended up complaining about outdated technology.
Rational and Irrational Decisions
I can say that ethical standards were slightly upheld in decision-making for example in the human resource department as their decision generated employee trust through standard payment. The decision in terms of raising revenue was somehow ethical because it the company managed to generate revenue which showed that Intelligent company was competent in revenue decision-making.
I think the company has not experienced any conflict so far. According to me the only conflict is the conflict of interest which arise from the agency theory whereby the management does not represent well the shareholder's interest by maximizing on their wealth to increase profits and therefore the shareholders are not able to get maximum profit, (Agency theory, n.d). This problem has not been handled yet because the Intelligent company still produces fewer returns. In order to handle this conflict better, the stakeholders’ committee should dismantle the old management and form new management which will focus on achieving company objectives and not their own interests. The decision-making process should be rational and ethical to enable the company management to make choices that help them achieve desired goals.
If the team were to begin again strategy implementation and execution should be done differently by forming a strategy committee to foresee and coordinate the activities of the company in order to fulfil the desired goals. The managerial functions should also be done differently by assigning different roles to specific managers like for example there should be a manager who is responsible for work coordination. Inventory management should be done differently especially in the receipt stages to avoid having damaged goods.
The kind of interpersonal relations that occurred among the team this semester are regular business interactions and support from other team members, (Berger, 2014).
In order to avoid mistakes the new team should uphold high ethical standards while making decisions, there should also be good communication between the managers and the employees to enable easy coordination of activities, (Zhang 2012). The new team should be able to improve on technology to lower costs of productions and be able to increase the quality of goods offered. The new team should consider the level of employee skills in different SBUs to be able to conduct proper training and in turn increase the sales in the SBUs. The managers should be able to venture in the new business environment and in market opportunities to deliver on shareholders’ value. The new team should be able to use tools such as six sigma, benchmarks among others to aid in strategy planning and implementation.
If I find myself in such a management position, I would hire employees who have skills in different fields who would enable the company to work competently. I would also put up strong and effective internal controls and set up mechanisms to make sure that the company operates in the right way. The role conflicts I experience are in terms of division of work and this I will handle by assigning the managers different specific roles and defining their scope of work.
The communication that needs improvement is horizontal and vertical communication to enable easy coordination of activities, (Png 2012). The decision-making process should be improved to enhance outcomes; this can be done by incorporating the stakeholders in decision-making to uphold high ethical standards. The cooperation efforts that needs improvement is the SBUs to improve sales or lower the cost of operation. Teamwork and collaboration should be improved in order to produce high levels of profits and enable the Intelligent company to succeed.
Agency Theory. (n.d.). SpringerReference. doi:10.1007/springerreference_701
Baker, H., Weigand, R., & Johnson, D. (2015). Dividends and Dividend Policy.
Eisenfu?hr, F., Weber, M., & Langer, T. (2010). Rational decision-making.
Husted, G. L., Husted, J. H., Scotto, C. J., & Wolf, K. M. (2015). Bioethical decision- making in nursing.
In Berger, C. R. (2014). Interpersonal communication.
MacLean, A. (2011). Strategy execution: Translating strategy into action in complex organizations.
Png, I. (2012). Managerial economics. Abingdon, Oxon: Routledge.
Zhang, Y. (2012). Future computing, communication, control and management: Volume 2.
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