Human Resource Management Practices

Imagine trying to run a business where you have to replace every employee two or three times a year. If that sounds chaotic, you can sympathize with the challenge facing Rob Cecere when he took the job of regional manager for a group of eight Domino’s Pizza stores in New Jersey. In Cecere’s region, store managers were quitting after a few months on the job. The lack of consistent leadership at the store level contributed to employee turnover rates of up to 300 percent a year (one position being filled three times in a year). In other words, new managers constantly had to find, hire, and train new workers—and rely on inexperienced people to keep customers happy. Not surprisingly, the stores in Cecere’s new territory were failing to meet sales goals.

Cecere made it his top goal to build a stable team of store managers who in turn could retain employees at their stores. He held a meeting with the managers and talked about improving sales, explaining, “It’s got to start with people”: hiring good people and keeping them on board. He continues to coach his managers, helping them build sales and motivate their workers through training and patience. In doing so, he has the backing of Domino’s headquarters. When the company’s former chief executive, David Brandon, took charge, he was shocked by the high employee turnover (then 158 percent nationwide), and he made that problem his priority. Brandon doubts the pay rates are what keeps employees with any fast-food company; instead, he emphasizes careful hiring, extensive coaching, and opportunities to earn promotions. In the years since Brandon became CEO, employee turnover at Domino’s has fallen. And in New Jersey, Cecere is beginning to see results from his store managers as well. The challenges faced by Domino’s are important dimensions of Human Resource Management (HRM), the policies, practices, and systems that influence employees’ behavior, attitudes, and performance. Many companies refer to HRM as involving “people practices.” Image below emphasizes that there are several important HRM practices that should support the organization’s business strategy. (Noe et al, 2011)

reference : 

Noe, Raymond A; Hollenbeck, John R; Gerhart, Barry and Wright, Patrick M. (2011), Fundamentals of Human Resource Management, 4^th, New York, McGraw-Hill/Irwin.

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What is Operation Management?

Operations management refers to the systematic design, direction, and control of processes that transform inputs into services and products for internal, as well as external customers.

It deals with managing those fundamental activities and processes that organizations use to produce goods and services that people use every day. A process is any activity or group of activities that takes one or more inputs, transforms them, and provides one or more outputs for its customers. For organizational purposes, processes tend to be clustered together into operations. An operation is a group of resources performing all or part of one or more processes. Processes can be linked together to form a supply chain, which is the interrelated series of processes within a firm and across different firms that produce a service or product to the satisfaction of customers. 1 A firm can have multiple supply chains, which vary by the product or service provided. Supply chain management is the synchronization of a firm’s processes with those of its suppliers and customers to match the flow of materials, services, and information with customer demand. ( Reid and Sanders, 2013)

Image below shows operations as one of the key functions within an organization

Another definition I got from another source

Operations management (OM) is the business function that plans, organizes, coordinates, and controls the resources needed to produce a company’s goods and services. Operations management is a management function. It involves managing people, equipment, technology, information, and many other resources.

The role of operations management is to transform a company’s inputs into the finished goods or services. Inputs include human resources (such as workers and managers), facilities and processes (such as buildings and equipment), as well as materials, technology, and information. Outputs are the goods and services a company produces. Figure 1-2 shows this transformation process. At a factory the transformation is the physical change of raw materials into products, such as transforming leather and rubber into sneakers, denim into jeans, or plastic into toys. At an airline it is the efficient movement of passengers and their luggage from one location to another. At a hospital it is organizing resources such as doctors, medical procedures, and medications to transform sick people into healthy ones. ( Krajewski et al. 2013)

references : 

Krajewski, Lee J., Riztman, Larry P. and Malhotra, Manoj K. (2013), Operations Management Processes and Supply Chains,10th, Harlow, Pearson.

Reid and Sanders (2013), Operations Management, 5th, Wiley.

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Company Orientation Toward the Marketplace

Given these new marketing realities, what philosophy should guide a company’s marketing efforts? Increasingly, marketers operate consistent with the holistic marketing concept. Let’s first review the evolution of earlier marketing ideas.

The Production Concept

This concept is one of the oldest in business. It holds that consumers prefer products that are widely available and inexpensive. Managers of production-oriented businesses concentrate on achieving high production efficiency, low costs, and mass distribution. This orientation makes sense in developing countries such as China, where the largest PC manufacturer, Legend (principal owner of Lenovo Group), and domestic appliances giant Haier take advantage of the country’s huge and inexpensive labor pool to dominate the market. Marketers also use the production concept when they want to expand the market.

The Product Concept

The product concept proposes that consumers favor products offering the most quality, performance, or innovative features. However, managers are sometimes caught in a love affair with their products. They might commit the “better-mousetrap” fallacy, believing a better product will by itself lead people to beat a path to their door. A new or improved product will not necessarily be successful unless it’s priced, distributed, advertised, and sold properly.

The Selling Concept

The selling concept holds that consumers and businesses, if left alone, won’t buy enough of the organization’s products. It is practiced most aggressively with unsought goods—goods buyers don’t normally think of buying such as insurance and cemetery plots—and when firms with overcapacity aim to sell what they make, rather than make what the market wants. Marketing based on hard selling is risky. It assumes customers coaxed into buying a product not only won’t return or bad-mouth it or complain to consumer organizations but might even buy it again.

The Marketing Concept

The marketing concept emerged in the mid-1950s as a customer-centered, sense-and-respond philosophy. The job is to find not the right customers for your products, but the right products for your customers. Dell doesn’t prepare a perfect computer for its target market. Rather, it provides product platforms on which each person customizes the features he or she desires in the computer. 

The marketing concept holds that the key to achieving organizational goals is being more effective than competitors in creating, delivering, and communicating superior customer value to your target markets. Harvard’s Theodore Levitt drew a perceptive contrast between the selling and marketing concepts:

Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and finally consuming it.

Several scholars found that companies embracing the marketing concept at that time achieved

superior performance.

The Holistic Marketing Concept

Without question, the trends and forces that have defined the first decade of the 21st century are leading business firms to a new set of beliefs and practices. “Marketing Memo: Marketing Right and Wrong” suggests where companies go wrong—and how they can get it right—in their marketing. 

The holistic marketing concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. Holistic marketing acknowledges that everything matters in marketing—and that a broad, integrated perspective is often necessary.

Holistic marketing thus recognizes and reconciles the scope and complexities of marketing activities. look at image below, it provides a schematic overview of four broad components characterizing holistic marketing: relationship marketing, integrated marketing, internal marketing, and performance marketing. We’ll examine these major themes throughout this book. Successful companies keep their marketing changing with the changes in their marketplace—and marketspace.

reference : Marketing Management 14th Edition - Philip Kotler & Kevin Keller

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Tax Shield

Tax Shield

"A reduction in taxable income for an individual or corporation achieved through claiming allowable deductions such as mortgage interest, medical expenses, charitable donations, amortization and depreciation. These deductions reduce taxpayers' taxable income for a given year or defer income taxes into future years.

Tax shields vary from country to country, and their benefits will depend on the taxpayer's overall tax rate and cash flows for the given tax year."

http://www.investopedia.com/

To make it simple, let's take a look at this illustration :

We can see the different tax payed (75) by these firms with/without debt for its capital structure, it called tax shield. Some said that firm with debt financing is good. Debt financing can amplify the effects of changes in operating income on the returns to stockholders (financial leverage), we can see from ROE above Net Income/Equity. But debt also increases financial risk and causes shareholders to demand a higher return on their investment, like MM's proposition II  "The required rate of return on equity increases as the firm’s debt-equity ratio increases" because of debt interest itself. All equity financing also has their own risk because shareholder absorb all of the firm's risk. 

Capital structure does not necessarily affect firm value. Modigliani and Miller’s (MM’s) famous debt-irrelevance proposition states that firm value can’t be increased by changing  capital structure. Therefore, the proportions of debt and equity financing don’t matter.  Financial leverage  does increase the expected rate of return to shareholders, but the risk of their shares increases proportionally. MM show that the extra return and extra risk balance out, leaving shareholders no better or worse off. 

So,  Is there a rule for finding optimal capital structure? Sorry, there are no simple answers for capital structure decisions. Debt may be better than equity in some cases, worse in others. But there are at least four dimensions for the financial manager to think about.    

• Taxes, How valuable are interest tax shields? Is the firm likely to continue paying taxes over the full life of a debt issue? Safe, consistently profitable firms are most likely to stay in a taxpaying position.    
• Risk, Financial distress is costly even if the firm survives it. Other things equal, financial distress is more likely for firms with high business risk. That is why risky firms typically issue less debt.     
• Asset type, If distress does occur, the costs are generally greatest for firms whose value depends on intangible assets. Such firms generally borrow less than firms with safe, tangible assets.     
• Financial slack, How much is enough? More slack makes it easy to finance future investments, but it may weaken incentives for managers. More debt, and therefore less slack, increases the odds that the firm may have to issue stock to finance future investments.     

References : 

Richard A. Brealey, Stewart C. Myers, Alan J. Marcus. 2012. Fundamentals of Corporate Finance, 7th ed. McGraw-Hill.  

http://www.investopedia.com/

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