Evaluate how leadership and management choices affect motivation, communication, decision quality and organizational performance in IB Business Management HL cases.
Martin Kimathi faced three major problems. Firstly, he had employee negotiations about the strike. Secondly, there was the issue with Susan Chapman. Thirdly, Martin would soon have his annual meeting with GP to discuss the strategic direction of The Imperial and to set target profits for the coming year. Because GP had rejected the idea of making a major investment in the hotel (Option 1), the discussions would focus on Option 2 (targeting The Imperial at business travellers staying for at least one week) and Option 3 (forming a strategic alliance with KenSafar).
During negotiations with the employee representatives, Martin discovered that they wanted Susan to be dismissed. Otherwise the entire staff would go on strike in December, which would put The Imperial's profits for the year below target. However, Susan had threatened to take legal action, if dismissed. She said she would claim that she was a victim of discrimination.
Option 2 appeared to be the best and Martin wanted to go even further. He had discovered that outsourcing the housekeeping staff would be even cheaper than the initial idea of a 70 % reduction in housekeeping staff (Item 1). His original decision tree (Item 2), when modified to take this lower cost into account, would make Option 2 even better. This could also avoid the problem with Susan: he could say in court that he was making all housekeeping staff redundant, including Susan, as part of a total business reorganization.
Laying-off all the housekeeping staff worried Martin. Unemployment is high in Kenya, and he feared they might not find new jobs. Intuitively he favoured Option 3 which would build on The Imperial's history while linking it to the fastest growing areas of Kenyan tourism.
Item 1: Internal memo from the Finance Office to Martin Kimathi
To: Martin Kimathi
From: Finance Office
Re: Outsourcing the Housekeeping Department
After receiving bids from several cleaning service companies, I am pleased to report that we can reduce the costs of housekeeping by per year by outsourcing this department; this does not include one-time costs related to making all housekeeping positions redundant. This would lower our break-even number of customers as shown below, which assumes single occupancy of each apartment and 150 apartments (all numbers in the table have been rounded to the nearest figure):
| With the current housekeeping staff | With housekeeping outsourced | |
|---|---|---|
| Average sales revenue per customer per night | $157 | $157 |
| Variable costs per night | $17 | $17 |
| Fixed costs | $4600000 | $4450000 |
| Break-even number of customers | 32857 | 31786 |
| Average occupancy rate | 60\% | 58\% |
Item 1: Housekeeping outsourcing financial data
Item 2: Original decision tree
Item 2: Original decision tree
Item 3: External Memo from GP to Martin Kimathi
| To: Martin Kimathi<br>From: GP<br>Re: Target profits for upcoming year | |
|---|---|
| Due to the global economic crisis, the directors of GP have decided that specific properties including The Imperial hotel will have to reach higher target profits than initially planned. The aim is to compensate for poor returns in other investments. |
Item 3: Target profits for upcoming year
| Capital | Nairobi |
|---|---|
| Population | 43013341 |
| Life expectancy | 63.07 years |
| Literacy rate | |
| Unemployment rate (\% of labour force without a job) | |
| Population below poverty line |
Item 4: Kenya fact-file
Item 5: Kenya GDP growth rate (World Bank)
Item 5: Kenya GDP growth rate (World Bank)
With reference to Martin Kimathi and The Imperial, compare and contrast scientific and intuitive decision-making processes.
Royal Danish Bearings
Royal Danish Bearings ( ) is a successful multinational company operating in the ball bearing industry. was set up in 1915, in Denmark, by a Danish machinist called Henrik Holstein. Henrik was a visionary. He foresaw the expansion of the ball bearing industry in the twentieth century, which was largely due to the growth of the automotive sector. Ball bearing technology contributed to engineering progress throughout the twentieth century, especially in the secondary sector of the economy. Today, the outlook of the ball bearing industry is still promising: its market size is predicted to further expand over the next decades. "High-tech industries" such as computer software and artificial intelligence attract considerable attention and capital; however, most global industrial output continues to be mechanical devices. For example, ball bearings are found in all types of vehicles, such as in gearboxes and wheel suspension; there are even ball bearings in fighter jets and space shuttles. has always operated in the business-to-business (B2B) market. Throughout the twentieth century, it expanded by internal/organic growth. Consistent with business thinking of that era, the company concentrated its manufacturing in three megafactories (very large factories) located in Denmark, northern Germany and Sweden, where the workforce had become highly skilled in operating machinery for industrial production. Benefiting from several economies of scale, created thousands of jobs, supporting the "company towns" where they were the main employer, held in high esteem both locally and regionally. In the 1930s, 's market position was determined by the high quality and high price of its ball bearings. RDB's two main competitors were and ; 's ball bearings were medium quality and medium price, and 's ball bearings were low quality and low price. Immediately after the second world war, began to face competition from new Japanese companies, which used their low labour costs to gain entry into the ball bearing market. Thanks to its well-established reputation for high quality, maintained its market share. By the 1970s, the competitive environment changed again. As Japan's economy developed, wages rose substantially. To remain competitive, Japanese companies moved to just-in-time production. Using this method, they could respond faster to specific customer needs. Their flexibility became their unique selling point (USP); it represented an important competitive advantage against other companies such as . They also met international quality standards, making it easier to export to different regional trading blocs. Valdemar Holstein's efficient leadership Valdemar Holstein (the son of founder Henrik Holstein) started working at the company in 1951, when he was only twenty-one. He spent his entire career at , including several years as a machinist. In 1965, he replaced Henrik as Chief Executive Officer (CEO). Under his leadership, kept thriving, as he successfully implemented several changes. Although the company maintained a tall organizational structure, Valdemar empowered his middle managers. He also adopted management techniques that were fashionable at the time, such as total quality management (TQM), benchmarking and Kaizen.
Anna had big ideas for RDB. A scientific and analytical thinker, she had carefully studied the external environment in which RDB operates. She knew that demand for ball bearings was slowing down in Europe, whereas it was growing substantially in countries such as Brazil, China and India that were going through a phase of strong industrialization. From her research, she also concluded that manufacturing in the twenty-first century would be accomplished in smaller, more flexible factories, instead of the huge modernist structures typical of the late nineteenth and twentieth centuries. Time would be the critical factor; having factories close to customers' locations would reduce response time and improve logistics, including distribution and delivery. This would also shorten the working capital cycle - an important benefit for RDB. Given her international experience, working at RDB made Anna realize that her colleagues in the Engineering Department, and even the entire RDB workforce, needed a better cultural understanding of their customers. The best way to achieve this, she thought, would be through a workforce that resembled RDB 's customers, and increasingly they would be from Asia, India and South America.
She was also convinced that had to focus on "green" technologies and its corporate social responsibility. The company would have to significantly increase its spending on research and development (R&D) and also examine its impact on the environment and on its customers' carbon footprint. The two are linked, Anna reasoned: the ultimate aim of innovation in the ball bearing industry is to save energy, which is fundamentally what ball bearings do by reducing friction. For users, better ball bearings mean less friction and, in turn, less friction means that less energy is wasted. Thus, less energy is needed. Anna's vision for was to make the world's most technologically advanced, energy-efficient ball bearings in small "green" factories located near its customers. This would require selling the two megafactories in northern Germany and Sweden, and significantly downsizing the one in Denmark. RDB's production would be offshored to 12 small factories to be opened around the world, mainly in Brazil, China and India. In terms of workforce planning, each of those new factories would be jointly managed by one experienced senior manager from Europe and one local manager familiar with the language and culture. Some machinists from 's European factories would be offered key positions. Most of the existing jobs in Europe would be made redundant, as most of the new workers would be recruited locally on lower wages.
Northern European countries have generous redundancy payments, largely funded by the employers, and these costs would be significant in the short term. In the long term, however, RDB would lower labour costs.
Analyse the advantages and disadvantages of each new RDB factory being "jointly managed by one experienced RDB senior manager from Europe and one local manager familiar with the language and culture".
FrioAire Appliances (FA) manufactures medium-priced and medium-quality refrigerators. It is a multinational public limited company. Its factory is located in a less economically developed country that has high unemployment, a tradition of autocratic leadership and labour costs lower than FA’s home country. The factory is profitable, and FA pays consistently good dividends. Market growth for medium-priced and medium-quality refrigerators is limited. As part of a strategic objective to increase productivity and to enter a fast-growing market for high-priced and high-quality refrigerators, FA is considering building a new factory in and relocating production to Germany. This would require closing the factory in the less economically developed country. The new factory will:
• use innovative technologies, including advanced robotics and 3D processes
• require fewer employees, but those it does require will need to have better skills and qualifications. Germany has a highly skilled, qualified and productive workforce. The new factory would allow FA to reposition its products. However, FA would need to raise significant finance to build and equip the new factory. FA’s leadership style at the factory in the less economically developed country is autocratic. Members of FA’s board wonder whether this style would be suitable for the new factory in Germany, where workers have more bargaining power because of their high skill level and the labour-friendly cultural traditions. In Germany, FA would have to follow more regulations regarding the environment, health and safety, and employee rights. FA workers in the less economically developed country are very loyal to FA, which has continued operation through a civil war at significant cost to itself (for security). If FA were to close in the less economically developed country, the workers would not find such good jobs.
FrioAire Appliances (FA)
FrioAire Appliances (FA) manufactures medium-priced and medium-quality refrigerators. It is a multinational public limited company. Its factory is located in a less economically developed country that has high unemployment, a tradition of autocratic leadership and labour costs lower than FA's home country. The factory is profitable, and FA pays consistently good dividends. Market growth for medium-priced and medium-quality refrigerators is limited.
As part of a strategic objective to increase productivity and to enter a fast-growing market for high-priced and high-quality refrigerators, FA is considering building a new factory in and relocating production to Germany. This would require closing the factory in the less economically developed country. The new factory will:
- use innovative technologies, including advanced robotics and 3D processes
- require fewer employees, but those it does require will need to have better skills and qualifications.
Germany has a highly skilled, qualified and productive workforce. The new factory would allow FA to reposition its products. However, FA would need to raise significant finance to build and equip the new factory.
FA's leadership style at the factory in the less economically developed country is autocratic. Members of FA's board wonder whether this style would be suitable for the new factory in Germany, where workers have more bargaining power because of their high skill level and the labour-friendly cultural traditions. In Germany, FA would have to follow more regulations regarding the environment, health and safety, and employee rights.
FA workers in the less economically developed country are very loyal to FA, which has continued operation through a civil war at significant cost to itself (for security). If FA were to close in the less economically developed country, the workers would not find such good jobs.
Explain one benefit and one cost to FA of using an autocratic leadership style.