Archive for August, 2013

August 30, 2013

 

 

 

 

 

 

[SUSTAINABLE DESIGN RESEARCH JOURNAL]

 

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Sustainable Design Research Journal

The environmental pollution caused by rain boots occurs throughout the product’s Lifecycle right from production and distribution to consumption and disposal (Tukker et al., 2006, p.16). Therefore, to reduce their negative impacts on the environment, the material used for making and packaging rain boots and end-of-life options should be considered. It is however worth noting that 70% of a product’s environmental impacts are determined in the design stage (Niinmaki, 2009 in Intertek, 2011, p.7). The main stakeholders in the footwear industry who are also the drivers of sustainability include consumers, the government, non-governmental organizations, industry leaders, supply chain partners and the society. Combined deliberate efforts on the part of all these stakeholders are vital to ensure effective reduction of the negative effects of rain boots on the environment. The materials used in making rain boots include rubber, Ethyl Vinyl acetate (E.V.A), Poly Vinyl Chloride (P.V.C), ployuthrene, nylon, cotton, leather, fleece, suede and gore tex (Shoe Capital, 2007; Intertek, 2011, p.11). Rubber is used to make the upper part of some rain boots mainly because it’s waterproof. Some rain boots however also contain rubber soles to prevent skidding and sliding. Over the recent past, rain boots made out of rubber have become very popular, more so among women and kids because, they are highly waterproof and they do not crack even in extremely cold weather. E.V.A is often used to produce the mid-sole in order to make the boots more comfortable. Polyurethane is also use to make the mid-sole and in some cases the upper part of the rain boot. Nylon and cotton on the other hand are used to make the inner linings owing to the fact they absorb moisture and therefore help to absorb sweat keeping the feet dry. For aesthetic reasons, the upper part of some boots is usually lined with fleece. Apart from rubber, the upper part of some rain boots is made from leather, suede or gore tex. Leather helps to keep the feet dry even in highly wet conditions. Suede is used to make very attractive foot wear and is consequently commonly used for ladies’ rain boots. Finally, gore tex is beyond reasonable doubt the best waterproofing material and therefore produces the best quality rain boots.

Pollution starts right from the production and sourcing of the material used in making rain boots. Leather is obtained from animal hides and skins so it is probably the last material one would suspect of having negative impacts on the environment. None the less, when one considers the process through which leather is transformed from hides and skins into the final product, it is evident that leather processing could have adverse effects on the environment. The tanning process is especially characterized by the use toxic chemicals which are more often than not discharged into the environment prior to treatment. Untreated tannery effluents contain high levels of heavy metals which are very detrimental to the environment (Intertek, 2011, p.12). The adhesives used in the piecing the different parts of rain boots together also contribute to air pollution and are harmful to human health and the environment. “A study among Chinese footwear workers found that exposure to high levels of benzene, toluene, and other toxic solvents contained in adhesives, resulted in aplastic anemia, leukemia, and other health problems” (Intertek, 2011, p.17).

Even though rubber can be extracted sustainably from trees, the process of converting the liquid sap into usable forms of latex, like that of converting hides and skins into leather, can have undesirable effects on the environment (Jong, 2001, p.367). Rubber can also be manufactured through the polymerization of hydrocarbon monomers such as methylpropene (isobutylene), isoprene, chloroprene and butadiene (Albers et al., 2008, p.15). This type of rubber is referred to as virgin synthetic rubber. Its increased production over the years has been linked to the rising demand for tire rubber. The process of polymerizing rubber is associated with fugitive emissions of carbon dioxide and volatile organic compounds (VOCs). The disposal of rubber, especially tire rubber, poses a major threat as a soil pollutant because it is highly non-biodegradable.

Nylon on the other hand is produced from synthesized petrochemicals which are nonrenewable resources (Albers et al., 2008, p.18). Moreover, its production is characterized by the emission of Nitrous Oxide which is a regulated greenhouse gas. To add on to that, nylon is associated with the use of formaldehyde which is not only carcinogenic but is also results in reproductive and neural complications. Sometimes a blend of conventional cotton and nylon 6 are used for inner linings. In other instances pure conventional use used. “Cotton is a pesticide-heavy crop, accounting for approximately 25% of the world’s insecticide use and 10% of the world’s pesticide use. In addition, cotton is the dominant fiber used in apparel and makes up approximately 66% of this market.” (Albers et al., 2008, p.8). The extensive use of chemicals in the cultivation of cotton result in far-reaching environmental implications. Additionally, the production of the cotton nylon blended fiber results in the production of dust, which contributes to environmental pollution and excess waste due to the damage of fibers in the mechanical process of mixing.

Other synthetic fibers used for making rain boots are also associated with a myriad of environmental impacts. The manufacturing of petroleum based products such as EVA, PVC, polyurethane and solvent-based adhesives releases VOCs into the atmosphere. This leads to the formation of tropospheric ozone which is harmful to both humans and plant life (Staikos et al., 2006). Other than that, because they are derived from hydrocarbons they are nonrenewable resources. Toluene di-isocyante (TDI) used in the manufacture of polyurethane is very toxic to humans. Acute exposure to TDI can damage the eyes, skin, respiratory system, central nervous system and gastrointestinal system (The Lowell Center for Sustainable Production, 2011, p.16). Chronic exposure on the other hand could be carcinogenic (Albers et al., 2008, p.17). The production of EVA is associated with a very high consumption of water and energy and fugitive emission into the air.

To reduce their negative environmental impacts, rain boots can be made from natural and recycled materials (Albers et al., 2008, p.7). Apart from initiating and supporting campaigns to sensitize people on the proper disposal of rain boots and other footwear products, a company should participate in End of Life (EoL) management by implementing product take-back programs. Take-back programs could be profitable for the company due the displacement of primary production and the marketing demand for recycled products. Other than that, take back programs could be motivated by legal requirements, environmental stewardship and other industry goals. Irrespective of the motive behind take-back programs, they could result in considerable competitive advantage by improving the corporate image of the company. The collection of fully utilized products can be conducted by manufactures, retailers or third parties. Rain boots that have outlived their usefulness can be collected either through mail-in or drop-off. A company can establish either permanent or temporary receptacles in schools, organizations, retail stores or government buildings to facilitate drop offs. The implementation of a collection mechanism is very important because it discourage the dumping of footwear which causes soil pollution. It should be noted that the use of recycled material for producing shoes is confined to the recycling of footwear products. Other material such recycled polyethylene terephthalate (PET) from bottles can also be incorporated into the supply chain.

Besides recycled material, other natural alternatives such as organic cotton, cork, jute, bamboo and hemp can be used in place of the materials used in making rain boots. The processing of organic and conventional cotton is more or less similar. However, the growing and harvesting of organic cotton done without using fertilizers or pesticides. This helps to significantly reduce the environmental impacts of the crop on the environment. Cork, which can be used as cushioning material for rain boots, is antimicrobial and virtually impermeable to liquids. Unlike other cushioning material such as EVA and polyurethane, cork does not have any known detrimental impacts on the environment. It is also obtained form a renewable source. Bamboo has rapid regeneration rate and is therefore considered as a renewable resource. It is also an excellent substitute for conventional textile fibers because it pest and disease resistant and as such its cultivation does not require agrochemicals. Hemp is another fiber that can be used in place of synthetic fibers. It has minimal environmental impacts because it is harvested by hand. It can also be retted biologically to further reduce its impacts on the environment. Finally, jute, which is the second most important textile fiber after cotton can also be used as an alternative for other synthetic fibers. Jute is can also be retted like hemp and bamboo. Consequently is has negligible negative impacts on the environment. Jute is extremely durable and relatively finer than other fibers such as hemp and can therefore be used to make high quality shoes.

Apart from recycling and using natural resources, a company can use cost effective and environmentally friendly packaging material to distribute the rain boots. Cost effective packaging materials are generally smaller and therefore occupy less space in shipping vehicles and other modes of transport. Besides reducing shipping costs, this helps reduce the overall amount of fuel used in shipping. Cost effective packaging therefore helps to conserve oil which is a non-renewable source of energy and reduce harmful automobile emissions into the atmosphere.

From the foregoing, the toxic impacts of rain boots can be reduced significantly by using recycled and natural biodegradable materials. The recycled rubber soles can be used in place of virgin synthetic rubber while the Polyurethane and EVA mid soles can also be replaced by cork. Moreover, the inner linings, which are mostly made of nylon, can be produced from organic cotton, which also absorbs moisture. Apart from cotton, bamboo can also be used for inner linings. Finally, the upper part can be made natural latex and jute.

 

KINDLY NOTE THAT I WILL REVISE THE PAPER ACCODINGLY: MEANWHILE HERE IS A REFINED COPY OF THE PRODUCTFootprint Quiz

Using renewable and natural resources to produce rain boots will significantly reduce the carbon foot print footwear manufacturing companies. Moreover, recycling footwear products will help to significantly reduce environmental pollution, especially soil pollution.

Figure : The carbon foot print (NSW Government , 2013)

 

The production of synthetic fibers from hydrocarbons consumes a great deal of water and energy. Avoiding the use of synthetic fibers in the production of footwear will help to reduce the consumption of water and energy. Furthermore, the manufacture of synthetic fibers is also characterized by the emission of carbon dioxide and VOCs into the atmosphere. This will also be reduced.

Figure : Reduction of green house gas emission

Companies should endeavor to reduce the negative impacts of their production activities on the environment by tracing their tracing their carbon footprints and, making necessary modifications in their supply chain.

Figure : Reduction of the ecological foot print

References

Albers, K., Canepa, P. & Miller, J., 2008. Analyzing the Environmental Impacts of Simple Shoes: A Life Cycle Assessment of the Supply Chain and Evaluation of End-of-Life Management Options. [Online] Available at: http://www.bren.ucsb.edu/research/documents/SimpleShoesFinalReport.pdf [Accessed 20 August 2013].

Intertek, 2011. Sustainable Footwear:Environmental Impact Solutions. [Online] Available at:https://www.wewear.org/assets/1/7/101311McConnell.pdf [Accessed 20 August 2013].

Jong, W.d., 2001. The Impact of Rubber on the Forest Landscape in Borneo. In A.Angelsen & D.Kaimowitz, eds. Agricultural Technologies and Tropical Deforestation. CAB International. pp.367-82.

NSW Government , 2013. Bigfoot – test your ecological footprint. [Online] Available at: HYPERLINK “http://www.powerhousemuseum.com/online/bigfoot/” http://www.powerhousemuseum.com/online/bigfoot/ [Accessed 20 August 2013].

Shoe Capital, 2007. Materials used in Rain Boots. [Online] Available at: http://www.shoecapital.com/boots/rain-boots-materials.php [Accessed 20 August 2013].

Staikos, T., Heath, R., Haworth, B. & Rahimifard, S., 2006. End-of-Life Management of Shoes and the Role of Biodegradable Materials. In 13th Cirp International Conference on Life Cycle Engineering., 2006.

The Lowell Center for Sustainable Production, 2011. Phthalates and Their Alternatives: Health and Environmental Concerns. Technical Briefing. University of Massachusetts Lowell.

Tukker, A. et al., 2006. Environmental Impact of Products (EIPRO). Technical Report Series. Institute for Prospective Technological Studies.

 

 

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Financial Risk Assessment: Barclays Plc. Risk Assessment Report

August 29, 2013

 

 

 

 

 

 

 

Financial Risk Assessment: Barclays Plc. Risk Assessment Report

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Financial Risk Assessment: Barclays Plc. Risk Assessment Report

Introduction

The modern business operating environment is highly dynamic, characterized by increased unpredictability, volatility and complexities. As such, business risks are ever increasing and changing. From time immemorial, business organizations have often perceived risk as a necessary evil that must be mitigated or minimized as much as possible. Most recently, businesses have diverted significant resources to address risks, thanks to the increased regulatory requirements. The 2008 financial crisis indicated that with which risks are identified and managed has not yet met in a timely manner. The poor quality of underlying assets in the financial sector had a significant impact on the quality and stability of investments. Therefore, the process of risk identification, management and exploitation across organizations has become important to the success of businesses. Effective risk management starts with risk assessment, a process that provides a mechanism for identifying the risks that presents opportunities and those that have potential pitfalls. When properly utilized, risk assessment technique provides an organization with a clear view of areas and variables that are exposed (Mistrulli, 2011).

This paper presents a risk assessment report for Barclays Group Plc. The report stat by highlighting the broad scope of risk, distinguishing between different types of risks and the steps involved in the process of financial risk management. The paper then provides a comprehensive discussion of main financial risks management tools and techniques. In the main body section, the paper provides a detailed assessment of Barclays’ risk exposure. Within the assessment, this report will: identify and prioritize the main financial risks faced by Barclays Plc.; and Develop risk management strategy. In addition, a critical evaluation of the impact of the recent global financial crisis on modern risk management practices will be provided, followed by a comprehensive analysis of the changes that are being introduced into financial markets to enable financial institutions comply with post-crisis regulatory reforms.

Types of Risks

The first step in assessing and managing risk is risk identification. There are various risks that an organization is exposed to, and their identification will provide an insight on how to mitigate them. Risks can generally be categorized by the following criteria:

  1. Market versus Firm-specific risk – Risks can be categorized into those that affects individual or a group of firms in the market (firm-specific) and those that affect many or all of companies in the market (market risks). Firm-specific risks can be mitigated through diversification of portfolios since they do not affect all companies in the market (Pritchard, 2010). On the other hand, market risks cannot be mitigated through diversification since they impact on all portfolios found in the market.

  2. Continuous versus Event Risks – Event risks are often dormant and occurs without any early warning sign, presenting unwanted economic consequences. Continuous risks, on the other hand, creates a continuous exposure that can be studied by a company and mitigated. An event risk can be presented by, for instance, a national civil revolution, whereas changes in interest rates can be termed as a continuous risk.

  3. Catastrophic risk versus Smaller risks – Some risks are relatively smaller and trivially affects a company’s earnings while others have significant impacts on the financial stability of a company. Catastrophic risks can lead to the closure of a company, especially when the exposure is not anticipated and hedged effectively (Mistrulli, 2011).

  4. Operating versus Financial Risks – Risks can emanate from a company’s financial operations such as a mix of its debt and equity and other financing types used, or from its operations (Colquitt, 2007). For instance, a firm can get exposed to financial risks through increases in interest rates. On the other hand, increase in the prices of raw materials can present an operational risk to the firm. In business operations, operating and financial risks categorization is commonly used in risk identification, assessment and mitigation.

Steps involved in Financial Risk Management

The process of financial risk management entails six steps:

  1. Establishing goals and context

This is the initial planning stage that enables the risk management team to understand the environment in which the company operates and its inherent risks. This stage is undertaken through: establishing the strategic risk management context of an organization and identifying the opportunities and constraints within the operating environment (Christoffersen, 2011). The organizational context and culture is established through environmental analyses that often involves a review of regulatory standards, corporate documents and industry guidelines on risk management. This step will also involve establishment of the criteria that will reflect the defined context on internal goals and objectives, policies and interests of stakeholders. Environmental analysis can be evaluated using various frameworks such as the SWOT and PESTLE analyses.

  1. Risk Identification

After establishing risk management goals and putting the organization into a risk-context, potential risks will be identified. Risk are not necessarily adverse to the organization, as they may present opportunities or strengths for the organization (Huang, et al., 2009). An appropriate risk identification criteria will depend on the nature of organizational activities and variables that are significantly exposed. The following techniques and tools may assist in risk identification:

  • Business risk checklists,

  • Scenario planning tools,

  • Examples of risk sources,

  • Process mapping,

  • Documentation of program evaluations, audit reports and other research reports.

This is the most critical stage in the process of risk assessment. Therefore, the better will be the organization to assess the sources of risks, the better the outcomes of risk assessment process and thus an effective risk management plan.

  1. Risk Analysis

Risk analysis will entail taking into consideration the source of risk, the impacts of these risks and the likelihood to estimate consequences of such risks without controls in place. When lower risks are anticipated, qualitative or semi-qualitative risk-screening techniques such as hazard matrices, risk matrices, exposure graphs and risk graphs (Huang, et al., 2009). On the other hand, larger risks needs to be comprehensively analyzed since they represent significant impacts on the organization. As such, advanced risks are analyzed using quantitative methods. The use of risk matrices enables an organization to match the likelihood of a risk occurrence and the consequences of the occurrence. A likelihood criteria is often applied when examining the likelihood of a risk occurrence.

  1. Risk Evaluation

After a comprehensive analysis of the risk and exposure, the assessment team will then evaluate the impacts of the risk on business variables so exposed. The analyzed risks will thus be compared with the previously documented risk exposure to establish tolerability. If the protected risk is greater than the level of tolerance, then this is an indicator for further control measures or enhancing the existing risk controls (McNeil, Frey & Embrechts, 2010).

These analyses will lead into decisions on whether the detailed risks are acceptable or not. For example, a risk may be considered as acceptable if:

  • The exposure is considered as extremely low and the treatment of the risk is not cost effective,

  • An effective treatment for the said risk is not presently available to the organization, and

  • There is a sufficient opportunity inherent in the perceived risk and an organization has higher chances of benefiting from the opportunity (Christoffersen, 2011).

If it is within a manager’s well informed judgment that the risk is acceptable, the organization will then accept the risk without any further considerations for treatment alternatives. However, accepted risk should be diligently monitored and reviewed on periodic bases to ensure that they remain acceptable.

  1. Risk Treatment

Risks that are acceptable are retained by an organization and meticulously monitored. However, unacceptable risks must be treated and controlled. The key objective for this stage is to develop a cost effective method for mitigating established risks. Treatment options available for the organization involve the following (Huang, et al., 2009):

  • Risk avoidance, in which an organization will desist from undertaking the activity considered as risky or likely to trigger the risk,

  • Risk reduction (mitigating the risk),which entails controlling the likelihood of occurrence or the impacts of the risk in case it occurs, and

  • Risk acceptance (retaining the risk).

  1. Monitoring the Risk

After the risk has been treated, it is important for the management team to understand that the concept of risk is highly dynamic and thus continuous review of the risk is necessary. Thus, this stage requires knowledge of the outcomes of risk treatment and how such outcomes can be measured. Although a review period is often dependent on the operating environment and emerging legislation, the standard industry requirement is that risk treatment strategies be reviewed after every five years (Amiti & Weinstein, 2011). An effective risk review seeks to validate an organization’s risk documentation and overall management. The review should also consider the changing industry practices and regulatory environment.

Financial Risk Management Techniques and Tools

There are many financial risk management tools and techniques, some of which have been discussed in the preceding section. However, in this section, we are going to discuss various techniques that risk managers can use to hedge against risk exposures. If an organization decides to reduce its exposure to risks, there are several approaches that can be adopted (Mistrulli, 2011). Some of the techniques that will be discussed in this section are integrated into the standard financing and investment decisions that every business makes in the course of its operations.

Investment Choices

A company can mitigate some of the risks it is exposed to through the investment decisions that it makes. Multinational companies such as Barclays Plc. can mitigate some country-or region-specific risks by investing in different countries or geographic locations (Colquitt, 2007). As such, exposure in a given country, say Mexico can be offset by exemplary performance in another country such as the United States. Investment choices can also be affiliated to diversification in which a company can invest into other closely-related areas in order to reduce variability in income and make a company more stable. Managers and strategists of global companies have often justified diversification into multiple businesses by this premise and have led their companies into forming conglomerates with other foreign companies.

Financing Options

Companies can also influence their overall risk exposure through their financing decisions. For example, if Barclays Bank expects substantial income streams in yen from a Japanese investment, it can mitigate risks associated with foreign exchange by borrowing from Japanese financial institutions denominated in yens in order to finance the investment. Although a depreciation of the yen against the dollar will reduce the value of expected cash inflows, there will be a partial offsetting impact from the arrangement.

Firms wishing to optimize their financing choices have conventionally been advised to match a characteristic of debts to the project funded with the debt as this will reduce the exposure to default risk (Christoffersen, 2011). Similarly, firms can match debts to assets in terms of currency and maturity as this can reduce the cost of debts as well as the default risk, leading to increased value of the company. However, this strategy has inherent weaknesses since companies that are restricted to access bond market in certain jurisdictions may find it hard raising capital through debt financing. This is especially due to the fact that most firms operating outside of the US and even others with operations inside the country have access to only banks as a form of financing and thus restricted to what banks offer.

Insurance

Purchasing insurance coverage against exposure to risks is one of the oldest and most established method of hedging against specific event risks. Companies can use insurance to protect their assets against possible loss, although attention has been diverted to using derivatives to hedge against financial risks (Bessis, 2011). There is no doubt that insurance is the main conventional vehicle for protecting assets against exposure. However, insurance does not eliminate risk but rather transfers risk from the company purchasing the cover to the firm providing coverage against the proximate cause.

Insuring against risks is said to provide benefits to both the insurer and insured. For instance, the company providing coverage can create a portfolio of risks and thus gain diversification advantages that will not be realized by a self-insured company. In addition, an insuring company has expertise in risk assessment and mitigation and the insured company will be able to benefit from a comprehensive analysis of its exposures. Besides, the insuring company will also provide additional services, such as safety and inspection, to the company being ensured.

Derivatives

Although derivatives have been around for a considerably long time, their access by many businesses were limited since they had to be customized for each business. It became necessary to standardize derivative products after the development if futures and options markets in the 1980s (Huang, et al., 2009). This made it possible to individuals and companies to hedge against specific financial risks. There are many derivative instruments that can be used to hedge against various financial exposures, and these instruments keeps on growing. The mostly used derivatives in financial risk management includes futures, forwards, swaps and options.

Forwards and Futures

A futures is a contract that enables an individual to buy a product –which may be currency or a commodity – at a specific future date at a fixed predetermined price. The seller obligates to deliver the agreed product at the specified future date and the set price. The price for purchase of a commodity or currency in future is predetermined and fixe, and thus at the expiration of the contract, it is possible to measure the payoff to both the seller and the buyer (Colquitt, 2007).

The buyer of a forward contract will realize a gain from the contract, equal to the difference between the actual price and the market price, if the actual price at the time of contract exercise is greater than the agreed forward price. However, if the actual market price at the exercise date is lower than the contract price, the seller will gain the equivalent while the buyer losses. Since the forward contract is initiated between private parties, there is a possibility that the losing party may default.

A futures contract, more like a forward contract, is an agreement to buy or sell an underlying asset at a predetermined future date. Although the payoff diagram for a futures contract is similar to that of a forward contract, there are some differences between the two derivatives. Futures contracts are highly structuralized and trade on the exchange market while the forward contract does not. Futures contracts are also more liquid than forwards and have no default or credit risk. It has been argued that this is a balancing feature since futures contracts are highly standardized and thus cannot be customized for a company’s precise needs (Huang, et al., 2009). Secondly, Huang et al., (2009) argues that futures contract enables buyers and sellers to settle differences on a daily basis in the trading market and thus does not wait until the maturity of the contract. Since futures are settled on a daily basis, they can be converted into a sequence of daily forward contracts. This can influence the pricing of such assets. In addition, when futures contracts are traded, parties to the contract are required to put aside a percentage of the contract price as a margin which operates as a performance bond, reducing default risk.

 

Options

Options are different from forwards and futures especially in their payoff profiles. A call option gives a buyer the right to purchase a specified asset at a fixed price at any given time before the expiration of the contract, while a put option gives a buyer to sell the asset at a specified rate. There are two main differences between an option and futures (Christoffersen, 2011). Firstly, options provide protection against the downside risk but allows the parties to benefit from an upwards potential. Con contrary, futures and forwards protect parties against downwards risks but eliminates the potential for upside potential. Secondly, whereas forwards and futures contracts have implicit costs, options have explicit costs. Other than settlement and transactions costs associated with daily price movements, parties to options contract will also face costs associated with purchase of put options.

Swaps

A swap is a derivative that allows parties agree to exchange cash flows of their financial instruments. Cash flows from swaps are calculated using notional principal amounts. Contrary to forwards, futures, and options a swaps notional amount is often not exchanged between parties. Besides, swaps can either be in cash or collateral. Although swaps are mainly used by companies to hedge against interest rate risks, some individuals and firms use the derivative for speculation purposes on changes in the expected underlying prices (Amiti & Weinstein, 2011). Like futures contracts, swaps are traded over-the-counter and are tailor-made for counterparties.

BARCLAYS’ RISK ASSESSMENT

Barclays is a universal banking corporation operating in the retail, wholesale and investment banking sectors alongside mortgage lending, wealth management and credit cards (Barclays.com). In terms of asset base, Barclays had a total of US$ 2.42 trillion in its global operations by 2011 and thus ranked as the seventh largest bank by all categories. A large financial corporation like Barclays, with its wide scope of operations, means that there are many inherent and market risks. Thus, it is necessary to have a sound risk assessment and management strategy.

Key Financial Risks

Credit risk

Barclays defines its credit risk as the risk of suffering financial loss should any of the company’s clients, customers or market counterparties fail to honor their financial obligations to the group (Barclays, 2013). Given that the main objectives of the group is to advance credit facilities to its clients, there is need to establish an efficient framework through which the credit advanced will not be defaulted by customers. Also, the group obtains its income mainly from advancing credits and thus the most significant variable to risk exposure. Other sources of credit risk comes from trading activities such as settlement balances with counterparties, debt securities, and reverse repurchase loans (Colquitt, 2007).

As noted above, loans and advances made to Barclays’ customers provides the primary source of credit risk to the company. Barclays is also exposed to other forms of credit risks like inter-bank loans, debt securities and loan commitments. Credit risk is concentrated when counter-parties engage in activities with the same objectives, making the ability of such parties to meet their financial obligations to the company have a similar fate.

Market Risk

Liquidity Risk

Liquidity risk arises from the inability to meet financial obligations, which leads to the inability of a firm to meet liquidity regulatory requirements and support normal business activities. When Barclays faces illiquidity, the available cash will be depleted and thus hamper client lending, trading activities and other investments. Excessive cash outflow will ultimately result to illiquidity (Huang, et al., 2009). Such outflows result from customer withdrawals, collateral posting requirements, removal of financing by wholesale counterparties and loan draw-downs.

Barclays’ ability to ensure sufficient liquidity may be hampered by a decline in the availability of wholesale funding and increase in the costs of raising such funds, especially during the periods of market dislocations. Other factors such as balance sheet reductions due to asset sales and high costs of raising funds affects the earning capacity if the company and thus presents risk exposure.

Illiquid markets may force the company to hold its financial assets instead of syndicating, securitizing or disposing of them. This will reduce the ability of the bank division support customer transactions or originate new loans since both capital and liquidity are used up by existing assets.

Risk Factors

The above key risks may be presented by risk factors that exists in the company’s operating environment. These factors include:

An economic downturn – The Group’s financial position, credit worthiness and liquidity may be adversely affected by the increasing economic uncertainties around the globe in regions that Barclays operate. Any deterioration in the economic environment may impact the company’ operations. Some factors that may influence the economic stability include:

  1. The extent and sustainability of economic recovery, especially the influence of austerity measures in most of Eurozone economies,

  2. Increasing unemployment rates which results from weak economies in a number of nations and regions in which Barclays operates,

  3. The possibility of further decline in the prices of residential properties in the United Kingdom, Western Europe and South Africa, and

  4. The United States’ Fiscal Cliff and Debt ceiling negotiations (Barclays, 2013).

The Eurozone crisis – The performance of Barclays may be adversely affected by the perceived and actual increases of default risks on sovereign debts of some countries in the Eurozone, the stresses being exerted on these countries by financial systems within the Eurozone, and the risk that one or more of these countries may exit the Eurozone. These impacts are presented through:

  1. The impact of deteriorating sovereign credit capability, and

  2. Potential exit of some countries in from the euro as a result of the debt crisis.

Market Risk

The earnings or assets of the company are at risk of being reduced due to the following exposures:

Traded market Risk – this exposure results from the group’s support for customer activities primarily through the Investment Bank division and risk of changes in the levels of volatility in trading books. Among these changes include inflation rates, interest rates, property prices, credit spreads, commodity prices, foreign exchange levels and equity and bond prices (Mistrulli, 2011).

Non-traded market risks – this mainly emanates from efforts made by the group to support customer products especially in retail banking. The risk presents itself as the inability of the company to hedge its balance sheet at prevailing market levels.

 

 

Risk Mitigation Strategy

Risk management is a set of hedging strategies that are meant to alter the probability distribution of exposure of a firm’s assets to destruction. Barclay’s risks, as discussed above, can be effectively mitigated and managed using the strategies outlined in the following table:

Exposure

Definition

Hedge Instrument

Explanation

Credit Risk

The uncertainty about the ability of business debtors or counterparties to honor their contractual obligations and pay for the credit advanced (Colquitt, 2007).

Credit Default Swaps (CDS)

A credit default swap allows a buyer to purchase a contract and make regular payments to the seller of credit protection. In the event that there is a default, the buyer will be compensated by the seller. As such, this is often seen as an insurance policy for the buyer (Colquitt, 2007).

This instrument can also be used for speculative purposes since there is no obligation for the buyer to hold the asset or maintain a loss-making relationship with the ‘reference entity’.

Credit linked Note (CLN)

Credit linked notes covers certain types of credit risk exposures for the company. The CLN allows investors to receive higher returns because of accepting risks relating to a specific event. As such, a credit linked note provides a hedge for borrowers against explicit risks (Colquitt, 2007). This instrument id created through a trust by the use of low-risk securities as collaterals.

 

Total return Swaps

These are similar to interest rate swaps. A party to the swap makes payments in proportion to the total return from an asset while the other party then makes fixed or floating payments. However, the notional underlying asset amount is the same for all the parties.

Liquidity Risk

A danger that a company will have difficulty in selling its assets in order to provide capital for meeting short-term financial obligations.

Liquidity Limits

Setting up a liquidity framework that will incorporate various risk management tools in order to monitor, limit and stress test a company’s balance sheet and contingent liabilities is an essential step towards ensuring that liquidity limits are well set and met.

Internal Pricing and Incentives

The composition of a company’s liabilities can be actively managed through the transfer of liquidity premiums directly within internal business units. As such, the premiums will be transferred to businesses on basis of behavioral life of liabilities and assets and contingent risk. Such transfer is designed to ensure that liquidity risk is reflected in performance and product pricing and thus ensure that liquidity risk management framework is well integrated into business decision-making processes.

Foreign Exchange Risk

A danger that adverse movements in foreign exchange rates will wipe away potential profits or asset value for a firm operating in international market.

Forwards Contract

A forward contract hedge works in such a way that the price at which a foreign currency will be exchanged at a determined future date is set at the time the transaction is entered. However, the actual exchange of the currency is done at the future date when the contract will be executed. With this hedging technique, the value of transaction, the exercise date, the exchange date and the payment procedure are determined in advance and hence there is no any exchange of money prior to settlement date

Money Market Operation

To perform a money market hedge, a company will use three main steps: if there is future payment to be made in a foreign currency, the company would need to purchase the equivalent of the currency amount using the spot rate. The borrowed amount will then be invested in a bank domiciled in the foreign country at prevailing interest rates (McNeil, Frey & Embrechts, 2010). The interest rate must be such that at the maturity of the investment, the exact amount of accumulated investments will equal the amount required to make the payments to creditors. At the payment date, the company will then withdraw the mature amount of investment and make payments in the foreign currency.

Interest Rate Risk

This is a danger that fluctuations in interest rates will reduce the value of investment assets such as bonds and deposits.

Interest rate swaps

An interest rate swap is an agreement between counterparties to exchange a set of future cash flows. Barclays can enter interest rate swaps with her counterparties in various trading regions to hedge against interest rate exposure.

Forward Rate Agreements (FRA)

FRA allows a party to pay a fixed interest rate and receive a floating rate equal to the set reference date.

 

Impact of Financial Crisis on Risk Management and Post-Crisis regulatory Financial Reforms

Financial sector reforms have been the core dimension of policy response to the 2008 global financial crisis. The financial crisis exposed the weaknesses in risk management practices and strategies in financial services industry especially banking institutions. Although the response to the crisis in the Eurozone was slower compared to the US, new regulations were made by international regulatory bodies in order to contain the impacts of financial crisis. Since the crisis emerged, various regulations have been enforced to ensure that credit and liquidity risks of financial institutions are well monitored to avoid massive loss of customers’ investments in an event that such a shock is experienced again. Some of the reforms include the following:

  • Capital Requirement Directive (II) of 2009, which sought to:

  • Increase the liquidity risk management of financial institutions,

  • Bind originators of securitization products such that they would retain a 5% product value and keep them motivated to monitor credit risks on a continuous basis.

  • Regulations for Credit rating Agencies starting from 2009 onwards, which would ensure that:

  • There is no conflicts of interest, which arises when issuers are paid by investors to raise their credit ratings,

  • Create liabilities for Credit Rating Agencies when they analyzes and rate financial products, and

  • Monitor CRAs.

  • Basel II and III regulations for banking corporations

Impacts of Basel III on Barclays

The new capital requirement implemented by Basel 3 proposals within the EU are expected to be finalized by the end of 2013. The cumulative increase in the costs associated with the implementation of the Basil III requirement would imply that the bank holds more capital especially in form of common equity. The effect of this is to reduce risk-weighted assets of the bank by reducing its level of exposure so as to maintain a sufficient return on equity and attract investors (Blundell-Wignall & Atkinson, 2010). Tying up more capital in various assets and portfolios might compel the bank management to increase prices of these assets in order to achieve the same level of returns and maintain the profitability.

Barclays will thus have to raise the prices of retail and corporate loan facility and reduce its activity in the bond market as a result of restrained liquidity. This change in pricing strategy will definitely influence the demand for the loans (Blundell-Wignall & Atkinson, 2010), which in turn would limit the number of real estate developers [who benefited from credit facilities (mortgage) from the bank].

Also, increased capital requirement would drive the bank as a seller and cap its capability of buying. Although in the long –run the market would clear out after structural adjustments have been made, in the short-run, the bank would experience a reduction in the number of accounts especially loans.

The Basel III and changes to risk-based regulations of capital provides substantial penalties characterized by increased capital allocations for risky decisions. Since these penalties have potential adverse impact on capital, we have seen that a prudent manager would reduce the risk of capital shortfall limiting loans at the margin or maintaining high capital cushions (Blundell-Wignall & Atkinson, 2010). This is a critical decision that has to be carefully evaluated by the management.

Cost Constraints imposed upon the Bank

Many banks have underestimated the size and cost of implementing the Basil III regulations and hence failed to institute strategic planning for the same. Although implementation of the standards will commence in 2013, it is imperative that financial institutions factor the implementation costs in their budgets. However, there are some banks that are taking advantage of the momentum gained from the initial requirements (Basel II) to institute more fundamental operational risk management systems.

 

Conclusion

This risk assessment report for Barclays Plc. Has highlighted key areas and variables of the ban that require effective risk management. Given the scale of operations and the industry in which it operates, Barclays requires a well-structured risk management framework to ensure that its assets and income are well-guarded against adverse exposure. The report has discussed various components of risk assessment process including the steps involved in risk assessment, various risks exposures and mechanisms of hedging. With Barclays Plc. as case study, the company’s risk exposures have been highlighted with strategies on how the company can hedge against these risks explained. Towards the end, the report has reflected on the 2007/8 global financial crisis and its impacts on risk management. The crisis changed the way in which financial institutions perceive risk and risk management. Also, there have been increased regulatory framework to guard against massive losses due to external market shocks.

 

 

 

 

 

 

 

 

 

 

 

References

Amiti, M., & Weinstein, D. E. (2011). Exports and financial shocks. The Quarterly Journal of Economics, 126(4), 1841-1877.

Barclays Plc. (2013). Financial Report: 2012.

Bessis, J. (2011). Risk management in banking. Wiley. com.

Blundell-Wignall, A., & Atkinson, P. (2010). Thinking beyond Basel iii: Necessary solutions for capital and liquidity. OECD Journal: Financial Market Trends, 2010(1), 5-6.

Christoffersen, P. F. (2011). Elements of financial risk management. Access Online via Elsevier.

Colquitt, J. (2007). Credit Risk Management: How to Avoid Lending Disasters and Maximize Earnings. New York: McGraw-Hill.

Huang, X., Zhou, H., & Zhu, H. (2009). A framework for assessing the systemic risk of major financial institutions. Journal of Banking & Finance, 33(11), 2036-2049.

McNeil, A. J., Frey, R., & Embrechts, P. (2010). Quantitative risk management: concepts, techniques, and tools. Princeton university press.

Mistrulli, P. E. (2011). Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns. Journal of Banking & Finance, 35(5), 1114-1127.

Pritchard, C. L. (2010). Risk Management: Concepts and Guidance 4th edition. ESI international.

 

August 26, 2013

 

 

 

 

ADVANTAGES AND DISADVANTAGES OF TECHNOLOGY IN THE UK RETAIL INDUSTRY

 

 

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Technology in the United Kingdom has been embraced in different sectors as noted by Anonymous, (2010) and Great Britain, (2012,pg 1). The retail industry is the most affected with many challenges and advantages arising from adoption of technology. The retail industry covers many aspects of the lives of the people of the UK. One of the advantages is the speed of services from the retailer to the customer. Different tools and equipment have been involved in the automation of business processes that ensure quality delivery to the consumer. For this reason, both the retailer and the buyer save a lot of time and money from the use of technology to acquire the goods and services. Advertising is one of the technological advances that have boosted the survival of the retail industry in the UK. Nowadays, information reaches billions of people within a very short time and the retailer can easily market themselves through these different channels of advertising according to Dennis, Fenech and Merrilees (2012, pg 8). Again, time and money is saves because the buying process is shorter and easier when technology is involved. Gone are the days when the customer had to travel to different towns to get some service or good.

Technology has made it as easy as the click of a mouse. This implies that from the comfort of their homes, the customers can order goods and have them delivered at their convenience within a very short period of time at a cheaper price compared to having to go from shop to another. Retailers have increased their productivity and profits a great deal. This is because information about their existence and of the retail goods that are they are dealing with reaches many potential customers. With the use of technology, these customers get access to different retail stores, comparing prices and quality and the retailers get to serve more customers contrary to what used to happen in the traditional way of retail shopping, (Bayraktar A, Yilmaz E, Erdem, 2012, pg 12).

Lately, it is not easy to talk about technology without mentioning social media. Retailers advertise themselves on sites such as face book and through this; they get to increase their customer base significantly. Communication is also spontaneous since, as long as the two parties are connected on these sites, they can chat and discuss more about the retail goods that the seller has in their stores. It also creates an avenue for personalized attention in that the customer feels important while chatting in person with the person who will deliver their goods and offer services to them. It is also a way of increasing customer loyalty as that customer will not get these services and goods elsewhere. Hristov and Reynolds, (2007, pg 76) and Ozaki (1992,pg 16) mention that online stores are the way to go in the modern retail industry. This implies that goods are marketed and sold online with a quick delivery of these goods to the customers. Customer service is faster and cheaper and the customers are always satisfied, hence increasing customer loyalty. The retail sector has made many discoveries in processes and functions. Security of small and medium sized retail shops has been increased. Mundane processes like paying of bills and communicating to the customers for example through writing of letters is now faster and easier. For instance, money transfer is now secured both on the customer’s and retailer’s side. Technology has boosted the way the retail sector is different ways in the UK.

On the other hand, as explained by Watkins, (2012, pg 74) and Teuber (2012, pg 1), technology in the UK comes with a number of challenges and disadvantages. People have a high dependency on technology making it difficult to operate without these technologies. If for instance the machine that the retailer or the customer uses to automate their processes breaks down, they get paralyzed and business stops for some time. People have lost jobs in the retail mode of doing business since computers and other sophisticated tools have replaced them in the work place. The jobs that the traditional retail sector offered to the human workers is now done better and faster by technology hence disadvantaging the people of the UK. In as much as technology brings good tidings with it, there are those people that are highly losing out on this. Most of the technologies in the United Kingdom are rather expensive. Small and medium sized retail shops could be challenged when it comes to acquiring these tools and technology accessories to keep their businesses going. This implies that technology to some extent filter people and creates some sort of bias to those that cannot easily afford some of these materials. Research has it that people in the UK have developed health disorders due to the electromagnetic radiation and poor postures. Since customers shop online and the retailers communicate with their clients online as well, illnesses such as eye, back and muscle problems arise. The retail industry that deals with books and reading materials for students has faced in rough not only in the United Kingdom but all over the world. Reading materials are now available online with downloadable contents and the students do not need to purchase them from retail stores. This implies that the UK experiences both advantages and disadvantages with the high dependence on technology that they have developed.

 

 

 

 

 

 

List of references

Anonymous. (2010). Manufacturing in the UK: An economic analysis of the sector. Department of business innovation and skills. Retrieved 20 Aug 2013

<https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/31785/10-1333-manufacturing-in-the-UK-an-economic-analysis-of-the-sector.pdf&gt;

Bayraktar A, Yilmaz E, Erdem S. (2012) Using RFID Technology for Simplification of Retail Processes. Marmara University. Retrieved 20 Aug 2013 <http://www.intechopen.com/books/designing-and-deploying-rfid-applications/using-rfid-technology-for-simplification-of-retail-processes&gt;

Dennis C, Fenech T, l Merrilees B. (2012). E- retailing. Routledge. Retrieved 20 Aug 2013

<http://books.google.co.ke/books?id=asAwkr48ul0C&dq=advantages+and+disadvantages+of+technology+in+the+UK+retail+industry&source=gbs_navlinks_s&gt;

Great Britain. (2012). National security through technology; technology, equipment and support for UK defence and security. Retrieved 20 Aug 2013 <http://books.google.co.ke/books?id=ix4W2Xb1vqoC&pg=PA8&dq=advantages+and+disadvantages+of+technology+in+UK&hl=en&sa=X&ei=4FsTUtHcJbKK4gTE_IHoAQ&ved=0CDAQ6AEwAQ#v=onepage&q=advantages%20and%20disadvantages%20of%20technology%20in%20UK&f=false&gt;

Hristov L, Reynolds J. (2007). Innovation in the UK Retail Sector. Oxford Said business school. Retrieved 20 Aug 2013 <http://www.nesta.org.uk/library/documents/inno-in-services-retail-report.pdf> (9-16)

Ozaki M. (1992). Technological change & [and] labour relations. Volume 22. Retrieved 20 Aug 2013

<http://books.google.co.ke/books?id=o1rqUi_zrgUC&pg=PA153&dq=advantages+and+disadvantages+of+technology+in+the+UK+retail+industry&hl=en&sa=X&ei=iFkTUq37DcrT4QTjr4DADg&ved=0CDEQ6AEwAQ#v=onepage&q=advantages%20and%20disadvantages%20of%20technology%20in%20the%20UK%20retail%20industry&f=false&gt;

Teuber B. The rise of social media in retail: Social media has changed the internet. The guardian. 2012. Retrieved 20 Aug 2013 < http://www.theguardian.com/media-network/media-network-blog/2012/jul/25/social-retailing>

Watkins J. (2012). Information Technology, Organizations and People: Transformations in the UK Retail Financial Services. Routledge. Retrieved 20 Aug 2013 <http://books.google.co.ke/books?id=yw-mdEz17QMC&dq=advantages+and+disadvantages+of+technology+in+the+UK+retail+industry&source=gbs_navlinks_s&gt;

 

August 26, 2013

 

 

 

 

 

 

 

Urbanization does not build an equitable society

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Urbanization results to a higher level of ethnic and gender discrimination. According to World Urban Forum (2004 p.2) women migrate to the urban areas with an expectation that their status would change but instead, what they find is terrible poverty and drudgery. In the urban areas they are forced to live in shanty settlements and slums whereby they are exposed to all types of risks including rape and diseases. HIV/AIDS is mostly pronounced in the slums and recent research in India indicates that women are more vulnerable. According to World Urban forum (2004 p.2) women suffer the indignities and dangers of unhygienic toilets which are shared by a large group of people. The toilets mostly lack water and lighting thereby further exposing people to diseases. According to a research carried out by the United Nations Higher commissioner for refugees in 2004; about 25% of the households in the world are headed by women. The UN refugee agency also argues that in Africa and Latin America, the percentage may even exceed 50% in the urban areas. They raise their kids in the most difficult conditions; some of them are even forced into prostitution in order to be able to put food on the table. Though the society often views a family whose head is a woman as a poor and disadvantaged one; they disregard the fact that the family is less constrained by patriarchal authority and therefore, the head has high self concept and can better manage the family resources. To improve the lives of women living in the shanty settlements and slums in urban areas, the government should raise their incomes and ensure that the hygiene is enhanced.

Urbanization strains the capacity of most cities; effects are conspicuous particularly in the housing, environmental sustainability, haulage infrastructure, comprehensive urban spaces as well as water and sanitation. Cities are mostly characterized by high cost of living; this implies that, individuals have to spend much on food, housing, transport and access to medical care. High cost of living in most cases is felt by low income earners who have to budget on their little earnings to meet the daily needs. Low class people living in the cities are forced into slums due to the high cost of housing. A family in the 40% of the lowest income distribution, and spending more than 30% of their income on rent are said to be in housing stress. Such families experience financial hardships and are characterized by poor health care and low quality social services therefore, shanty homes seems to be their best option. The disparity between the slum dwellers and individuals living in the estates is eminent; congestion in the slums poses both health and security challenges. In major slums such as Mumbai in India, individuals live in unsanitary conditions that are termed as unhealthy for human occupation. Over crowdedness, lack of ventilation and lighting, security challenges, dilapidation and poor sanitation are some of the conditions that characterize Mumbai. Slums are also the breeding places for dangerous human diseases such as cholera, pneumonia, tuberculoses and other respiratory disease. In contrast, those dwelling in the estates in the urban areas in India live luxurious lifestyles where security, health care and quality social services are guaranteed. It is estimated that 17.4% of the households in the urban areas in this country, live in the slums hence, it can be concluded that urbanization does not build an equitable society.

Though cities are regarded as a haven for the prospect seekers; the unfortunate reality remains that these chances are not availed equitably. Economic disparity is evident where the rich grows richer while the poor on the other hand remain the way they were. Extreme affluence and intense poverty characterize the urban centers. Unemployment in these areas is also rampant and this results to individuals engaging in criminal activities in order to meet their daily needs. The unemployment challenge is attributed to the large number of individuals migrating to the urban areas in search of green pastures. This has contributed to dire poverty among most of the unemployed persons. It is believed that in most developing countries in Asia such as India, a good percentage of the population residing in urban areas live below the international poverty line while the other population has access to both basic and secondary needs.

Urbanization is also characterized by the increase in traffic jams thereby increasing the transport costs in the cities; this is mostly felt by low income earners and the unemployed individuals. High number of personal cars as well public vehicles contribute to the increased jam in the urban areas. Transport is crucial for every individual regardless of their class; in their daily endeavors they need transport, paying more on it, contributes to the financial crises among the low class people. Upper class individual on the other hand are less affected by the increased transport costs and this distinguishes them from the low class persons.

It can be concluded that, urbanization has a role to play in the economic disparity, poor sanitation as well as lack of health care to some of the people residing in the urban areas. On the other hand urbanization has resulted to a class of acute affluence where some of the individuals live luxurious lifestyles with access to quality transport services, health care, social services among others. Therefore, it is evident that urbanization does not build equitable society.

 

 

 

 

 

 

Bibliography

Martine, G. (2012).The New Global Frontier: Urbanization, Poverty and Environment in the 21st Century. New York: Routledge.

http://www.unhabitat.org/downloads/docs/3081_20354_K0471981%20WUF2-11.pdf

Critique of the Experience of the Patients Undergoing Awake Craniotomy

August 23, 2013

 

 

 

 

 

 

 

Critique of the Experience of the Patients Undergoing Awake Craniotomy

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Institution:

 

 

 

 

 

 

 

 

 

 

 

 

 

Craniotomy is the surgery that is carried on the skull in an attempt to cure various neurological diseases, injuries, brain tumors, hematomas, infection or foreign object inside the head. The process can be done, by piercing a small or large cut on the skull depending on the nature of the problems; this usually takes a few hours, days or even weeks in regards to the complexity of the problem. According to Ron (2010), craniotomy is named depending on where the surgery of the skull and is taking place. This includes burr holes craniotomy, which involves the piercing of a small piece of a hole in the skull using more specified instruments. Large or complex craniotomy involves removing a portion of the skull holds the brain, although it may require an expert to reconstruct it.

I agree with most arguments provided by Ron. He argues that before they underwent the surgery most patients normally have a clue what it is all about from the previous life experience and have they have high hopes of recovery (Ron, 2010). On the contrary, other patients are full of anxiety and stress for they do not what know to expect when they are about to undergo it. On a different note, when most patients are diagnosed with certain brain diseases, they are shocked and even do not believe that they are going to live again whereas other take it to be a normal process that will help them recover quickly and reduce the pain and the discomfort they are experiencing. Due to the dangers that exist being greater patients are compelled to make choice of being operated or not, despite the shock and disbelief.

At times, before the patients undergo craniotomy, their great concern is the outcome of the surgery and complications that one might go through such as death, permanent disability and sub optional resection. The patients are also concerned with the functional goals such as retaining or improving their speech and other functions. This is usually a moment of truth as gaining a disability means a complete change in ones’ life. I contend with Rons argument when he says that expectation of the patients before operation might be achieved fully, partially or even beyond his expectation by either recovering, having some complication or remaining as the patient was before the operation.

When carrying out the operation the patient is supposed to be made asleep as aneasthetic protocol. Patients react differently to the medicines administered to them. There are those patients who do not feel any pain and discomfort when the operation is carried out, while others feel some pain and discomfort. Largely most patients do not feel the operation procedures.

Many patients who undertake the surgery usually have a lot of confidence with it. This is as a result of the preparation that is undertaken by the treating team before the actual surgery such as psychological and emotional motivation. Confidence is gained through information given by the medical team including the rationale for awake craniotomy, type of intra-operative testing and potential complications that might occur after carrying out this surgery. The confidence that the patient have in regard to medical team and the operation is not always met after patients have undergone the surgery since it is not always that the actual result will be equal to expected results.

However, I have a problem when Ron says remarks that the patients undergoing craniotomy have a slight or even zero chances of discomfort during the operation and that the only discomfort experienced by patients during early induction and postoperative period. During the surgery, patients experience fear, moderately hot discomfort that occurs due to pain. In fact, most patients who have undergone awake craniotomy must have some physical negative feeling after the operation has being done. Most patients are not satisfied with the craniotomy surgery because they take much time to recover than they expect or the medical team had promised them. However, some patients are satisfied with the surgery since they recover very quickly than they even expected.

Patience is very crucial in persons who are about to undergo craniotomy surgery because the operation can take along period. There are a number of patients who have that patience but a large a number lacks it as they prefer to recover very quickly which is not always achievable. It is believed that undergoing craniotomy surgery is very emotional especially to the patient because they believe that they will be isolated from the society since they will be dependent on the other members of the family. They also believe that they might end up having more complex issues than they were before the surgery. This is a not always true. Although others see it as a burden, some see it as a moment of joy since they are going to recover.

In conclusion, it is my belief that awake craniotomy is a safe, effective and a well tolerated form of surgery by the patients. Patients receive adequate pre-operative preparations in order to optimize his satisfaction and to build his confidence. This type of treatment can be used to save life and treatment of complex situation such as brain tumors. However, it is not always the case since patients lose their lives while others end up with complications which are non-reversible.

 

 

 

 

 

 

 

 

Reference

Ron, W. (2010). Awake Craniotomy: Experience of patients undergoing awake craniotomy. New York: Cengage.

 

 

Effects of Immigration on Native Employment

August 23, 2013

Topic: Effects of Immigration on Native Employment

Name: Zhengxi Wu

Course: 5060 Capstone

Professor’s Name: Nick Williams

Date:4/15/2013

 

 

 

 

 

 

 

 

 

 

Executive Summary

  • The purpose of this paper was to look into the impact, whether positive or negative, caused by immigration in the USA.

  • In the final model, it was found that there is a relation between employment and wages of the natives and immigration.

  • A wave of immigration impacts negatively on the wages of the natives by a small factor which is however statistically viable.

  • On the other hand, there has not been sufficient evidence to suggest that immigration impacts negatively on the employment rates of the natives. The impact is almost negligible.

  • On an average, Asian immigrants impact more negatively on the labor markets than the European immigrants. This is as a result of difference in their skills; skilled immigrants tend to have more positive effects on the labor markets as compared to unskilled immigrants.

  1. Introduction

There has been an increased immigration throughout the world especially the Western countries. The United States is a perfect case study as it has seen extraordinary immigration since the 1970s. In the year 2010, immigrants’ population is more than 40 million.

It is a common belief that immigrants exert downward pressure on wages and reduce job opportunities for native workers. Is this belief correct or not is the question. Many economists have developed models to answer this question. A common approach followed is the spatial correlation approach, in which a measure of the employment (or wage) rate of resident workers in a given area is regressed on the relative quantity of immigrants in that same area with appropriate controls. But a point worth noting is that immigrants commonly tend to move to the areas offering best job opportunities, which typically leads to biasing in data.

I here conduct analysis based on different models and try to capture a more accurate picture of the original scenario. It is interesting because it looks like that immigration can even benefit both the countries. And it necessary to check it because it also comes with the negative externalities that are associated with brain drain from the developing countries. Through this analysis I hope to understand the long term impacts of immigration, which is beneficial both for the country going through emigration or immigration.A

  1. Body

  1. Background and Problem Determination

  1. Literature Review

There are several theoretical frameworks that explain the effects of the immigrants on native employment. The divergence in the total available theoretical frameworks on immigrants and employment results is related to the growth of research on this topic. Most of these frameworks assume that factors are fully mobile across countries and product and factor markets are fully competitive. For instance, research by Borjas (1995, 1999) shows that the advantages of natives from immigration is dependent on whether natives are owners of capital and whether immigrants have complementary capital endowments as natives (Borjas (1995, 1999).

Studies on these effects have been done for the USA owing to its comparatively flexible labor market. European studies have been similar to the ones conducted in the United States however, owing to high unemployment rates in some European countries; the studies in Europe show a greater imbalance in their labor markets and therefore immigration is likely to negatively affect the employment of the natives.

Studies have shown that immigrants have effects on both the supply and the demand side of the local economy from the day they arrive. With regard to the supply side, a few members of the immigrant family are likely to enter the local labor market, which directly affects the supply of labor having similar skills and attributes to those of the immigrants. However, their impacts on other workers is dependent on the extent to which different types of labor can substitute for each other in production and the extent to which firms change the composition of output and production methods following an immigration-induced labor supply shock. With respect to the demand side, migrant earnings and or wealth and sometimes social security earnings fund the consumption and housing of immigrants. This has effect on items such as education and health, even though less so when such sectors operate below full capacity utilization before a positive migration shock. As in the case with the supply side, the specifics of the demand shock will rely on characteristics of the immigrants and their location.

I hereby analyse and select the best fit model to conclude whether the wave of immigration does affect the employment ratio of native population of USA.

  1. Empirical Specification

In order to determine and analyze the impact massive immigration has had on native employment in the United States, I will run several elementary and multiple regression models. The dependent variable, which is measured against several other independent variables, is the ratio of native labor force involvement to native population.

Numerous methodologies have been employed to capture labor markets and broader impacts. These methodologies can generally be categorized into simulation methods and econometric estimation. In simulation methods, a theoretical model is formulated and the parameters are borrowed from other studies or calibrated from available data. On the other hand, econometric simulation, native and immigrant workers would be considered as separate inputs in a translog production function. Consequently, the effect of a supply shock as a result of influx of immigrants is simulated given the specified production technology in what is a production function approach. In natural experiments, specific exogenous shocks are analyzed at local level (Meyer, 1995). In the study by Meyer, he exploited the sudden rise in Miami’s labor supply resulting from the 1990 influx of Cuban immigrants. In a Similar study, Card (1990), concluded that the large immigration shock caused an increase in Miami’s labor force by 7% overnight but had no effect on Miami’s native labor market outcomes. Area or correlational approach engineered by King et al is another common econometric method in estimating the impact of immigration in labor market (King, Lowell, & Bean, 1986).

In a study conducted by Glitz, he found out that a short-run displacement effect around 3.1 unemployed resident workers for every 10 immigrants that find a job (Glitz, p.205). Also, he didn’t find the strong evidence about the impact for the relative wage. Glitz study used a quasi-experiment in Germany in which a particular group of immigrants was allocated specific regions by government authorities .

Glitz used a quasi-experiment in Germany in which a particular group of immigrants was allocated specific regions by government authorities. This was done to ensure an even distribution of these immigrants across the country. This reduced the chances of self-selection and hence the biasing in data. Also he created two variables to represent immigrants from two regions and have different skills, to find the difference impact will have

A study by Nowrasteh showed that European immigration slowed during the 1960s as Europe’s economy recovered from World War II and the demographic effect of smaller families began to shrink the age cohort of potential emigrants . Restrictionist immigration laws passed in the 1920s made the United States miss the last four decades of mass European emigration. This results of the study demonstrated that there has been a significant drop in the number of European immigrants over the years while, the number of Asian immigrants has grown tremendously in the same period. Moreover, nearly 50 per cent of Asian immigrants have bachelor’s degree as compared with the national average of mere 28 per cent. On the other hand although European education scenario is similar to that of USA, the education obtained in Europe changes the earnings significantly.

Smith (2012) did a similar research where he “implements an instrumental variables (IV) strategy that relies on the geographic preference of previous immigrants as well as the area’s distance from the Mexican Border” . He forced on using panel data, as the result will then be more informative and efficient. He found that immigration reduces native youth employment by a greater amount than it does native adult employment.

It has been shown that the estimated effect of immigration on the wage of native workers varies widely from study to study and sometimes even within the same study . They concluded that the impact of immigration on wages is statistically significant but quantitatively small.

By means of meta-analysis techniques, Longhi et al (2004) statistically summarized 344 estimates collected from a sample of eighteen studies computing the percentage change in the wage of a native worker with respect to a one percentage point increase in the ratio of immigrants over native workers. In most of these studies, Longhi et al found that different researchers used different approaches. Among the three estimation methods listed above, we would expect natural experiment approach to generate the largest estimated impact of immigration. However, the measured impacts were shown to be small thus indicating the presence of secondary order effects. On the other hand, studies using production function approach tended to find larger labor market impacts of immigration than studies using area approach.

From these studies, the relative wage effects of immigration can be easily estimated by analyzing three crucial issues. These are the extent to which various skill categories in the labor market are substitutes for each other, the level to which immigrants and native born within a specific skill group substitutes for each other, and finally, the extent to which physical capital adjusts in the short-run and in the long-run. Neither of these studies use relative wage as a variable.

To capture the impact of above effects I use relative wage as a variable; I have used it in this study to examine the impact to native employment rate in all the 51 states of the Unites States over the time span from 1979 to 2011. Due to difference in skill set of the Asian and European immigrants, and due to the vast variance in population. I have also used two different employment rates for them.

In this study, I have formulated two sets of data depicting the European and Asian employment rate to analyze the impact of each on the native employment and wages for each state. My method of analysis is based on Smith’s article; he uses “commuting zones” as the definition of labor market area and then looks for impacts across these commuting zones. I use the similar approach to analyze how labor market outcomes (employment rates) are affected by immigration by seeking the differences across 51 states.

  1. Variable Measurement

I will use panel data analysis approach which will enable the studying of relative wage within multiple sites and over the stated time frame. The author chose this approach since the combination of the time series with cross-section will enhance the quality and quantity of data in a way that would be impossible if either of the two was used separately. The data has been created from the individual-level CPS data sets. The empirical findings from this study are in line with existence of specific experiences of effects of immigration on native employment.

The first model below is a simple linear regression with the effective minimum wage as the only independent variable. There are three further independent variables including the European immigrants employment rate which is a ratio of employed European immigrants to the total European immigrants’ population, Asian immigrants employment rate which is also a ratio of total employed Asian immigrants to Asian immigrants’ population and finally the total immigrants employment rate which is the ratio of total employed immigrants against their total population.

The second model is somewhat similar, but incorporates total of both the immigrants’ employment rate as other independent variable.

The third model uses each of European immigrants employment rate and Asian immigrants employment rate instead of using total immigrants employed rate.

In the last model, I will include dummy variables for the year and for state. There I will use year dummy and panel data to examine the impact of immigration.

  1. Sample Statistics

Several variables are used to describeour model. There are three especially crucial independent variables. They are:

  • pm which is the effective minimum wage divide state average wage

  • emeuro representing the employment ratio of European immigrants

  • emasia representing the employment ratio of Asian immigrants

  • emea representing the employment ratio of total immigrants

The table below indicates that the differences between mean and median for the four variables are very close. It is clear from the table that only pm variable is skewed to the right, the other three variables are skewed to the left. Furthermore, the standard deviations of all the four variables being relatively low demonstrates that the data points tend to be very close to the mean and data are stable.

 

Stats

Pm

Emeuro

emasia

Emea

Mean

.353109

.9536535

.96373

.9587585

Sd

.0645804

.0522261

.0383866

.0331678

Skewness

.8268472

-2.344018

-1.371162

-1,376254

Sd

.0645804

.0522261

.0381866

.0331678

Min

.2104406

.5267789

.7710529

.7365732

Max

.5967286

1

1

1

p50

.3451014

.9638583

.9696326

.9637984

 

  1. Results

Model 1

 

native labor force participation to native population

Real Relative Wage to Price Measurement

-0.0506

 

(0.035)

Constant

0.6852

 

(0.0115)

R2

0.0022

N

918

 

 

Model 2

 

native labor force participation to native population

Real Relative Wage to Price Measurement

-0.0413

 

(0.1561)

employment ratio of total immigrants

0.0492

 

(0.041)

Constant

0.5342

 

(0.0489)

R2

0.0131

N

918

 

 

Model 3

 

native labor force participation to native population

Real Relative Wage to Price Measurement

-0.3931

 

(0.035176)

employment ratio of European immigrants

0.11157

 

(0.0205678)

employment ratio of Asian immigrants

-0.596798

 

(0.03555)

Constant

0.6327

 

(0.04178)

R2

0.0223

N

918

 

 

 

Model 4

 

native labor force participation to native population

Real Relative Wage to Price Measurement

-0.5735

 

(0.02068)

employment ratio of European immigrants

0.01881

 

(0.00831)

employment ratio of Asian immigrants

-0.1737

 

(0.0112)

Constant

0.66414

 

(0.01464)

R2

0.0667

N

918

 

  1. Discussion

The Model 1 test is a regression of the native employment rate on the relative wage, the coefficient of relative wage is -0.0506. It shows a negative effect but the impact on the native employment rate is minimal. The standard error is relatively low while the coefficient is not statistically significant at the 10% level. The R2 statistic for this model is very low at 0.0022. It means that this model lacked explanatory variables that were related to the native employment rate, and the relative wage was not enough to address its fluctuations.

I constructed a second model in which I added one more variable which is the employment ratio of total immigrants. The R-squared shows much increment, increasing from 0.0022 to 0.0109. In addition, the coefficient of relative wage shows minimal change and is still not significant at the 10% level. The coefficient of employment ratio of total immigrants is statistically significant at the 10% level and the standard error is small, which is 0.041. From the model, it seems that I need to add more variables.

In third model, I separated employment ratio of total immigrants to form two variables, employment ratio of Asian immigrants and employment ratio of European immigrants. The R-squared increases from 0.0109 to 0.0223 which is a much improvement for the variation explained by the model. Also, the sign and magnitude of relative wages do not change. The coefficient of employment ratio of European immigrants is 0.1111 and statistically significant at 1% level, and has low standard error. While, the coefficient of employment ratio of Asian immigrants is negative, and is significant at 10% level, which is -0.0597, with relative high standard error (0.04178).

In my final model, I included year dummies. It cause R-squared increase from 0.0223 to 0.0667, and means that the model better accounts for variations over time, it is a safer estimate. The coefficient of relative wages and employment ratio of European immigrants do change a lot, which is 0.264 to 0.006 and 0.094 to 1.21 respectively. Also, the coefficient of employment ratio of European immigrants decreases about 9 times (from 0.11157 to 0.0188), and still statistically significant, but in the 5% level.

I reject the hypothesis that coefficients for employment ratio of both groups and relative wage are zero. They are significant at 5% level. The fact that separation of variables for Asian and European immigrants produces better results confirms that a model like this should be considered because it better accounts for variation over time.

  1. Conclusion

Theoretical predictions and findings are dependent on whether the host country’s economy is open or closed for international trade and the degree of complementarity and substitutability between immigrants and workers. Immigrants are considered substitutes if the coefficient is negative and complements if the coefficient is positive. From the findings, it is evident that European natives and recent immigrants are complements to each other. This is explained by the fact that new immigrants could be having a greater amount of human capital than the native workers. They also tend to work in low-paying jobs despite their high human capital content. The high human capital content of immigrants might be a good substitute of capital which acts as source of complementarities to the European-born workers. On the other hand, negative coefficient of the Asian immigrants implies that they are substitutes in the labor market. Recent immigrants in Asian labor market possess an adverse impact on the earnings and employment opportunities on native Asians.

This study found out that the impacts depend on the substitutability of the immigrants with natives. If it increases with time then it implies that the long-term impacts are negative. This increase would for example be caused by very low skilled immigrants who gain skills over the years and become competitors to the natives; in this case, the initial impact is almost negligible. However, if substitutability is high at the beginning, in the long-run, these impacts are diluted and the labor market adjusts itself meaning that the effect fades away after a period of time. But the effects of Asian immigrants will however be opposite of what is normally expected from European immigration. One can also note that a nationwide survey by the Pew Research Center, shows that Asian Americans are the highest-income, best-educated and fastest-growing racial group in the United States. But it is basically attributed to the fact that almost half of all Asian American adults have a college degree, compared to just 28 per cent of all Americans .

In end, it has been clearly depicted in this analysis that the mega-effects of immigration on the native employment are minimal. Our research shows that there are small effects caused by this immigration which are relevant statistically but very limited. The meta-analysis of these impacts of immigration on natives’ wages show that an immigration shock may affect the wages of the natives but the labor market is able to re-adjust.

 

References

The Rise of Asian Americans | Pew Social & Demographic Trends. (2012, June 19). Retrieved April 11, 2013, from Pew Social & Demographic Trends: http://www.pewsocialtrends.org/2012/06/19/the-rise-of-asian-americans/

Borjas, G. J. (1999): The economic analysis of immigration,” in Handbook of Labor Economics, ed. by O. Ashenfelter and D. Card, Amsterdam: Elsevier Science B.V., chap. 28, 1697–1760.

Borjas, G. J. (2003). The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market. Quarterly Journal of Economics.

Borjas, G. J. (1995). The economic benefits from immigration,” Journal of Economic Perspectives, 9, 3–22.

Card, D. (1990). The impact of the mariel boatlift on the Miami labor market, Industrial and Labor Relations Review, 43, 245–257.

Dustmann, C., Glitz, A., & Frattini, T. (2008). The labor market impact of immigration. Oxford Review of Economic Policy.

Hirschman, C. K. (1999). The handbook of international migration: the American experience. New York: Russell Sage Foundation.

King, A.G., Lowell, B.L., Bean, F.D. (1986). The effects of Hispanic immigrants on the earnings of native Hispanic Americans. Soc Sci,Q 67, 673–689.

Longhi, S., Nijkamp, P., & Poot, J. (2004). A Meta-Analytic Assessment of the Effect of Immigration on Wages. Populations Studies Centre Discussion Papers.

Nowrasteh, A. (2012, July 9). The Rise of Asian Immigration. Retrieved April 11, 2013, from Forbes: http://www.forbes.com/sites/alexnowrasteh/2012/07/09/the-rise-of-asian-immigration/

Smith, C. L. (2012). The Impact of Low-skilled immigration on the Youth Labor Market. Journal of Labor Economics.

 

 

August 23, 2013

 

 

 

 

 

 

Real Life Case Study Project: Capital One Bank

Name

Institution

Date

 

 

 

 

 

 

 

Capital One Bank

Introduction

Technology has led to a completeshift of paradigm in the functioning of thebanks as well as delivery of thebankingservices. Traditionally, all thebankingtransactionsrequiredphysicalvisit to thebank. Presently, most of thebankingtransactions can be done from anyplace without necessaryhaving to visitthebank. Technology has ceased to be an enabler but a driver. Growth of communication technology, mobiles andthe internet has increasedthe dimension of thebankingindustry. Theavailableinformation technology is being leveraged based on customeracquisitions to driveprocessefficiencyandautomation in delivery of services to thecustomers. Many of the IT initiatives in mostbanksstarted in early 1990s with emphasis on adoption of thecorebankingsolutions, branchautomationandcentralization of theoperations. Mostbankshavetransformed to technology-driven processes that haveseenthemovement from manual to automatedsystems. Theuse of ATMs, online billpaymentsandmobilebanking has obviatedtheneedforthevisiting of thebranches by thecustomers. Suchchangeshavebeenproductiveenablingbanksimprove their operational efficiencyandincreasethe competitiveness. Bankingindustry is moving towards businessintelligenceanddecisionmakingso as to optimize the IT infrastructure. As a result, thispaperpresents a reallifecasestudyproject on Information Technology in Capital One Bank (Cull & Jonathan, 2013).

Section 1.0: Organizational Profile of Capital one Bank

The Capital One Bank is based in U.S anditspecializes in homeloans, creditcards, bankingandsavingsandautoloans. Thebank is a member of the Fortune 500, andithelped in pioneering massmarketing of thecreditcards in early 1990s. It is the sixth-largest depositgroup in United States. Its corporate offices are in Virginia, Tyson’s Corner and unincorporated Fairfax County. T

Thebankwasfounded in 1988 by Nigel Morris and Richard Fairbank as a spin-off forthe Richmond Bank which is based in Virginia. Thebankwasthefirst to be fined by Consumer Financial Protection Bureau because of defraudingthecustomers. Thebankenteredtheretailbanking after acquiring New Orleans bank in 2005. Thebankjettisoned its platformforthemortgage during the subprime financialcrisis in 2007. Thisresulted in investor pressures. By November, 2008, thebankwasbenefiting from bail-out from Emergency Economic Stabilization Act of US$3.56 billion. Thebankcompleted its repurchases in shares, in 2009 (Immaneni & Ron, 2007).

Theoffice of Comptroller of currencyfinedthe Capital One Bank for misleading customers. Thecustomerswereforced to payextraforcredit monitoring orpaymentprotection after takingthecard. As a result, thecompanypaid $210 million forthepayment of legalactiontaken to refund their customers. Thebank is a parentcompany of the Capital One Auto Finance in Plano, Texas. Thebankbecamethelargestautolender after buying PeopleFirst. Thecompanyhadpreviouslydealt with autoloans through theauto dealerships anddirectmailforthe refinancing of existingautoloanswheretheshopperswereable to applyforloans online.Thisensuresfasttransactionsandimmediate feedback from thebank. To the dealership, thebuyerappears as thoughhe is payingcash, andthechecksare used in purchasingusedornewvehicles, as well as refinancing theexistingautoloans.

Services Offered

Thebankbegan as a consumer lending, hence its profitability wasunpredictable. Despite of mostmonoclinesgoing out of businessorbeingacquiredcheaply during thehardtimes, capital one survived through itall. Instead, thebank experienced tremendousgrowthdue to the effectiveness of its information-based strategy. Thispioneeredtheuse of data from customers in tailoring theproducts to the subprime consumers. Thecompanypossessed one of thelargest databases fortheconsumer data. Thebankuses Ardent’s DataStage Extraction and Transformation Tool (ETT) in buildingthe data warehousesforall its operational departments. Such a data warehousing initiativeforms a corecomponent in improvingthemanagement of meta-data, as well as delivery of criticaldecisioninformationsupport. Thisstrategyis leveraged through cellphones(Damar & Lynn, 2010).

Thebank sponsors sportsteams like theannualcollegeball in Florida and Football League Championships in Nottingham Forest. Thecompany sponsored curlingevents between 2008 and 2009 across Canada, andeachyear, thecompany sponsors mascot challenge. Thebank is among thetop ten financialservices providers, hencethestabilityandstrength of meetingtheneeds of thecustomers. Thecompanyis committed to with a dedicated team of specialistswhoenhancethedesign of bankingsolutions that meetthespecificneeds of thecompany.Thecompany has a comprehensivesuite of lending, specialtyfinance, treasurymanagementsolutionsandinvestment. Thebankensuresthat its customers are able to expand their business as well as protect them. This may help them achievethestrategicobjectives of thebusiness.

Evidently, themanagement in capital one believethatthebank should broadentheappealfor its brand through socialmediaand website. This will help them wintheyoungconsumers. Theacquisition of the ING direct has enabledthecompanyimprove its transactions in order to deliverattractivedeal of economics as well as compel a long-term strategicvalue. Thecombination of ING and Capital One creates a valuableanduniquebankingfranchise to includethe advantaged assets, as well as thegreaterlocalbanking, in theattractivemarkets. Thissustainsandenhancesthekeysources of shareholdervalue on longtermbasis. Thisincludesthereturns, growthandgeneration of capital(Castelli, 2004).
This innovative platformis aligned in-line with thevision of Capital One Bank. Thebankis committed to enhancing andsustainsthecustomerrelationships that are central to success of the two banks. Thebank is there to make a dramaticdeal that will acceleratetheparticipation in Web 2.0-based competitivearena(Manandhar, 2002).

Key Challenges Facing Capital One Bank

Thebiggestchallengefacing Capital One Bank is thechanges in demandandsupplyrelated with asset. Thechanges in demandand asset occurdue to changes in monetarypolicy. Thedemandforsafefinancial assets has expanded, and as a consequence, fewpeopleexperienceimpacts of theeconomicrecession. Profitability in mostbanks depends on management of thebankdriven by increasedconsolidation, Changes in production technology, regulationanddissolvingborders. Thisact as themajorsource of thecompetitiveadvantage in banks(Usoro, 2012)

The Capital One Bank facespressure from thechangingtrends in technology, politicsandregulatory. Whilemost of thesechangesappearurgent, they are not strategic. Forinstance, the implementation of mobilebanking as a regulardeliverychannelaffectedthedevelopment. This is becausethecompanyis compelled to keep in pace with thechangingtrends. Thebank must alsodevelopthestrategy based on thesocialmedia, andthiscallsfor parameter resolution. Otherchallengesinvolvetheproblems experienced in coming up with new levels of growthand sustainable profitability due to lowinterestrates. The rebuilding of the asset quality, as well as strengthening of thecapitaladequacy, is quiteproblematic. Theenrichment of thebusinessvalue through promotion of customer of customerrelationship as well as restoration of thecustomerconfidenceespecially after recessiongreatlyaffectsthe profitability in thebank(Avgerou, 2003). Due to thesechallenges, Capital One Bank faces one overridingchallenge of stayingdisciplined as attentive amidst allchallenges.

Section 2.0: Types of IT Systems Used in Capital One Bank

Computerization of Operations

Information technology is changingtheface of thebankingprocesses in Capital One Bank through computation. The IT is used in netbanking, mobilebanking, shopping, ticketing booking, payment of bills, transfer of fundsandautomatedtellermachines (ATMs). Technological innovationshaveenhancedopening up of newdeliverychannels within thebankingindustry. Takingthehelp of IT in dealing with thenewchallengeshaveenabledbankstake on neweconomicposes. IT, therefore, increasesthecustomervalue through customerrelationshipmanagement (CRM) applications. The Capital One Banking is currently in themidst of ITrevolution. Thecombinedcompetitiveandregulatoryreason has increasedtheimportance of theautomation within thebankingsector. This has seentheincrease in productivity, hencethegain in competitiveedge. Capital One Bank is currently opening up forthelatest technology as well as themodification of technology to suitthebankingenvironment. Below are some of the IT servicesused by Capital One Bank.
E-Cheques (Electronic Payment Services)

The e-cheque are a new technology that has beenimplemented to replacetheconventionalpapercheque. This has alreadybeenamended to includethe e-chequeinstrumentsand truncated cheque. E-cheques act as a mode of electronicpayments.This technology wasdeveloped by the consortium of the Silicon Valley merchantbankersand researchers. Manyfinancialbodieshavesincethenincludedit in their systems. Theworking of e-cheques is similar to paper cheques andact as legalpaymentsystems. Thesystemuses XML documents to authenticate partiesforthetransaction. The e-cheques are defines by the Financial Services Markup language (FSML) that allowsforinclusionorelimination of thedocumentsblocks. Thesignaturesare accompanied by certificatesissued by thebank to tiethesigner to thebankaccount. E-cheques make can usedifferentaccounts to protectthestandard chequing account from fraud(Joia, 2007).

Theexisting ANSI X9.46 standardshandlethesettlement through FSML representation,rather than chequeimageandthe ANSI X9.37 cashletter thatis contained in the X9.46 encapsulation.Therelatedbenefit of e-cheques is thatconsumers can usethe e-cheques in makingpaymentsfor online purchases. Online merchants can receivethepaymentsinstantly, andinstances of thecheque to bounce are minimal since thebanks of thecustomersare involved in thetransactions. Furthermore, banks may do paperless transactions unless themerchantfails in acceptingthe e-cheque.

Real Time Gross Settlement (RTGS)

Capital one Bank uses RTGS system for transactions involving fund transfers. The this technology is operated and maintained by RBA. Thetransfer of fundstakesplace in realtimebasisenablinginstantaneousdelivery of money to thebeneficiary. Thebank of thebeneficiary must credittheaccount within two hours. The RTGS systemruns on the credit-push basiswherethefinalirrevocablesettlementoccursonlywhenthefunds are available in thesettlementaccount of thecommercialbank.Thissystemallowsmanagement of liquidity by thebanks to contribute to therealization of thestability of thefinancialsystem of thebank.

Therealtimeinstructionsare performed by simultaneouscreditanddebittransactions. After successfulexecution of instructions from theaccount of the sender, thepaymentis made in theaccount of thereceiver, andthis is irrevocableandfinal. Somerelatedbenefits of RTGS are therelatedefficiencyandspeed since thetransactionsare performed on realtimebasis. Thisenablesthebankmanage their liquidity andsettle their accountsandeliminatestherisksinvolved with thepaymentexposure. RTGS is an effectivetool that ensures irrevocability andfinality of payments, andhencebooststheconfidence of thegeneralpublicand investors (Abel, 2012).

Electronic Funds Transfer (EFT)

EFT systeminvolvesmaking of cashpayments by anyperson to anotherpersonand at times may involvegivingtheauthorization on transfer of fundsdirectly from a person’s account to theaccount of thebeneficiary.Thisrequires furnishing of completedetails on thename, accountnumber, accounttype, name of thebank, branchorcity of thereceiver to thebankwhilemakingtherequestfortransfer. Thisensuresthataccurateandfaster processing of themoney. EFT happens after digital instructionsare sent to thebank authorizing forthemovement of funds between two accounts. Thecustomersigns in an authorizationform that allowsthebank to deducttheamount of paymentsforcertaindates. Thecustomerthereafterprovides a voided check of verifyingtheinformation about theaccount. Thechargesare thendeducted automatically from thebackaccountanddeposited on thebankaccount of thereceiver. EFTprovides a simpleway of makingpayments. A one-time authorization enhances debiting of thesaidamount from theaccount of thecustomer(Costantino & Brebbia, 2006).

Electronic Clearance Service (ECS)

ECS refers to a retailpaymentsystemused in making bulk payments of a similarnatureparticularlywhenthepayments are repetitive in natureand of smalleramounts. Thisfacilityis mostlyused by governmentdepartmentsandcompanieswhendealing with largepaymentsinstead of usingtheindividualfundstransfer. The ECS paymentsare initiated by the user with intentions of making bulk payments to severalbeneficiaries. Thepersoninitiatesthetransactions after registration after which theyobtainconsentandaccountparticulars of thebeneficiaries. Thebeneficiaries can requestthepayinginstitutionusethe ECS mechanism to effect their payment(Ravi, 2008).

The ECS users whointend to effectthepayment must submitthe data in a particularformat to theclearinghouse that in turn debits theaccount of ECS user through thesponsorbank on theappointeddayandcreditstheaccount of therecipientforaffordingonwardcredit to accounts of ultimatebeneficiaries.Thebeneficiaryfurnishesthemandategivingtheconsent that avails the ECS facility. The user must communicate all thedetails to thebank. Thisserviceis preferred since it is trouble-free andeliminatestheneed of going to thecollectioncenters. Also, the ECS users can easilymonitorthedebits(Castelli, 2004).

Automatic Teller Machine (ATM)

Automatic Teller Machine is among themostpopulardevicesused in thebankingsector, in United States. An ATM enablesthecustomerswithdraw their cashanytime of theday. Thedeviceallowsthecustomerwho has the ATM cardperformtheroutinebankingtransaction without anyinteraction with thehumanteller. Furthermore, the ATMs can be used in payingthebillsforutility, transferring of funds between accounts, depositingcashand cheques into accountsandmakingbalance enquiry among others. An ATM requires data terminal consisting of two inputdevicesand four outputdevices, and a host processor. Thehost processor enhancestheconnection of the ATM andcommunication with the user. Internet Service Provider (ISP) providesthe gateway to intermediatenetworksandthecomputer in thebank. Leased ATMs have 4-wire point-to-point dedicated telephoneline that helps in connection with thehostprocess. Thevariouscomponents of an ATM includethecardreader that readstheinformation after themagneticstripeis swiped through andthe keypad that allowsthe user fill in thedetails after thecardis recognized(Greenstein & Shane, 2004).

Point of Sale Terminal (POS)

Thepoint of saleterminalrefers to use of a computerterminallinked online to computerizedfilescontainingthecustomerinformation in thebank. Thisalsocontainsplastictransactioncard that is coded magnetically andenhancestheidentification of thecustomers. During thetransactions, theaccount of thecustomeris debitedwhilethat of the retailer is credited by thecomputerfortheamountpurchased. Upon payment, the POS checksforthevalidity of thecard, connects with thebank that issuedthecard. Whenthefunds are available in theaccount of cardholder, thenthe POS printsthe receipt andtransferstheamount to theaccount of thetrader(Batiz-Lazo, 2011).

Electronic Data Interchange (EDI)

The EDI refers to theelectronicexchange of thebusinessdocumentssuch as invoices, purchaseorders, shippingnoticesand receiving advice among others. The processing is usuallydone in a standardanduniversalway that is acceptable between theinvolvedtradingpartners. The Capital One Bank has quicklyresponded to the technological changes within thebankingindustry, andthecontinuance of suchtrends is redefining thebankingoperations through customization usingthe leveraging technology. The technology is enhancing efficiency in thebankingsectorwherethecustomers are able to maketransactions whenever theywish from whereverthey are, andthis is reducingtheneedforopening up of physicalbranches. EDI reducesthenumber of steps by providing a fixedstructureforthetransmitted data with theprepared data onlytransmitted to the user after integration of theapplicationsysteminformation. EDI is usedonlywhen there are two partnersinvolved after which a contractual agreementbecomesnecessary(Ravi, 2008).

Section 3.0: Organization of IT

Currently, it is becomingimperativeforthebanks to ascertainandassesstheadvantages of implementation of Information technology. Technology is advantageousbutrequiresprecautionsandsafetynets. Increaseduse of technology has causedthesecurityconcerns. As a result, the IT function in banks must be organizedclearly to avoidanymishaps on thisaccount. Banks must properlymanage their IT functionfor their networksandinternalsecurity. Passing of Information Technology Act in 2000 acted as a boon to thebankingsector in United States wherebanksare expected to abide by their covenants(Rodrik, 2007).

The Capital One Bank has madeefforts to coverthe online transactions based on theconsumerlaws of thecountry. Thechoice of themostappropriatechannel, thejustification of investment in IT, e-governance, securityconcernsand technological obsolescence, as well as outsourcing of the IT operations, posemajorchallengesandissuesregardinguse of IT in thebankingoperations. Theincreaseduse of mobilebankingad e-payments is thekeyareas that requirechangemanagementapproach. Thefocus is moving towards processesandsystemsrequired in thematurityphase of theneedscurve of technology. Capital One Bank needs to focusmore on profitability andcostmanagement, executiveinformationreports, businessintelligence, and data analytics and warehousing. Improvement of theinternalefficiencyand effectiveness with real-time and data warehouseaccess to allthecustomerinformation will enhancedecisionmaking in banksandfacilitatetheability of delivery of appropriateservicesandproducts to their customers(Immaneni, 2007).

Capital One Bank must see beyond applicationsinvolved in providingsolutions to thecurrentproblems. Thebankneed to establish a visionrelated to comprehensiveinfrastructurethat comprise of allheinternalandexternalnetworks to movetheinformationforthe data stores to users.Theimportance of IT-business unitpartnership may not be overemphasized. Theprocessesandpeople are as vitalforsuccess as software andhardwarecomponents in thebankingindustry. Capital One Bank has madehuge technological advances in informationstorage. Nevertheless, thefullpower of usingthatinformation to enhancemoreproductivityandimprovemarkets is still unrealized. The continued emphasis on peripheralbusinessand technological processesandrelatedeffectshasmadethe Capital One bankseriouslyneglect their enterpriseandpersonal wide-intelligence.

Infrastructural effectiveness is measured based on thevalueitbrings to a customer. Suchvalueis diminished by non-networked individualsandbusinessunits. Capital One Bank must, therefore, providetrainingandaccess to thememberbanksinvolve with directorindirectservice to customers. This can only be realized through theuse of clearstandardsand expectations to enabletheorganization of information technology bringtheindividuals in line with the organizational objectives.Theeconomicrole of thepaymentsystemconnectsintimately to theeconomicrole of money. Theestablishment of Core Banking Solution (CBS) allowsforbanking at anytime. Thebank has alsoincreasedtheefforts through theuse of Electronic Service Clearing (ESC), NEFT and Real Time Gross Settlement (RTGS). Thisforms the leading interconnectivity that enhanceseasyintraand inter-bank transfer of funds. Theincreaseduse of mobilebankinganddebitcards is enhancing easierpaymentsusingdifferentfactorslinked to thebank. Thisfacilitateseasy online transactions. Currently, the technological development relates to computerization of allthebranches in Capital One Bank in adoptingthe core bankingsolutions (CBS). Averycrucialdevelopment is theincreasedpercentage of branches within thepublicsector that haveimplemented CBS (Abel, 2012).

 

 

EnergyManagement

Capital One Bank is conscious of carbonfootprintgeneratedand is working towards energymanagement as well as use of the greener technology.Thisis achieved through adoptingthe server virtualization technologies that are meant to save on power, floorspaceandcoolingcomponents. Theuse of data enhancements as well as thebestpracticesfortheoptimumusage of space enhances energymanagement. Thebank has alsoadoptedtheblade technology to enhance computing power within a smallerfootprint. This has alsoseenthebankupgradingtheolder servers and networking equipments that used to consume a lot of power. Thedynamicpower capping of the servers usingnewpowersaving technology andsolar powered ATMs is a worthwhileeffortgeared towards energymanagement(Cull & Jonathan, 2013).

IT Outsourcing in Capital One Bank

Mostbanks in United States are at crossroads. According to Capital One Bank, profits are not keeping in pace with thecosts of equity. As a result, thebank is seekingforthemostappropriateways of reengineering thebankingmodel to enhance profitability. The IT outsourcing has morphed as an exception to therule of banksandotherbusinessesworldwide. Theacceleration of information technology has compelledthebanksourceIT. However, theincreaseduse of IThas not correspondingresponded to thegrowth. Theincreaseddemand has increasedthe complexity related with IT. Theselectionandmanagement of IT outsourcing depends on customerservice, costs, qualityrelationshipmanagement, innovationandspeed. However, unclear understanding of thesedriverresults in dissatisfactiondue to mismatchedprovider-customer pairings (Greenstein & Shane, 2004).

Theexpansion of IT outsourcing compelsthemanagementtake a holistic view on all the outsourcing decisions. Due to therapidchanges in serviceofferings, Capital One Bank must not rely on outsourcing, andinstead, operationsandsystems must become procurement-centric fordirectreportsand line-of-business generalmanagers.Thebusinessprocess outsourcing (BPO) may work in combination with the outsourcing wherenewentrantsjointhetraditionalplayers. The BPO solutions are becoming considerably flexible, growing around themonolithicframesystems. On theotherhand, the Software as a Service (SaaS) has capturedtheattention of financeandoperations by preventingthe implementation delays. Thisalsoenablesemployeesperform their operations from thefacilities from thefacilities of thebank. Thiscallsfordecisionmakers to considerthe break-even pointfor which thefixedcostsprovideexcellentshareholdervalue.

The operational outsourcing enhancestheachievement of scaleandeconomicefficiencies through outsourcing of the commoditized aspects of businessprocess. Thesystem outsourcing must be optimized based on procurementwhilelabor arbitrage enhancessystemsandoperationsdecisions. Due to disappointments from most outsourcers, Capital One Bank is reluctant to undothedecisions since theyrequire a clearunderstanding of all the organizational needs(Avgerou, 2003).

 

Section 4.0: Future Trends of capital One Bank

Theinfrastructure of thebank is not immutablewherenew technologies surface on a dailybasisandevolution of newmedia will compelthemanagementreconsiderthe infrastructural objectives.Thedefinition of thefundamental infrastructural goals will enhancethefocus of thebank is adapting without a y distraction by technologies which do not contribute to thecustomervalue. ITfunction can play a keypart in enablingorganizationsadaptandthrive in thenewstatus quo. Capital One Bank will be able to align its teams based on the organizational needswherethemanagementprovidesstrong operational andstrategicsupport. The IT function must considerthemostappropriaterole, wheretheseniormanagement may requiretransformationandinnovation through the IT. Theemphasis could be made on morebasicservices to ensurethatcosts are manageablefor enhanced daily operational needs.The IT typically fits in utility, protectorsandperformer(Manandhar, 2002).

IT as a utilityenablesthebusiness is constantlyrunning, as a protector, ITenhancesmanagement of thebank. As a performer, ITenhancesdelivery of tangiblebusinessvaluewhenthefunction transcend to thedailyoperations in bringingtherealchange. Technology is enablingthebank to perform its services, andthis is drivingthetransformation within theindustry. Internet andmobilebanking are going to be indoor in thenearfuture. Despite the complexity andsophistication of the IT systems, the Capital One Bank considers them as energy guzzlers. Therefore, thefuturerelated to thebankingsectoris anticipated to makerapid straights (Rodrik, 2007).

CRM Technologies in Management

Customersnormallyexpectthebank to offercomprehensivefinancialservices. Theyare attracted by the effectiveness of thebank in deliveringattractiveservicesandproducts to enable them be cleared through appropriatechannels. Thebehavior of theconsumer is critical in changinghowthe IT functions. Thebankingsector, therefore, aims at moving a CRM-basemodel that will enablethebankmove towards development of betterservicesandproducts to the users. Themanagement of knowledge treats people’s behavior as an essentialandequalcomponentforeffective information-sharing. Thisenablestheknowledgeacquired from previoussituationsbeingused in makingthepresentdecisions. Themanagement must, therefore, play a criticalrole in establishing a knowledgeculture by codifyingtherelevantexperiencesand packaging them in such a wayso as to maximize their relevance in a situation that enhancesvaluecreation. Codification of knowledgerequiresfurthersharing with all theappropriateindividuals. Thisenablesthebank to group its productsandservices towards service of a particularmarketsegment(Ravi, 2008).

For Capital One Bank, information technology is criticalwhenmakingdecisions through creating a means of collectingtheinformationandcodifyingtheexperiences from similardecisions in financialmanagement, relationshipdevelopmentandcustomerservice. Knowledge of customerneedsrequiresregularupdating across all thebranches. Technology allowsthebank to dothe updates. Thevaluableknowledgeis normallyreflected through performance of thefinancialportfolioandease in makingtransactions.


Conclusion

Theinformation Technology in Capital One Bank has driventhetransformation in theservicedelivery. Internet andmobilebanking are gainingfullthrottle in Capital One Bank. Thisgives an assuranceforgreaterefficiency in thebankingIndustry.

 

 

 

 

 

 

 

 

References

Abel, U. (2012). Leveraging Developing Economies with the Use of Information Technology Trends and Tools. Hershey, PA: IGI Global (701 E. Chocolate Avenue, Hershey, Pennsylvania, 17033, USA).

Avgerou, C. (2003). Information Systems and the Economics of Innovation . Cheltenham, UK: Edward Elgar Pub.

Batiz-Lazo, B. (2011). Technological Innovation in Retail Finance: International Historical Perspectives . New York: Routledge.

Castelli, A. (2004). ICT Practitioner Skills and Training: Banking and Financial Services. Luxembourg: Office for Official Publications of the European Communities.

Costantino, M., & Brebbia, C. (2006). Computational Finance and Its Applications II. Southampton: WIT.

Cull, R., & Jonathan, M. (2013). Banking the World: Empirical Foundations of Financial Inclusion. Cambridge, MA: MIT.

Damar, E., & Lynn, H. (2010). Credit Union Membership and Use of Internet Banking Technology. The B.E. Journal of Economic Analysis & Policy 10(1).

Greenstein, S., & Shane, M. (2004). Diamonds Are Forever, Computers Are Not: Economic and Strategic Management in Computing Markets. London: Imperial College.

Immaneni, A. (2007). Capital One Banks on Six Sigma for Strategy Execution and Culture Transformation. Global Business and Organizational Excellence 26(6), 43-54.

Immaneni, A., & Ron, A. (2007). Capital One Banks on Six Sigma for Strategy Execution and Culture Transformation . Global Business and Organizational Excellence 26(6), 43-54.

Joia, L. (2007). Strategies for Information Technology and Intellectual Capital: Challenges and Opportunities. Hershey: Information Science Reference.

Manandhar, R. (2002). The Evaluation of Bank Branch Performance Using Data Envelopment Analysis A Framework. The Journal of High Technology Management Research 13(1), 1-17.

Ravi, V. (2008). Advances in Banking Technology and Management: Impacts of ICT and CRM. Hershey, PA: Information Science Reference.

Rodrik, D. (2007). One Economics, Many Recipes: Globalization, Institutions, and Economic Growth. Princeton: Princeton UP.

Usoro, A. (2012). Leveraging Developing Economies with the Use of Information Technology: Trends and Tools . Hershey, PA : Information Science Reference.

 

 

August 22, 2013

 

 

 

 

 

 

EXXONMOBIL CORPORATION

Name:

Course:

Institution:

Date:

 

 

 

 

 

 

EXXONMOBIL CORPORATION

Exxon Mobil Corporation is one of the leading American oil and gas companies with a large employment base. In terms of revenue, it is the world’s leading by 2013 as it became the widest publicly traded organization in terms of market capitalization. Going by the Forbes ranking of 2013, it falls at number 5 (The New York Times, 2013). With an anticipation of 37 refineries of oil in about 21 nations, the company will have a combined refining capacity of about 6.3 million barrels. It is the largest oil refiner world over, a replication of the status previously held by Standard Oil from the 1870. It markets products across the world under well-known brands such as Mobil, Esso, and Exxon. The organization has a well-tailored functional organization separated into a host of global operating divisions. The divisions are conglomerated into different categories for varied purposes. The upstream includes extraction, exploration, wholesale operations, and shipping (Taylor, 2004, p. 273). The second includes downstream including refining, retail operations, and marketing. Lastly, chemical division has its base in Houston, Texas. Like any other company, this Exxon Mobil Corporation has always embarked on those strategies that increase the revenue and the capacity of the company in the financial front worldwide. This has been done by engaging in activities that will place it in regions with high potential for either gas or oil. This enhances larger investments on the part of the company, and that is why the senior management team may be working round the clock to secure such regions.

There are few areas though that needs improvement at Exxon Mobil Corporation in order to increase its efficiency in the global stage notwithstanding its standing in terms of financial performance. The three areas that direly need improvement include corporate social responsibility, employment policies, and employee development and training.

Corporate Social Responsibility

Apparently, ExxonMobil has had a wanting corporate social responsibility over the years, making it one of the most disliked companies in terms of CSR. It has for a long time been the norm for most multinational companies to engage in CSR as a means of appreciating what the society has done for the company and also to feel more attached to the company. ExxonMobil had an oil spill that tainted the Alaskan coastline in terms of miles (Snider, Hill & Martin, 2003, p. 181). Other than that, the company is ranked number six on the most polluters’ list in terms of toxic pollution. It has come under fire for allegedly influencing and manipulating studies related to climate change (Livesey, 2002, p. 118). This is irresponsibility in the social aspect. However, all these can be fixed by all means because the company can come up with new strategies that will highly place the company in the radar in terms of CSR (Collingsworth, 2003, p. 669).

In the wake of the current CR programs of going green, the corporation can take advantage of the situation as it is in order to get the lost confidence back on track. The company can embark on making the society greener by engaging in tree planting activities as well as other environment sensitive activities (Diara, Alilo & McGuire, 2004, p. 71). It would be imperative for the company to engage thoroughly with the society to create a cordial relationship in the eyes of the society. Corporate social responsibility is not only about going green, but it is also about putting the interests of the shareholders first by satisfying their needs to the letter (Jones, Kalmi & Kauhanen, 2010, p. 9).

Improving Employment Policies

There are claims that ExxonMobil has a workplace that is devoid of any form of discrimination and harassment. In that regard, it can nurture an environment that empowers the employees to optimally perform. However, as a matter of fact, policies applied by Exxon places it at a competitive disadvantage compared to that of its rivals in the marketplace. This is because in can attract more workers from groups that have conventionally been marginalized (Rowlands, 2000, p. 341). There have always been plans for pushing for changes in terms of equal employment. The board has several times rejected the proposed bids to make the playing field level for the different sexual orientation. The lesbian, gay, bisexual, and transgendered (LGBT) all should have an opportunity to access employment without being discriminated against on the basis of their sexual orientation. Exxon should ensure that they loosen the tightened ropes with regard to employing individuals with varied sexual orientation (Jones, Kalmi & Kauhanen, 2010, p. 9).

This is because, by prohibiting discrimination on the premise of sexual orientation as well as gender identity tends to bear a competitive advantage in retaining and recruiting employees from the largest pool. In essence, companies deemed to protect the LGBT employees against discrimination tend to have higher ability to recruit individuals with high qualifications that belong to the said group as it will nurture an environment where they are capable of working freely and as effectively as possible (Dale, 2010, p. 469). The moment the management at ExxonMobil makes a decision to improve on the employment policies, it will definitely enhance an improved performance among its peers in the global scale. The policies should ensure that there is no harassment of the LGBTs when working with the others in the company. It is always important for employment policies to be improved that so that the otherwise highly qualified individuals left out are taken up to improve the productivity of the company locally and internationally (Jones, Kalmi & Kauhanen, 2010, p. 9).

Employee Development and Planning

Employee development and planning is the last area of improvement at Exxon owing to the inherent attrition and lack of new ideas of managing the company into new heights in line with the current systems (Ji, Huang, Liu, Zhu & Cai, 2012, p. 2996). By improving employee standards, Exxon stands a better chance in the marketplace because there will be newness and synergy that will move the company forward with renewed eagerness and vigor (Lawrence, 2013, p. 139). Employees always play an important role in a company in terms of service delivery, manufacturing, and many other aspects. This is because, when a company neglects its most important asset in the worker, it could be headed for the biggest failure. Therefore, for ExxonMobil to perform well enough, it will have to change the staffing characteristics in order to work things out in a new way that conform to the corporate changes (Aguinis & Kraiger, 2009, p. 453).

Task 2 – Project Selection Process

Of the biggest decisions any given organization has to grapple with is the one related the projects to be undertaken. After making a proposal, there are many factors considered by the organization before choosing on one. In other words, the option deemed the most viable is always the one to be selected among the others with respect to the requirements and goals of the organization (Liu, Messer, Korch & Bounds, 2011). For instance, at ExxonMobil Corporation there needs to be a good decision on the three projects mentioned above as part of the means toward increasing performance in the company (Godinho, Costa, Fialho & Afonso, 2011, p. 28). Project selection is therefore, that process of assessing every project idea and selecting that project with the best priority. At the beginning stage, projects are often mere suggestions but there is not a single settlement on one. The project selection process follows five different steps:

The need for the project is identified. As usual, virtually all projects begin with an idea. The strength of a plan can emanate from any source numbers at the community, state, and federal level. Once a given need has been identified as one of the important ones, it is then placed for debate among the members (Kerzner, 2011, p. 26). This will be followed by the second step which is creation of a successful financial plan. After suggesting a given project, it is important that funding is availed for it by all means. For instance, if Exxon selects one project, there needs to be necessary considerations in terms of financing of the projects (Rosenau & Githens, 2011, p. 89). Those responsible for planning the implementation of the project should take it to the letter and as such, ensure that things are done properly. The company cannot afford to make a mistake of choosing a project whose financing is a bit overboard as that would mean that more money will be required (Rosenau & Githens, 2011, p. 89).

The third stage of project selection process is that the planning process now begins in earnest; this should be in line with the financial aspect of the project. If it is within the stipulated budget, then it means it should go ahead in terms of planning for the project. The fourth element of the process of selecting a project is project development. The project should be one that can be developed in time and completed without any delays as it were (Rosenau & Githens, 2011, p. 89). This is actually one of the most important stages because it includes putting the project into proper action by involving professionals who are conversant with the programs as they are (Rosenau & Githens, 2011, p. 89). More often than not, with respect to the size of the project as well as the scope, project development can take from several months to several years for mega projects. After being given an authorization, the project goes through a rigorous process of development that may entail documentation, advanced planning, and environmental planning (Werner & DeSimone, 2011, 58).

After completing the planning and development, the project should proceed to its construction. Lastly, construction forms the last phase of project selection. Contracts in relation to construction should be awarded to companies or individuals via a rigorous competitive process of bidding; the lowest bid that qualifies is presented for an approval for the commission. This is often the last phase to completion of a project. In case of the projects that had been chosen, one would stand out strongly among the ones presented (Dyer Jr., Dyer & Dyer, 2013, p. 102). For instance, employee development and training is something of great importance to the efficiency in a company’s workplace (Jones, Kalmi & Kauhanen, 2010, p. 9). Because this is something new, it would by all means improve Exxon’s performance when pitted against its peers. After selecting employee development and training, ExxonMobil will embark on the means through which the employees will be trained and who will be in charge of training them (Jones, Kalmi & Kauhanen, 2010, p. 9).

Feasibility Study of the Chosen Project

Feasibility study would measure the likelihood with which the chosen project will be of success. More often than not projects do vary in terms of risk and complexity. When a company considers feasibility when selecting projects, the implication is that the easiest projects with the highest benefits will always be given an upper hand (Shen, et al., 2010, p. 255). For instance, by selecting employee development and training for Exxon Mobil, it will be a strategy that will greatly improve the productivity of the company locally and internationally. All new projects incorporated within the companies are always handled with care because they may end becoming the blueprint upon which the company depends on for future development. With an educated workforce, the obvious is that they will be more efficient and articulate in their work compared to the previous moments when efficiency may have been wanting because they were unable to conduct certain activities. More eagerness and drive will have been instilled in them, and as such service delivery improved (Kerzner, 2010, 27).

Project Plan and its Benefits to the Organization

It is obvious that every project selected must be completed within the stipulated time without delays. Project planners should take into consideration all the possible challenges when executing the plan. By laying down project plans right in time, things become easy to understand and carry out. A relaxed project plan encourages the implementers to take time before they begin working on the project (Tohidi, 2011, p. 918). Depending on the nature of the project – simple or complex, the stakeholder in the process will have to obey the prevailing timing so that not a single area is left untouched. If this plan is needed to succeed, then the planners should ensure that things are done in accordance to it while seeing what time indicated (Ferriani, Cattani & Baden-Fuller, 2009, p. 1550). The critical path analysis presents the movement from the beginning to the end and the benefits accrued from the same movement (Krane, Rolstadås & Olsson, 2012, p. 23). Prior planning means that should any adjustment come by; they can easily be fixed within the timescales established without fear. There are also bound to be certain risks associated with the plan in itself, particularly in relation to resources. Availability of resources can offer risks because the project may not be fully accomplished. However, it is incumbent upon the ExxonMobil management team to ensure that everything goes into plan in all aspects (Saks & Haccoun, 2010, p. 77).

Critical Path Analysis (CPA) is a tool for planning and management. While it helps in ensuring completion of a project in a quick manner, it also ensures that the resources are efficiently used; this often depends on how accurate the information presented is. It helps in tying up the various activities related to the planning process.

Activity/Time

Week 1

Week 2

Week 3

Week 4

Project Selection Process

 

 

 

 

Project Feasibility Studies

 

 

 

 

Project Implementation

 

 

 

 

 

Task 3

Having placed a plan for ExxonMobil, there will now be the need for full implementation of the plan. However, before implementing the plans, it would be of great importance to know that there are always challenges to any good plan. The project plan we have selected will be the best thing that ever happened to ExxonMobil Corporation because the current corporate world is about excellent service delivery and ever-changing innovation, no company would want to lag behind (Ferriani, Cattani & Baden-Fuller, 2009, p. 1550). There is that DNA of newness and competitiveness that keep companies stronger and more competitive in the marketplace. There is the need for constant improvement time and again as a basis upon which Exxon set high standards for everyone to follow (Ferriani, Cattani & Baden-Fuller, 2009, p. 1550). Implementation process on the other hand will require painstaking approach because that is the point where the project can be made or broken. The presented challenges can be responded to in varied ways (Young, 2013, p. 36).

  1. Should the client introduce a number of changes to the project

In the event that the client decides to introduce new changes to the project, it would be imperative for the project planners to weigh the gravity of the changes and how they would fit the bill. As long as the changes are in line with the laid down objectives of the company, it would not be criminal to impart the changes immediately. However, the planning section would go back to the drawing board to hatch new plan in terms of budget and other resource areas. Depending on the magnitude of the changes, the project planning process will have to reevaluate the budget so that the changes are accommodated (Caron, 2013, p. 77). Being the client, it is always imperative for the contractor to engage vigorously with the client so that the best project plan is used to take the company to the next level. For instance, because it is about employee development and training, it would be important for the planners to take into consideration the fact that it has to be at level best in order to manifest changes afterwards. The essence is getting things right the first time without a repeat (Caron, 2013, p. 77).

  1. Should two of the key project team members were to leave

It is often a big blow if trusted members of the project team leave abruptly, however, those are some of the things are should be expected. Having lost two important members of the team, the game may change, but the ideas may not change. In other words, it would be important to stick to the original plan and execute it with new members (Loch, DeMeyer & Pich, 2011, p. 37). This however, may toss a challenge too, thus, the team would ask the new members of what they may think of the original plan and how they can be part of it. The leader of the team may want to accommodate what everyone may be comfortable with, for instance, the new team members may bring on board a set of new ideas in relation to the employee development and training that may be more interesting than the previous (Puhakainen & Siponen, 2010, p. 761).

  1. Should you be promised a bonus of 10% for early submission of the project

The most important thing in project implementation is doing things right and within a given timeline. That does not mean that the project is to be rushed to get the 10% bonus. It is a good motivation mechanism, but it may as well affect the quality of work as the project team may be focusing on getting the bonus as opposed to laying emphasis on the quality of the project itself. Delivering the project early is always a good plus for the contractor, in terms of giving enough time for scrutiny and evaluation of the project. However, if it is bound to hinder the realization of good results, then it is not to be adopted at all (Kompaso & Sridevi, 2010, p. 89).

 

 

 

 

 

 

 

 

References

Aguinis, H., & Kraiger, K. (2009). Benefits of training and development for individuals and teams, organizations, and society. Annual review of psychology,60, 451-474.

Caron, F. (2013). Quantitative Analysis of Project Risks: In Managing the Continuum: Certainty, Uncertainty, Unpredictability in Large Engineering Projects (pp. 75-80). Springer Milan.

Collingsworth, T. (2003). Corporate Social Responsibility, Unmasked. . Thomas L. Rev.16, 669.

Dale, D. R. (2010). Gender Identity Protection: The Inadequacy of Shareholder Action to Amend Corporate Employment Discrimination Policies. J. Corp. L.,36, 469.

Diara, M., Alilo, M., & McGuire, D. (2004). Corporate Social Responsibility and Public–Private Partnership: The Case of the Academy for Educational Development and ExxonMobil.  Development47(3), 69-77.

Dyer Jr, W. G., Dyer, J. H., & Dyer, W. G. (2013). Team building: Proven strategies for improving team performance. New York: Wiley

Ferriani, S., Cattani, G., & Baden-Fuller, C. (2009). The relational antecedents of project-entrepreneurship: Network centrality, team composition and project performance. Research Policy38(10), 1545-1558.

Godinho, P., Costa, J. P., Fialho, J., & Afonso, R. (2011). Some issues about the application of the analytic hierarchy process to R&D project selection. Global Business and Economics Review13(1), 26-41.

Ji, L., Huang, J., Liu, Z., Zhu, H., & Cai, Z. (2012). The effects of employee training on the relationship between environmental attitude and firms’ performance in sustainable developmentThe International Journal of Human Resource Management23(14), 2995-3008.

Jones, D. C., Kalmi, P., & Kauhanen, A. (2010). How does employee involvement stack up? The effects of human resource management policies on performance in a retail firm. Industrial Relations: A Journal of Economy and Society, 49(1), 1-21.

Kerzner, H. R. (2010). Project Management-Best Practices: Achieving Global Excellence, New York: (Vol. 14). John Wiley & Sons.

Kerzner, H. R. (2011). Using the project management maturity model: strategic planning for project management. AZ: Wiley.

Kompaso, S. M., & Sridevi, M. S. (2010). Employee engagement: The key to improving performance. International Journal of Business and Management,5(12), 89.

Krane, H. P., Rolstadås, A., & Olsson, N. O. (2012). A Case Study of How Stakeholder Management Influenced Project Uncertainty Regarding Project Benefits. International Journal of Information Technology Project Management (IJITPM)3(2), 21-37.

Lawrence, J. L. (2013). Private Empire: ExxonMobil and American Power. New Political Science, 35(1), 138-141.

Liu, Z., Messer, K. D., Korch, M. A., & Bounds, T. (2011). Applying Optimization to the Conservation Project Selection Process: A Case Study of Readiness and Environmental Protection Initiative. In 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania (No. 103997). Agricultural and Applied Economics Association.

Livesey, S. M. (2002). Global warming wars: Rhetorical and discourse analytic approaches to ExxonMobil’s corporate public discourseJournal of Business Communication, 39(1), 117-146.

Loch, C. H., DeMeyer, A., & Pich, M. T. (2011). Managing the unknown: A new approach to managing high uncertainty and risk in projects. Washington, D.C.: Wiley.

New York Times, (July 17, 2013) Exxon Mobil Corporation, retrieved July 18, 2013 form http://topics.nytimes.com/top/news/business/companies/exxon_mobil_corporation/index.html

Puhakainen, P., & Siponen, M. (2010). Improving employees’ compliance through information systems security training: an action research study. Mis Quarterly34(4), 757-778.

Rosenau, M. D., & Githens, G. D. (2011). Successful project management: a step-by-step approach with practical examples. Illinois: John Wiley & Sons.

Rowlands, I. H. (2000). Beauty and the beast? BP’s and Exxon’s positions on global climate change. Environment and Planning C18(3), 339-354.

Saks, A. A. M., & Haccoun, R. R. (2010). Managing performance through training and development. NY: Cengage Learning.

Shen, L. Y., Tam, V. W., Tam, L., & Ji, Y. B. (2010). Project feasibility study: the key to successful implementation of sustainable and socially responsible construction management practiceJournal of Cleaner Production18(3), 254-259.

Snider, J., Hill, R. P., & Martin, D. (2003). Corporate social responsibility in the 21st century: a view from the world’s most successful firms. Journal of Business ethics48(2), 175-187.

Taylor, K. M. (2004). Thicker than blood: Holding Exxon Mobil liable for human rights violations committed abroad. Syracuse J. Int’l L. & Com.31, 273.

Tohidi, H. (2011). Review the benefits of using value engineering in information technology project management. Procedia Computer Science3, 917-924.

Werner, J. M., & DeSimone, R. L. (2011). Human resource development. NY: Cengage Learning.

Young, T. L. (2013). Successful project management (Vol. 52). OH: Kogan Page Publishers. 3

 

 

 

August 22, 2013

 

 

 

 

INNOVATION

 

 

 

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INTRODUCTION

In the current business world, competition has become very high and companies are finding it hard to survive. All industries are facing great challenges in their operations today due to the ever changing external and internal business environment. Despite all these challenges, there are some companies which have been very successful in different industries where some firms are acquiring great problems. The main tool which the different companies use to ensure that they are competitive is innovation. Innovation and creativity in a company is very important so as to ensure that the firms remain competitive (Agbor 2008). In this paper, the main focus is the innovation and creativity used by BP Company, one of the most successful UK based oil and Gas Company.

THE COMPANY’S OVERVIEW

British Petroleum Company, as it is officially known, is a UK and US company which is registered in these two countries (The Guardian 2010). It is the third largest energy company in the world today serving many countries in the world. In the United Kingdom, BP is the largest producer oil, but is the second in the production of gas. This makes it as a very huge company in this area, and thus, the need for it to be very innovative. It also records huge profits every year like the $21 billion profit which it made in the year 2008 (Pearce 2008). The main products which the company produces are petrol, diesel, aviation fuel, lubricants, bottled gas, and maritime. These products are produced by the company through its pursuance of different activities which includes energy distribution, marketing and refining, production, and exploration among other business activities. Overall, the company ensures that it is innovative in all its business activities given the fact that it operates in a very competitive industry. There are a number of competitors from both the local and the international oil and gas companies like Shell which operates in the UK and in other countries where BP operates.

METHODOLOGY

In undertaking this research, the main method used to gather the information was the use of secondary information sources. This involved the use of different publications about the company and other researchers who have done some work relating the strategies use by the company. A lot of research was conducted on different materials in this research in order to ensure the authenticity of the information considered in this case.

PESTEL ANALYSIS

  • Political Environment

The political environment is one of the most challenging environments which different companies have to overcome. In this regard, BP UK has a number of challenges which creates a great need for innovation. One of these is the ever increasing politics of the climate changes which the company faces not only in UK, but also in the other areas it operates. Different governments impose a lot of political pressure on the company due to the issue of the effects of the activities of the company to the climate.

Another issue in the political environment of the company is the issue of terrorist activities. In this case, different countries where this company operates have recently faced political unrest which has led to high vandalism of the company’s infrastructure and energy supplies. This has also affected its supply chain systems leading to huge losses and great problems to the innovative agenda of the company.

  • Economic Environment

In respect to the economic environment, things are still not the very best. For instance, the high uncertainty of the global economy has affected the company very much. This is due to the fact that it has made it quite hard to predict the level of sales which the company would sell in the future.

Another issue in the economic environment in this industry is the high volatility of the global oil and gas prices. The prices of energy have been rapidly increasing in the world in the last couple of decades (Peterson & Howlett 2006). This is due to the ever increasing demand of this commodity in the world as it is becoming more and more industrialised.

  • Social Environment

In respect to the social environment, the issue of the ever rising domestic prices of energy and related products has affected the social welfare of the individuals in the country. The prices of gas and electricity have been rapidly increasing in the country due to the ever increasing prices of energy affecting the social lives of the people in the different countries. This has reduced the purchasing power of the individuals (Kemmer & Boden 2012). Another social issue is the changing demographic structure of the different countries like in the UK. In this case, the number of aging population is increasing at a higher rate. This population does not consume a lot as compared to the young people as they are not involved in several activities.

  • Technological Environment

In respect to the technological environment, there are a number of issues facing BP and the industry at large. For instance, the technological environment has been very dynamic in the last few years as the different companies in the industry are trying to adopt better technologies to use in their activities (Foray 2009). These technologies have, however, been the source of great competition between these two industries. Companies are now using these new technologies to extract oil and gas from complex resources, something which has created a great opportunity in the industry.

  • Ecological Environment

On the side of the ecological environment, there are a number of challenges in the industry. One of these is the climate change. In this case, there are a lot of efforts to reduce the effects of the business activities of the firms in the industry. The oil and gas industry has one of the most environment affecting industries in the world. This has caused a lot of regulations in the industry aiming at equating the marginal social costs caused by these firms. There are also issues of different environmental groups. The number of environmental groups which keep the firms in the industry ion track. There is also the plan and pressure to the firms in the industry to ensure that they reduce their greenhouse gas emissions by 40% by the year 2020 which is a real challenge to the industry (Vidal 2010).

  • Legal Environment

On the case of the legal environment, there are great challenges. One of these challenges is the ever changing tax rules in the industry which even add to the prices of the products thus reducing the competitiveness of these firms. There are also other regulations which affect this industry like the renewable transport and fuel obligation of 2005 (Riordan 2013). This is the use of bio fuels which are more friendly and sustainable. There are also regulations by the EU in the European region like the EU Emissions Trading Scheme which states the amount of carbon emissions allowed in this industry (Ellerman & Buchner 2007).

CHALLENGES AND OPPORTUNITIES

  • Challenges

  • Great instabilities in the oil producing areas leading to great effects to the supply chain of different firms in the industry.

  • The great economic uncertainty of economies today characterised by the financial and economic crises (Giles 2011).

  • Many regulations due to the issue of the environment.

  • High criticisms by different parties and controversies like the accusation of the company for fixing diesel prices with Shell in South Africa (Gosden 2012).

  • Closure of some oil wells like the Alaskan one (Wearden 2011).

  • Opportunities

  • The increasing demand of the oil and gas products in the global market (Avery 2013).

  • Increasing number of gas and oil exploration projects in the world today.

  • High technological advancement which is leading to alternative energy resources in addition to making the whole processes in the industry efficient.

COMPANY COOPRATE STRATEGIES

BP has a number of corporate strategies which it has being using in the last few years operation. One of these strategies is to increase it investment in new energy technologies. This strategy has involved the pursuit of low-carbon energy businesses. Another corporate strategy of the company is a great focus on the aspects of production and exploration as the main important parts of its business. This is part of its strategies because the company aims at improving its efficiency.

The production an environmentally friendly energy is also part of the corporate strategies of the firm. This has enabled it to be more sustainable environmentally in all its activities. For instance, the company has invested $500 million over 10 years to establish Energy Biosciences Institute (Globe Foundation 2008). BP Company is also dedicated to the adding a greater value to the resources invested by its shareholders in the business. This is aimed at attracting and retaining potential investors in the company. Another strategy which the company uses is operating as a low cost company (BP Systems 2013). This is made possible by the great innovation which leads to new technologies making the company innovative. It is also made possible by the high investment in low cost energy solutions from different sources like natural gas.

Another strategy which the company uses is strategic mergers which it makes with different companies. For instance, the company has merged with Amoco leading to the BP Amoco among other acquisitions (Kumar 2012). These strategies have been very important to the company and have been very helpful in achieving the strategic goals made in the industry and by the company itself.

DEFINING INNOVATION

In simple terms, innovation can be defined as the process of changing an idea into either a good or a service. Innovation can be in different forms, including product innovation, process innovation, marketing innovation and also organizational innovation. In BP Company, all these forms of innovation have been pursued in its innovations strategies, making the company very innovative.

N.P.D (NEW PRODUCT DEVRLOPMENT)

One of the new products which BP has introduced through its high innovation is new technologies. For instance, BP is the industry leader in the development of new sources of oil and gas, developing advanced seismic imaging technologies in the industry unlike any other player in the industry. It also has an advanced super-computing power in Houston, Texas, which is the biggest commercial research centre in the world today (BP, 2013).

BP has also being a leader in the industry in the production of new energy sources which are environmentally friendly. For instance, the company has introduced new biodiesel energy sources which are very efficient. This Biodiesel blend has helped the company meet its customers well and to satisfy them very much.

The main link between the corporate strategy and the innovation strategies pursued by BP is that both are aimed at making the company sustainable. All the innovative strategies are aimed at increasing the sales volume in addition to making the business activities of the company quite sustainable.

CULTURE AND GROWTH -FUTURE OPPORTUNITY

In regard to the culture of BP, the company usually ensures that there is great safety of the workers in the company, respect to each other, pursuing great excellent, and working as a team among other values. The company’s structure is usually decentralised in order to ensure that it addresses the different challenges in the areas where it operates effectively. The systems of the company usually specialise in ensuring that the company produces high quality industrial control systems (BP Systems 2013). This is very important in pursuing the different innovative strategies which the company has.

BP has being able to nurture a culture of growth in the company. This has being pursued through the use of the innovative strategies which the company has pursued in its activities. This culture has also helped the company to achieve different systematic changes which are quite imperative in the company. The culture has also made the company take great risks in the industry, like investments in new technologies which have in most times led to greater gains, though there has being some risks and consequences with some of the investments.

LEARNING POINTS

One of the learning points in this case is that high level of innovation is quite imperative in this industry. This is due to the fact that it helps companies to not only survive the great competition in the industry, but also be sustainable. Another thing learned in this case is that companies should use their strengths to reduce the impact of the weaknesses it has (Horwath 2012). For instance, the BP Company uses its high innovation to overcome the environmental pressures in the industry. It could also be learned that the companies need to ensure that they invest their resources wisely in order to be competitive. Due to this, BP has used efficient technologies to make its activities efficient, and thus, operate as a low cost company. It is important to learn that companies should not always compete, rather, corporate to maximise the benefits in the market as per the case with BP where it merged with other companies.

RECOMMENDATIONS

Due to the great changes in the industry and the uncertainty of the future, the company should not just relax when it comes to the future innovation and competitive advantages and new product developments. In this regard, the company should invest more resources in different innovation activities. There are different cases of violation of the different rules in the industry like the 2010 Deepwater Horizon Oil spill which brought the company to a great limelight (BBC News 2013). With this, BP should innovate better ways of handling these resources in order to be more sustainable in the future.

There are also great concerns that the energy reserves in the world today are declining in quantity so fast that one day they may not be available. In this case, the company should ensure that it prevents this from happening by developing new energy sources which are renewable and environmental-friendly. The company should then partner with other stakeholders in the industry to develop new renewable energy sources and convince customers to purchase such products. Thus it is recommended that the company should focus on new energies which are renewable to make its business activities more sustainable.

CONCLUSION

Overall, innovation is a very important part of the competitive strategy of any company. Through high level of innovation, the BP Company has been able to be really competitive in the industry and operate efficiently and sustainably. However, the PESTEL analysis of the company shows how challenging the environment in which the company operates is. This has also been shown in the challenges and opportunities’ analysis of the company as indicated in the paper. Nevertheless, what could be learned from this is that innovation is a very important factor which can make the firms to survive the competition in any industry.

 

 

 

 

 

 

References

Agbor, E 2008, ‘Creativity and innovation: the leadership dynamics’, Journal of Strategic Leadership, vol. 1, no. 1, pp. 39-45.

Avery, A 2013, ‘Rising energy demand drives global upstream oil and gas market’, International Society of Automation. Available from: http://www.isa.org/Template.cfm?Section=Press_ Room4andtemplate=/ContentManagement/ContentDisplay.cfmandContentID=92655 [9 July 2013].

BBC News 2013, ‘BP oil spill trial told it ‘put profits over safety’, BBC News. Available from http://www.bbc.co.uk/news/business-21548117 [9 July 2013].

BP 2013, BP and Technology. Available from, http://www.bp.com/en/global/corporate/about-bp/bp-and-technology.html [31 July 2013].

BP 2013, ‘Business’, BP Target Natural. Available from: http://www.bptargetneutral.com/ business/ [9 July 2013].

BP Systems 2013, ‘Welcome to BP systems,’ BP Systems. Available from: http://www.bpsystems.co.uk/ [9 July 2013].

Ellerman, A. & Buchner, K 2007, ‘The European Union emissions trading scheme: origins, allocation and early results’, Oxford Journal of Economics and Social Sciences, vol. 1, no. 1, pp. 66-87.

Energy Business Review 2013, ‘BP P.L.C company overview’, Energy Business Review. Available from: http://www.energy-business-review.com/companies/bp_plc [9 July 2013].

Foray, D (ed.) 2009, The new economics of technology policy, Cheltenham, GL, Edward Elgar Publishing.

Giles, C 2011, ‘Global economic uncertainty leaves oil outlook in limbo’, Financial Times. Available from: http://www.businessweek.com/adsections/2008/pdf/02042008_leaders.pdf [9 July 2013].

Globe Foundation 2008, ‘Next generation green: tomorrow’s innovative green business leaders’, Business Week, Special Advertising section. Available from: http://www.businessweek.com/adsections/2008/pdf/02042008_leaders.pdf [9 July 2013].

Gosden, E 2012, ‘BP and shell accused of diesel price fixing in South Africa’, The Telegraph. Available from: http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9631756/ BP-and-Shell-accused-of-diesel-price-fixing-in-South-Africa.html [9 July 2013].

Horwath, R 2012, Strategy for you: building a bridge to the life you want. Austin, Greenleaf Book Group Press, Texas.

Kemmer, M & Boden, A 2012, “Price” as one parameter in the marketing mix, GRIN Verlag, Munich.

Kumar, B 2012, Mega mergers and acquisitions: case studies from key industries, Palgrave Macmillan, New York.

Pearce, F 2008, ‘Greenwash: BP and the myth of a world ‘behold petroleum’, The Guardian. Available from: http://www.guardian.co.uk/environment/2008/nov/20/fossilfuels-energy [9 July 2013].

Peterson, J & Howlett, C 2006, ‘Economic effects of recent increases in energy prices’, Government Printing, New York.

Riordan, L 2013, ‘Draft renewable transport fuel obligations (amendment) order 2013’, Publications Parliament. Available from: http://www.publications.parliament.uk/pa/cm201213/ cmgeneral/deleg1/130304/130304s01.htm [9 July 2013].

The Guardian 2010, ‘Company profile for BP’, The Guardian. Available from: http://www.guardian.co.uk/sustainable-business/profile-bp [9 July 2013].

Vidal, J 2010, ‘Fifty-five countries pledge to cut greenhouse emissions’, The Guardian. Available from: http://www.guardian.co.uk/environment/2010/feb/02/55-countries-greenhouse-emissions-pledge [9 July 2013].

Wearden, G 2011, BP shuts Alaska pipeline after leak. The Guardian. Available from: http://www.guardian.co.uk/business/2011/jan/10/bp-shuts-alaska-pipeline-after-leak [6 July 2013].

 

Bid Management for Contracting Companies

August 21, 2013

BID MANAGEMENT

 

 

 

 

  1. By: Student’s Name

  2. Student ID

  3. Email address

  4.  

 

 

  1. Course Title

  2. Tutor

  3. Institution

  4. Location

  5. Submission Date

 

 

 

 

 

Introduction

A bid is an approach to a client in order to gain significant new business or repeat a previous one

Investors often offer to buy securities in the securities market. This is called bidding, whereas, the bid price is the price at which the investor is willing to buy the security. However, the price at which the security seller is willing to accept for the security is called ‘ask’. The ‘Best Bid’ is the highest quoted bid for a particular security offered by security makers. Bid Management is, therefore, the process of controlling bids. Besides, it involves the use of software for the automatic controlling of bids. The role of bid management is therefore to determine the relevant best bid for each security at any given time.

Companies need to have a clear approach to bid management and establish bid strategies that focuses on the customer, as well as, mechanical process of document production. Really, it is all too easy to consider the bid as a project and the proposal document the only deliverable. Bid management is about strategy, creativity, technical solution, planning, and risk management, procedures and customer involvement. The bid manager requires a wide range of skills including bidding, accounts, law, finance and projects (Langford and Male, 2001).

The Bid Manager is tasked with the responsibility of managing bids in response to the Request for Proposals from customers. Besides, they are to facilitate the creation of the solutions to the customers’ proposals and to ensure compliance with the customers’ needs, as well as, promoting the company’s values. He ensures smooth running of the bid for a project within the correct time and financial obligations are met and they remain constant, and make sure there is a high level of cooperation and relationship with their clients in order to boost their business. Managers’ directors hand in hand and make sure the specialists are there to monitor the progress of the project built environment industry to provide and manage the bid for a project.

Roles and Responsibilities of a Bid Manager

The roles and responsibilities of a Bid Manager depend on many factors such as, the skills of the manger, the background of the manager, the department the manager is supposed to work with, as well as the nature of the customers to the company. However, these roles and responsibilities vary from time to time. Really, in any company, Bid Managers have roles and responsibilities which are important in to winning new businesses for the company. In most cases, the bidding processes for most companies are quit few in relation to the day-to-day activities of the company. Therefore, the Bid Manager is often someone whose main role in the company is to do other operations in the company or he is actually sourced from outside the company. Interestingly, Bid Managers have no specific tasks but have their roles vary from company to company. He has to deliver the bid and manage various resources, as well as, deal with complex business relationships in supporting the winning strategies.

Business Strategy

For success, every business must develop and establish its strategies. Business strategy is concerned with the overall mission and scope of the business to meet its shareholders’ expectation. They are the pillars upon which the business rests and acts as a guide to the business strategic decision making (Skitmore, and Smyth, 2008). A business can have corporate strategies ranging from the individual business itself to a group of businesses. Business strategies therefore include Business Unit Strategy, as well as, Operational strategy. Business Unit Strategy deals with how a business competes successfully in the market. It involves the choice of decision making and strategy, meeting needs of customers, gaining advantage in order to compete over their competitors in the market, venturing in to the market and exploring new opportunities available or creating new opportunities. Whereas, Operational Strategy – is concerned with how each part of the business is organized to deliver the corporate and business-unit level which will make to be in a strategic position in the market. This strategy therefore focuses on issues of the materials, procedures, people and many other things.

The Work Winning Strategy

Cost drivers are those factors that cause a change in the cost of an activity. Actually, these are the activities in a business enterprise that can cause a cost to be incurred and they contribute to the expense of the business (Fitzsimmons, and Fitzsimmons, 2011). For instance, during bidding processes, costs are incurred. These costs incurred during bidding add to the expense of the company and hence lower the profits to the company. It is therefore necessary for the Bid Managers to establish a winning strategy to help curb the costs. The company should therefore employ the following strategies;

Low prices; Price is concern every customer and a key feature of the company’s offering to the customers. Rational consumers will purchase those items with the lowest prices in the market and leave those with high prices. It is therefore important for the contracting company to lower its prices so as to attract more customers. The managers should appreciate the business of the contracting firm is in the number of customers they supplier and not the price per se. However, this strategy is not always easy done than said because of the high costs of production that the business has to incur to produce the goods and services. Of course, the business has to make profit which is its number one goal. It is for this reason that the business is under immense pressure to lower its prices, particularly during economic downturns when every company is competing harder to win fewer orders. However, the key to survive and make profit is to continually lower the cost that it takes to produce. Nonetheless, the business should be cautious enough not to lower prices to much that it makes losses and thus go-under.

Economies of Scale; Economies of scale arise from undertaking activities in large volumes the ability to perform these activities differently and more efficiently, therefore, reducing the cost of things over a greater sales volume. For example, the contracting firm should focus on obtaining a higher concentration of contracts in a small geographic area so as to reduce drive times and to allow more efficient sharing of equipments and personnel between projects.

Moreover, economies of scale can be achieved in most parts of a business’ operation, such as purchasing, processing, advertising, sales, marketing, billing and collection. Note also that, economies of scale can be achieved by increasing sales or differentiating products to offer fewer choices and therefore more volume per product is offered. However, to achieve economies of scale, the contracting firm should organize itself in a way that allows for volume processing. For instance, the company reorganizes itself in a way that it is able to run many contraction projects efficiently. It should also ensure that it is naturally positioned to win the contracts over its competitors easily and cheaply.

Learning; the cost of an activity can decline over time due to acquisition of knowledge. Through learning the company can be able to acquire ideas for reducing costs through such avenues as floor layout, improved scheduling, labor efficiency, product design modifications, yield improvements, or improvements in installation and shipping procedures as required to make work more efficient. It is only performance improvements derived from learning processes have the ability to accrue gradually and incrementally over time.

However, the rate of learning differs from company to company and depends on the degree to which management emphasizes its importance to the workers, as well as, the magnitude to which the management empowers workers to conceptualize and implement ideas that reduce cost, improve efficiency and add value to the company products. Moreover, learning can occur through bringing employees of different firms together to facilitate sharing of ideas, challenges and opportunities. Most importantly, the firm should put in place appropriate measures to retain the employees to whom it has spent a lot of time and resourced training and equipping to perform given tasks.

Capacity Utilization; the cost of the activity will be affected by capacity utilization where a value activity has a large fixed cost associated with it. Besides, fixed costs penalty for not maximizing on the usage, and the ratio of fixed costs to variable costs determines the sensitivity of a value activity to utilization. The pattern of utilization is also a key factor to be considered. Company’s desire smooth volume at optimal utilization, however, operating at low capacity is inefficient. Likewise, operating at/or near capacity can also cause higher costs and inefficiencies. The company should therefore design policies and practices to produce smooth work flow and demand.

Linkages; the cost of a value activity is frequently affected by how other activities are performed. These costs are called linkages. The common linkages are either direct or indirect activities. To identify these linkages, the company should determine those other factors or activities outside the business that have an impact on costs of performing the primary activity of the company. However, linkages that exist within the company itself are the most important ones because with them the firm can identify costs or inefficiencies by examining how the behavior of suppliers affects the cost of each of its other activities. Furthermore, linkages with suppliers tend to center on suppliers’ product design characteristics, service, as well as, quality assurance procedures.

Vertical Integration; Vertical integration is the process expanding the activities of a firm It is the expansion of the value activities that a firm provides in-house as opposed to outsourcing to a third party. For example, the company has the choice of making parts from within the company or contracting another firm to supply the parts. The firm should choose to deliver its goods with its own trucks and drivers, because outsourcing this service from a third party could be unnecessarily expensive. Really, the firm periodically evaluates its activities to assess what method will reduce costs and best meet the value-added process adopted by the company and hence achieve the profit maximization goal. This goal always consist of expense reduction, improvement of the delivery to the customer, improvement of service to clients of your particular value-add, and making sure that you stick to your uniqueness as compared to your competitors in the market (Kumaraswam, Anvuur, and Mahesh, 2008).

Timing; poor timing in itself can drive cost. That is, the timing of your business has great impact on the performance of the business. For instance, if the company starts a project during economic recession, chances are that the business will underperform due to high costs of raw materials and labor. Investing in an existing project or starting a new one altogether can greatly affect the cost required to establish operations and make the desired profits. The first company to offer a service enjoys easier and less costly penetration to the customer as opposed to the competing companies. Moreover, established firms may also enjoy lower cost because they have already paid for all their physical assets. Besides, they may be able to operate more efficiently because of their experience and economies of scale.

Later entrants might also be able to enjoy cost advantages over their competitors that have been in the market for a longer time. For example, many old firms still use technology which is less efficient hence cannot compete with the firms which have adopted the new technology. Older firms may also be stuck in a location that is now less than ideal.

Almost any firm can use timing to reduce costs over competitors by simply buying products when their prices are very low hence making them to a have a good opportunity in the market as compared to their competitors. This skill alone could produce a powerful cost advantage over their competitors in the market. Any businesses that depend on the purchase of capital equipment can significantly reduce costs by buying used equipment or when prices of the products are low. Inventory purchase costs can sometimes be influences as well.

Interrelationships; Interrelationships are how businesses or business units share the cost of a directors hand in hand and make sure the specialists are there to monitor the progress of the project in the of increasing volume and therefore reducing per-unit costs and making work easier. The sharing of a costly technology or piece of equipment might be a way of reducing the cost of delivering a value activity, such as the sharing of prepress equipment and personnel by several print directors hand in hand and make sure the specialists are there to monitor the progress of the project in the learning can be considered a value activity in itself. Such kind of a franchiser may help franchisees move down the learning curve faster by becoming a storehouse of knowledge and best practices, and giving out this information to all franchisees. All the associations participating in this trade also play a valuable role (Smyth, 2006).

Discretionary Policies; Ways of doing things, such as policies directors hand in hand and make sure the specialists are there to monitor the progress of the project in the deliberate trade-offs between cost and differentiation. Some of the choices that tend to have the biggest impact on costs include:

  1. product configuration

  2. performance and feature

  3. mix and variety of products offered

  4. level of services provided

  5. spending rate on marketing

  6. delivery time

  7. buyers served

  8. channels employed

  9. technology chosen

  10. scale, timing or other cost drivers

  11. specification of raw materials

  12. wages paid and amenities provided to employees

  13. human resource policies directors hand in hand and make sure the specialists are there to monitor the progress of the project in the

  14. procedures for scheduling production, maintenance, sales calls and other activities

Location; geographic location of a value activity can affect cost, as can its location relative to other value activities. Though location frequently reflects a policy choice, it can also stem from history, the location of inputs and other factors. Hence, location should be treated as a separate cost driver. Location affects costs in a number of ways. Locations differ in the prevailing cost of labor; talent pool; raw material quality, cost and availability; energy costs; tax rates; climate; cultural norms, tastes; and other factors. Location relative to suppliers is an important factor in inbound logistical cost, while location relative to buyers affects outbound logistical cost. The effect that location can have on the various parts of a business should be considered when a site is selected (Fellows, 2006).

 

 

 

Conclusion

A bid is an approach to a client in order to gain significant new business or repeat a previous one. Investors often offer to buy securities in the securities market. This is called bidding, whereas, the bid price is the price at which the investor is willing to buy the security. However, the price at which the security seller is willing to accept for the security is called ‘ask’. The ‘Best Bid’ is the highest the highest quoted bid for a particular security offered by security makers. Bid Management is, therefore, the process of controlling bids. Besides, it involves the use of software for the automatic controlling of bids. The role of bid management is therefore to determine the relevant best bid for each security at any given time (Bröchner, Josephson, and Kadefors, 2002).

Companies need to have a clear approach to bid management and establish bid strategies that focuses on the customer, as well as, mechanical process of document production. Really, it is all too easy to consider the bid as a project and the proposal document the only deliverable. Bid management in a company will involve all about strategy, creativity, solution, planning, and risk management, process and customer involvement. The bid manager requires a wide range of skills including bidding, accounts, and law, finance and project requirements.

The Bid Manager is tasked with the responsibility of managing bids in response to the Request for Proposals from customers. Besides, they are to facilitate the creation of the solutions to the customers’ proposals and to ensure compliance with the customers’ needs, as well as, promoting the company’s values. He ensures smooth running of the bid for a project within the correct time and financial progress of the company goes on smoothly, and make sure there is a good relationship with their clients. Bid managers work in conjunction with the directors hand in hand and make sure the specialists are there to monitor the progress of the project in the construction and built environment industry to provide and manage the bid for a project.

 

 

 

 

 

 

 

 

 

 

 

 

 

Reference List

Barney, J. B. (2002) Gaining and Sustaining Competitive Advantage, Pearson, New Jersey.

Bröchner, J. Josephson, P-E and Kadefors, A. (2002) Swedish Construction Culture, Quality Management and Collaborative Practice, Building Research & Information, 30, 6, pp. 392-400.

Chen, P. and Partington, D. (2004) An Interpretative Comparison of Chinese and Western Conceptions of Relationships in Construction Project Management Work, International Journal of Project Management, 22, pp.397-406.

Douma, S. and Schreuder, H. (2002) Economic Approaches to Organisations, (Third edition) Prentice Hall. Hemel Hempstead. Especially Chapter 9.

English, J. (2002) Managing Cultural Differences to Improve Industrial Efficiency, Building Research & Information, 30, 3, pp. 196-204

Fellows, R. (2006) Culture, Commercial Management of Projects: Defining the discipline, (eds. D Lowe and R Leiringer), Blackwell, Oxford.

Fitzsimmons, J.A. and Fitzsimmons, M.J. (2011) Service Management: operations, strategy and information technology, McGraw-Hill, Boston. 

Flanagan, R., Lu, W. Shen, L. and Jewell, C. (2007) Competitiveness in Construction: a critical review of research, Construction Management and Economics, 25, pp. 989-1000.

Green, S. D., Harty, C., Elmualim, A. A., Larsen, G. D. and Kao, C. C. (2008) On the Discourse of Construction Competitiveness, Building Research & Information, 36, pp. 426-435.

Grönroos, C. (2000) Service Management and Marketing, John Wiley & Sons, London. 

Gruneberg, S. L. and Ive, G. J. (2000) The Economics of the Modern Construction Firm, Macmillan, London.

Kumaraswamy, M., Anvuur, A. and Mahesh, G. (2008) Contractual frameworks and cooperative relationships, Collaborative Relationships in Construction: Developing Frameworks and Networks, H J Smyth and S D Pryke (eds.), Wiley-Blackwell, Oxford.

Langford, D. and Male, S. (2001) Strategic Management in Construction, Blackwell, Oxford.

Mäkilouko, M. (2004) Coping with Multicultural Projects: the leadership styles of Finnish project managers, International Journal of Project Management, 22, pp.387-396.

Male, S. and Stocks, R.K. (2001) Competitive Advantage in Construction (Second Edition), Butterworth-Heinmann, Oxford.

Mason, J. (2008) Specialist contractors and partnering, Collaborative Relationships in Construction: Developing Frameworks and Networks, H J Smyth and S D Pryke (eds.), Wiley-Blackwell, Oxford.

Sense, A. J. (2003) A Model of the Politics of Project Leader Learning, International Journal of Project Management, 21, 2, pp.107-114.

Skitmore, M. and Smyth, H.J. (2008) Marketing and Pricing Strategy, Construction Supply Chain Management: Concepts and Practice, (ed. S D Pryke), Blackwell, Oxford. Available on the Module Intranet (www.ucl.ac.uk/moodle).

Smyth, H. J. (2006) Competition, Commercial Management of Projects: Defining the discipline, (eds. D Lowe and R Leiringer), Blackwell, Oxford.

Winch, G. and Carr, B. (2001) Benchmarking on site productivity in France and the UK: a CALIBRE approach, Construction Management and Economics, 19, pp. 577-590