General Management Environment - Report Example

Question 1: Report

• • Primary causes indicating that business failure is imminent

One of the primary causes of impending failure in Highveld is employee relations. According to the case, industrial action involving all employees of the company occurred in 2012, leading to the closure of the plant for 4 months (Evraz Highveld, 2013). The company is also experiencing problems with employees as the demand for labour cost increases. This poor relationship between the management and employees leads to loss of employee morale and reduction in productivity levels. While the company attempts to minimize its labour costs to achieve profitability, employees also demand higher financial rewards which would affect the company’s labour cost targets. This problem would cause business failure in terms of balancing the needs of the organisation and the personal needs of employees.

The company also experienced losses of 379 and 943 in 2013 and 2012 respectively (Evraz Highveld, 2013). These losses resulted from the plant closures in 2012 due to labour unrests. Unplanned and planned plant maintenance shutdowns also show a poor management of operations in the company. The losses could also be associated with the slowdown in production of steel and vanadium slag to reduce electricity costs in the peak winter with high electricity tariffs.

Other primary causes that would affect the business are related to external environmental factors. Economic factors such as inflation and other adverse market conditions. Inflation and poor economic conditions have led to increased costs of production. Cost increases affect the company’s ability to compete in the global market because high costs mean higher prices. In consequence, high prices lead to reduced customer base. Furthermore, high costs lead to low profitability which would affect the company’s ability to expand or grow in the global market and compete effectively in the highly dynamic business environment.

Failure could also be caused by poor management of the production and marketing lines. The fluctuations of revenue amount since 2009 shows that the company is not consistent in managing its sales. The sales revenue increased between 2009 and 2011, but reduced again in 2012 and increased slightly in 2013. This revenue issue can be related to the failure of the company to meet its growth targets. In 2013, the company targeted 76,028 tons of crude carbon steel production but achieved only 642,405 tons (Evraz Highveld, 2013). The production of all other products in 2013 also failed to meet the company’s targets. This failure causes low revenue and slow growth.

• • Management Areas

There are various management areas in theory that have not been covered adequately by EVRAZ Highveld’s integrated annual report. One of the management areas in which the company has failed is leading. According to Smith et al (2012, p.6), management involves four functions that link up in an orderly sequence to achieve the company’s vision and mission. These functions are: planning, organizing, leading and controlling. EVRAZ Highveld plans its activities effectively by setting production targets. It also organizes activities in various departments and assigns each task to employees. However, the company fails when it comes to leading. Each employee knows what to do, but the company has failed in getting them to do what they have to do. Therefore, planning in the organisation has failed to meet its human resources needs and productivity.

Leading involves directing human resources or employees of the firm and motivating them to perform their duties as required and improve their performance at the workplace to improve higher productivity and meet the goals and mission of the organisation (Smith et al, 2012). Good managers get things done through people. Managers at EVRAZ Highveld have failed to get things done through people, leading the employees to go on strike and cause a shutdown of the plant. This failure of managers to lead its people to do what they should have done led to poor productivity and failure to achieve organisational goals and objectives.

One of the theories or tools of motivation is the Herzberg’s two-factor theory. The two factors of motivation are: motivators and hygiene factors. Motivators are factors that create a sense of achievement, personal growth, recognition, responsibility and doing the job well. On the other hand, hygiene factors include job security, work conditions, company policy, supervision and money. Evraz Highveld focuses on hygiene factors because it offers monetary benefits, good working conditions and regular supervision. Hygiene factors remove dissatisfaction but do not increase satisfaction. Therefore, the company does not achieve motivation because the employees are not satisfied. The employees could be offered coffee during tea break, park space, balanced work-family life, and recognition for good jobs.

Secondly, motivation is an important aspect of management theory that has not been addressed adequately in EVRAZ Highveld. Leadership is necessary in organisations to identify different needs and desires of employees and develop appropriate strategies to motivate them. Motivation refers to a set of factors that drive people to behave in specific ways. According to Smith et al (2012), people are motivated to behave or act in ways that serve their best interests. Therefore, managers should motivate employees to improve their productivity at the workplace by connecting productivity and good performance with incentives and rewards. If employees feel that they will receive certain rewards by behaving in certain ways, they are likely to behave that way.

In EVRAZ Highveld, the managers have not taken effective measures to serve the best interests of their employees. There are no motivating factors for the employees. They expect good financial remunerations, good work conditions and a work-life balance. The employee strikes experienced in 2012 shows that employees are not well motivated to continue staying at work and performing their duties and responsibilities. The management is not committed to motivating its employees whether by economic benefits, recognition or development.

The annual report has also failed to adequately create purpose as motivation. Effective leaders create purpose by creating a clear vision and mission for the company so that all employees understand the purpose of their employment. Furthermore, clear purpose provides direction for employees in task performance by creating goals for the employees to accomplish in each task. The management should also provide a strategic direction for employees meet customer needs and achieve competitive advantage. Although the company has defined a mission and vision, it does not clearly show the purpose of employees in accomplishing goals and objectives.

• • The company's financial performance

EVRAZ Highveld has experienced poor financial performance since 2009, especially in terms of profits. Financial revenues have fluctuated from 2009 to 2013, recording the highest value of 5,589 in 2011 and the lowest value of 4,252 in 2009 (Evraz Highveld 2013, p.17). However, the cost of sales and expenses has eaten up most of these revenues. These cost increases have led to losses, with the only profits recorded in 2011. To worsen the situation, employees are demanding higher wages through strikes. The company has failed to manage production costs including labour and material costs and expenses.

One of the tools that can be used to analyze the financial performance of the company is ratio analysis.

Key Ratios

2013

2012

2011

2010

2009

ROCE (%)

(13.2)

(34.2)

(1.5)

(27.0)

5.1

Current Ratio

1.36

1.60

2.08

2.36

2.72

Quick Ratio

0.59

0.86

1.40

1.30

1.61

Debt Equity ratio (%)

145.59

114.59

71.86

61.87

59.24

Net cash to shareholders Equity (%)

0.48

23.53

45.19

19.60

34.90

Net asset per share value (cents)

1473.5

1723.7

2616.2

2531.5

3100.4

Price Earnings Ratio

(4.5)

(1.3)

(241.2)

(21.6)

(38.4)

Returns on Equity Ratio (ROCE) measures the amount of profit earned for every value of capital employed. In this case, capital employed includes shareholder’s equity and noncurrent liabilities. Evraz Highveld’s ROCE was a negative value every year from 2010 to 2013, indicating that the company earned losses for every value of capital employed. Therefore, the company is mismanaging its resources.

Current and quick ratio measure the ability of a company to meet its current liabilities using its current assets. The current ratios of the company in 2012 and 2013 were low – 1.6 and 1.3 respectively (EVRAZ 2013, p.17). This shows poor management of assets and liabilities. Therefore, the control function of management is not effective in achieving the desired financial position of the company.

Debt to equity ratio measures the ratio of total liabilities to total equity. It measures the extent to which shareholders’ funds can cover debts. High debt to equity ratio means that the company has a lot of debt to pay, and the profit is redistributed to this debt before shareholders, hence reducing the amount available for shareholders.

Price per earnings ratio of the company is also negative over the years, indicating that the shareholders are earning negative gains from their shareholding investments. In other words, the value of shares is declining. The company does better in terms of asset and cash management because its net asset value per share and net cash to shareholders’ equity ratios are positive. However, these ratios have declined since 2009.

The economic performance review of the company’s management also shows that price fluctuations and exchange rate volatility have affected cash flows. The Statement of cash flows indicates a negative value in terms of cash flows from operating activities. Therefore, the company has low liquidity to meet financial obligations.

The company's operational performance

According to the systems approach theory, activities in different sections of an organisation affect each other (Smith et al 2012, p.62). The problem with EVRAZ Highveld is that it does not show a clear connection between people, physical resources and information in its operations. Operations management should be concerned with standardisation of products to achieve long and smooth production runs at low costs (Smith et al 2012, p.62). Operations of EVRAZ Highveld are disrupted by inconsistent supply of manufacturing inputs such as electricity, raw materials and labour. For example, the company reduced its production of steel and vanadium slag due to the high tariff season of electricity. Labour strikes in 2012 and plant maintenance shutdowns also disrupted the production processes by limiting material and labour inputs. These disruptions indicate disconnections among different sections of the company, leading to ineffective flow of inputs and outputs in the production process.

Lack of proper capacity management and new product technologies have also led to poor operations in the organization. According to Smith et al (2012, p.490), international organisations may apply new process and product technologies to develop employees, improve managerial and technological capabilities, and promote effective telecommunications and transportation infrastructure. Managing change in a dynamic environment requires organizations to develop new technologies in internet, E-commerce and mobile computing to promote efficient management of resources and reduce operational costs.

EVRAZ Highveld has developed a new process technology called Kiln reduction technology intended to save electricity consumption by replacing kilns with Iron Plants which are more energy efficient. However, this project was put on hold due to potential sale of the business. The costs of implementing the project have also affected its implementation. The company’s capacity management is also characterized by the ITIL best practice service management and service delivery framework to develop appropriate IT structures to manage the company’s operations (Klosterboer, 2011). However, the personnel to manage these IT structures are insufficiently trained and lack motivation to address the company’s technological needs.

• • Human Resource Management Performance

One of the major challenges facing EVRAZ Highveld is the poor relationship with employees. The company is not able to manage its human resources effectively due to inappropriate human resource strategies and practices. Some of the existing HR practices include remuneration and benefits, employee relations and talent management. Remuneration and benefits entails matching employee rewards with their performance. The salaries and benefits packages are providing based on the industry average. Following the 2012 labour strikes, EVRAZ Highveld adopted a new proactive employee relations approach that focuses on wage negotiations, employment uncertainties, and low productivity (Evraz Highveld 2013, p.83). Employee engagements, coaching and talent acquisition through graduate programme were also developed.

Despite the above steps to improve human management approaches, the company has failed to motivate its employees and integrate the human resource practices with the overall strategy of the company. According to Smith (2012, p.335), an important way of motivating employees to improve their performance and achieve their commitment is by treating people as a sub-system. People have different needs, goals, values, interests and expectations. They also change individually depending on experiences and environmental changes. In this regard, people should be treated differently based on their uniqueness rather than being compartmentalised. EVRAZ Highveld seems to compartmentalise its employees by developing general human resource policies that apply to all employees. This approach fails to motivate employees because it does not address specific needs of employees. There is also no connection between different departments in terms of human resource practices; hence HRM practices have not been effectively integrated with the strategic needs of the company.

Question 2: Recommendations and Marketing Strategy

2.1. How to Improve the Situation: Recommendations for Change

Following the above analysis, certain failures of the company’s General Management have been identified: poor management and utilisation of resources leading to increased costs; compartmentalisation of employee issues leading to lack of motivation; disconnection between various operations due to poor operations management; and lack of IT training. In light of these problems, various recommendations should be implemented in the organisation.

First, the appropriate control systems should be developed to enhance proper management and utilisation of resources. In this regard, the controlling function in General Management should be applied comprehensively. The company should develop a complete control process with four steps: setting standards (derived from goals), measuring performance against those standards, evaluating deviations, and taking appropriate measures to rectify those deviations (Smith et al 2012, p.455). For example, the company has already developed a standard of production targets in all product lines. The next step should measure the actual performance by collecting data from the production teams. This performance should be evaluated to show deviation from the set standards.

The company should use an effective inventory management system to ensure that assets are managed effectively to achieve company objectives. One of the effective inventory management systems is Just-in-Time (JIT). JIT is relevant in a manufacturing company like Evraz Highveld. This method of controlling inventory reduces flow times within the production process and the response time from suppliers and customers. In this process, materials and products are received only as they are needed in the production process; hence reducing wastes and costs, and increasing efficiency.

Operations management could also be improved through total quality management (TQM). TQM is a structured management approach in which quality of products and services are improved through refinements based on customer feedback. Its purpose is to achieve customer satisfaction. All members of the organization should be involved to improve processes, products and services through conversations and engagement with customers and other members of the organization.

Fourthly, appropriate motivation strategy should be developed to meet the needs of each employee. In this case, the management should identify the needs of the organisation and recruit talents that match those needs to reduce dissatisfaction and employee turnover. Each employee should then be monitored to identify their needs, interests and expectations (Smith et al 2012, p.238). The HR should develop a performance appraisal team to measure the performance of each employee and reward them according to their performance. The company should also implement non-financial reward system that includes recognition, achievement and self-development. Training and development on the task should also be provided to allow employees meet the changing requirements of the organisation.

Lastly, the company should develop a formal capacity management programme which starts with training IT personnel to meet the changing technologies in the industry. Production of steel and other products require technological advancements to reduce operation costs. It important to develop an integrated IT service management to align IT services with the needs of the business. One of the needs of EVRAZ Highveld is to reduce costs. Costs may be reduced by using IT services to manage demand, workload and resources. The labour can be managed by recording all employees against their respective tasks and the raw materials they require in a computerised system to ensure that labour and materials are managed effectively to minimise production and operation costs. Furthermore, process and product redesigning and reengineering should be implemented to manage change effectively to meet the changing needs of the company and stakeholders.

2.2. Marketing Strategy for Evraz Highveld

The marketing strategy that I would propose for Evraz is to use different promotional approaches and marketing communication approaches to build the image of the company and gain loyalty from stakeholders including customers in order to achieve competitive advantage. This approach can be achieved by focusing on the 4P model of marketing. The 4Ps of marketing include price, place, people and promotion.

In terms of product, the company should use the TQM and JIT operations management approaches to produce quality products. The products should meet the needs of the consumers and promote sustainability of development. The pricing strategy is also essential to ensure that the demand of products reflect the demand in the market. In this case, a competitive pricing model should be used to ensure that the prices reflect the market prices of similar products. This enhances competitiveness of the company. In terms of place, product distribution should involve the use of agents, direct sales and distributors. This multichannel distribution approaches increases awareness of the products among a wider range of customers, hence reducing wastes. Promotion is also important to create customer awareness and improve customer base.

Lastly, people are important resources in the company. They should be motivated through a wide range of factors including hygiene factors and motivators. To achieve lower costs of production and promote positive employee relations, horizontal integration as a marketing strategy should be developed. In this case, the horizontal boundaries of the organisation determine the quantities of products and the production costs (Fifield, 2008). Horizontal integration strategy allows employees from different departments to interact and develop ideas that can promote connections of production processes (Smith et al 2012, p.493). Currently, EVRAZ Highveld is facing disruptions and disconnections of production processes due to labour unrests, plant maintenance shutdowns and electricity disruptions. The company also operates in a fast-changing and competitive environment. Horizontal integration is important in fast-changing work environments to allow employees develop reengineered and redesigned work environment through teamwork and innovativeness, leading to efficient utilisation of resources and reduced costs of operation and production. Horizontal integration improves communication across various departments in the organisation. It also leads to larger markets and builds good reputation of for the organisation.

Another model that can be used to develop a marketing model for the company is the SWOT analysis. It is necessary for the company to assess its strengths, weaknesses, threats and opportunities in order to develop appropriate approaches to meet its objectives. The SWOT analysis of Evraz Highveld is shown below.

Strengths

• Strong brand image
• Strong networks
• Good relations with suppliers
• Strong bargaining power

Weaknesses

• High costs
• Poor operation management
• Poor financial performance
• Poor marketing
• Labour unrests

Opportunities

• Large market
• Improving technologies
• Natural resources availability

Threats

• Environmental issues
• Legislative restrictions
• Labour unions and labour market volatilities

To improve its marketing strategy, the company needs to take advantage of its strengths and opportunities while using the available resources to deal with weaknesses and threats. The company has been a well known company in South Africa, winning good image and strong networks of suppliers, customers, partners and communities. It also has a good bargaining power over customers and a good relationship with suppliers. These strengths can be used to bargain for lower costs of production and higher prices.