Corrections Corporation of America Company - Essay Example

? Corrections Corporation of America Company Analysis Contents INTRODUCTION 4 Situation Synopsis 4 Problem ment 4 Ethical Factors 5 Company’s Current Strategy 5 ANALYSIS 5 EXTERNAL ANALYSIS 5 Industry Structure & Trends 6 Industry Economics 6 Key Success Factors 7 Competitive Situation Analysis 8 Competitive Forces 8 Competitive Approach & Strengths of Key Competitors 9 Industry Wide Ethical Factors 9 INTERNAL ANALYSIS 10 Financial Analysis 10 Operations Analysis 11 Marketing and Competitive Position 11 EVALUATION OF ALTERNATIVES 11 Recommendation 13 Reference 15 Appendix 1 16 Appendix 2 17 Utilitarianism Alternative 17 Libertarianism Alternative 17 Kant Alternative 17 Rawls Alternative 18 INTRODUCTION The article by Rafael Di Tella and Laura Wing focuses on Corrections Corporation of America (CCA) and the issue of punishment and crime in the United States of America. The article highlights the statistics of the company as well as those of crimes and punishment, with emphasis on those criminals in jail. According to the authors, the company has been recording a decline in profits for the past few years. This is because of the current policies adopted by the state and federal government of reducing operation costs and incarceration rates in the country. As a result, the private prison industry business is drying up, with the major impact on the leaders like CCA. Situation Synopsis The current pressure on states to reduce and control overcrowding in prisons, largely due to the economic considerations, is jeopardizing the efficiency of the correctional function of the nation, as well as the contracts for CCA and other private prison companies. Problem Statement The policies affecting the population of criminals in prisons (and thus business of private prison companies) raise questions of an ethical nature. According to the article, states prefer releasing incarcerated individuals early rather than incurring their maintenance expenses, which include hiring private prison services and building new prison facilities. This could result in cases of insecurity, increased crime, and recidivism. The current budget-crisis needs to be sorted out, as well as state policies on incarceration. This is achievable through supporting lobby and human rights activist on the issue. Ethical Factors The ethical factors surrounding the current changes in the justice and correction departments in the US regard the moral consequences and the general good of the nation. The early release of incarcerated individuals may have an impact on the recidivism and security of the country at large. Rehabilitation and correctional efficiency of criminals reduces even with an increase of cost in public prison facilities. The effect of the current state policies affects all individuals, from individual citizens to the individuals incarcerated. Company’s Current Strategy The CCA is planning to expand its market to Europe and other countries. In Europe, the market for private prison services in increasing, a change attributed to the changing justice policies in those nations. In the US, the company has remained behind its competitors in expansion, preferring to wait for clarity on the current situation and its expected-persistent duration (Tella and Winig, 2010). The current adoption of cost control policies by states will result in leniency in law and justice, which will further result in increase in crime nationwide. Additionally, CCA suffers economically if its correction facilities do not maintain an acceptable level of incarcerated criminals. ANALYSIS EXTERNAL ANALYSIS The history of private prison industry dates back to 1984, with CCA taking over the management of a prison facility in Tennessee. The company has since grown to become the leader in the industry, commanding nearly 50% of the prison beds under private correctional services (Tella and Winig, 2010). Industry Structure & Trends The private prison services industry offer correctional services to the nation, the main customers being federal and state governments in the US. These companies work on a contractual basis, typically three to five years, but most of the contracts incorporate clauses that allow the government to terminate their agreement. The growth of the industry depends on a number of uncontrollable factors, which include sentencing patterns in different jurisdictions, crime rates, and acceptability of prison services privatization. Specialists in the industry argue that business is headed downwards for new comers as more states try to reduce prison overcrowding and expenses. According to the article, almost half of the new inmates were sent to private prison facilities in 2009 (Tella and Winig, 2010). The article cites one analyst suggesting that established firms in the industry who have focused on their competencies will continue to grow despite the budget crisis. The policies regulating private prison use varies from state to state, with some states banning the private prison altogether, like New York, Louisiana, and Illinois. Outside the US, privatization of prison services has not been embraced fully. Nonetheless, countries, especially in the European region, are adopting the system, with Australia having a record 17% (Tella and Winig, 2010). Industry Economics The industry has been growing significantly since its inception, from 3100 inmates in the year 1987 to around 150000 inmates in the year 2000. These figures show that the industry has developed, and will continue to do so. According to Bureau of Justice Assistance, lower operational costs make privatization cheaper than public facilities. In Colorado, for instance, the state uses approximately 44.35 dollars a day in middle-level public correctional facilities for an inmate, while CCA charges 49 dollars and 44.83 dollars for GEO group (Tella and Winig, 2010). However, the charges vary from state to state, but the overall estimates indicate that private prisons are cheaper by 1 %. In 2008, CCA debts were amounting to almost 1.1 billion dollars. Nevertheless, this was due to the expansion strategies in place. In 2008, the operating margins of the company increased by 1%, a direct result of increments in the mean compensated population. In 2008, CCA services for the federal government accumulated to 629 million dollars and state governments 839 million dollars. The management revenues of the company also increased 10.5% or 150.8 million dollars. In the past two years, however, the growth of the industry has been slow and sluggish (Tella and Winig, 2010). Adoption of cost control and cost reduction policies by majority of states across the nation has attributed this situation. Key Success Factors The key success factors for CCA include its pioneering efforts in the modern day private prison industry. The federal and state governments have faith in the company due to its experience in the business. Additionally, almost 94% of the company’s correctional facilities are accredited by an independent organization that specializes in the correction industry, the American Correctional Association (ACA) (Tella and Winig, 2010). The CCA also provides educative and rehabilitative programs to the inmates, including parenting skills, vocational training, life transition skills, religious and faith-based training, as well as financial responsibility. These qualities make the company a market leader. The success of the company is also a result of adoption of tough-on-crime laws, including the three strikes, the truth in sentencing concept, and the minimum mandatory sentencing policies. These have increased the population of inmates in public, and thus in private prison facilities. Competitive Situation Analysis Despite past growth and competition in the private prison industry, CCA still leads the business. The main contributing factor for the competitive edge of the company remains that of being an early venture in the industry, and to some extent, offering cheaper services on a national average. The other advantage of the company first-moving act is the policy adopted by most states, which presents barriers to the new companies from venturing into the industry. Additionally, the services that the company offers besides the custodial services are the best in the industry, covering a wide area of practise. Even though other private prison service providers offers such services, they do not offer a variety, or their services are not accredited by ACA like those of CCA. Competitive Forces The most significant competitor for CCA is the GEO Group, formerly the Wackenhut Corrections Corporation. By 2009, the Florida-based firm employed more than 13000 workers in their correctional facilities that have a combined bed-strength of more than 60000 beds (Tella and Winig, 2010). The company has extended its operation into European countries, with particular stakes in the UK where it has an independent subsidiary. Other countries include Australia, Cuba, Canada, and South Africa. The GEO Group poses a threat to CCA due to its low charges in major states like Colorado, where the charges vary by up to 5 dollars per day per inmate. In addition, the fact that it now operates internationally is also a competitive disadvantage to CCA. Competitive Approach & Strengths of Key Competitors As earlier mentioned, GEO Group operates internationally. The strategy of the company revolves around providing affordable incarceration services to the federal and state governments, as well as tapping potential market throughout the world, as evidenced by its operations in South Africa. GEO Group specializes in tapping new markets where there is a growing need of private prison services, regardless of the costs and location. This is evident from the expansion of the company after President Barrack Obama took office with hopes of tough-on-crime legislations (Tella and Winig, 2010). On the other hand, CCA did not initiate expansion strategies and waited for clarity on the issue. From the external analysis of the current CCA market, it is evident that the company still holds some competitive advantage over its competitors. However, the current problem is not competition, but rather a diminishing market for its services and products. Therefore, the company should focus on other alternatives that will sustain its continuity. Industry Wide Ethical Factors The main ethical factors facing the entire private prison industry are public values like safety, justice, rehabilitation, and legitimacy. The private prison business threatens the prison staff, the prisoners, and the public as it aims to maximize profits. The argument behind this factor is that companies will hire few, inexperienced guards, increasing the rate of violence inside such facilities. The industry also seems to commoditize justice, with claims of extending convicts time to make profits. In addition, the industry may offer poor standards of rehabilitation services to minimize costs. Lastly, there is the concern on the legitimacy of delegating integral duties of the justice system to private investors. INTERNAL ANALYSIS Financial Analysis The profitability of CCA is significantly high, considering that the company made 629 million dollars for serving the federal government and 839 million dollars for the state governments in 2008. Additionally, the company added 4000 new beds between 2008 and 2009, a sign that indicates its profits margins. In 2008, the operating margins of the company increased to 30.4 %, a growth attributed to the increase in the mean compensated population. The management revenue of the company grew by 10.5%, also a result of an increase in the daily-compensated population in 2008 (Tella and Winig, 2010). The article suggests that the company spent 64% of the operating expenses on benefits and salaries. At the end of 2008, the company had an accumulated debt of 1.1 billion dollars. However, this was due to its expansion strategies in 2008 and 2009. The profitability of the company currently depends on the number of incarcerated individuals per day. At a given number of individuals, the company cannot meet the costs of operating the business without incurring losses. In recent times however, CCA has recorded low business, thanks to the adoption of cost cutting policies by most state governments in the US. Operations Analysis Analysts argue that CCA offers quality rehabilitation and correctional services, including vocational and cognitive programs that assist in changing the attitudes and behaviours of offenders. However, these services translate to other operational costs for CCA, which most state governments are reluctant to add on the checks. Unfortunately, the industry does not enjoy economies of scales, as their main customers (offenders incarcerated by the federal or state government) do not follow the conventional principles of supply and demand. The company has a long-time relation with the state and federal governments, considering the company began offering their services back in 1987 (Tella and Winig, 2010). Marketing and Competitive Position CCA is still the market leader in the private prison industry. The nature of the business does not permit advertising, but its main marketing goal is gaining market acceptability. CCA, however, is disadvantaged due to its lack of expansion internationally. Its main competitor GEO Group currently enjoys the international market with subsidiaries over Europe. The internal analysis indicates that the company’s profitability is decreasing, with a possibility of deteriorating further. It also presents an opportunity that will sustain the company, which is venturing into the international markets like Europe. Additionally, it highlights the nature of the business, including its lack of conformity to conventional supply and demand rules. EVALUATION OF ALTERNATIVES There are several alternatives that CCA may follow, all of which follow a moral and ethical concern. The best alternative will meet all the issues raised by the stakeholders, thus the best alternative will have to incorporate concerns of quality, efficiency, and public values like justice, legitimacy, safety, and rehabilitation. There are four viable alternatives for CCA. They include expansion in the current US market, expansion internationally to Europe and other regions, diversifying to private rehabilitation, and venturing into the EM Business. The first alternative is a bold move that underpins the current crisis that faces the market. The main advantage is that the market still exists, and CCA will be capitalizing on the clients it currently has. The downward part of this alternative is that the market may face extinction in the near future. If CCA expands and the market becomes extinct, the losses will be significant. The second alternative is expanding the current market internationally to cover uprising demands in regions like Europe and some parts of Asia. The advantage of this alternative is that it has empirical evidence of success (GEO Group venture). Therefore, CCA has some degree of assurance that the expansion to Europe will be successful. However, CCA faces heavy competition as a last-minute mover into the market. Competitors like the GEO Group already a significant market share that will be difficult to slice. The third alternative is diversifying its current prison services to incorporate rehabilitation. This provides CCA with an opportunity to embrace lenient sentences for offenders, aligning the company with the wishes of lobby groups and activists that threaten its existence. The advantage of this option is that the company will still maintain its market share. However, it may not be easy to influence the policies of the government to accept lenient charges. Additionally, not all opponents will side with the company that easily. The last alternative is to venture into the electronic monitoring business. This will enable CCA to retain its market share, utilize the current technological advancement, as well as appear as an advocate of less-harsh penalties. This alternative may seem a bit far-fetched, but it is the current criminal justice policy for minor offenders in many countries in Europe. The advantage of this option is that CCA will be the first company to introduce such services, thus the first-mover advantage. Again, the goodwill of the company will improve because of advocating for minor charges against low-level offenders. However, this alternative faces economic challenges of initial and overhead costs. Recommendation The four available alternatives present different angles of ethical consideration for the CCA. The best alternative would be to venture into the electronic monitoring business, as all stakeholders in the issue will benefit. CCA should focus on developing an electronic monitoring system and advocate for lenient charges for offenders like parole and house arrest. CCA may incur some overhead costs in operation, as it will be venturing in the electronic monitoring business. However, the costs will be reimbursed as the business grow, which will be about 10 to 12 months. Adoption of this policy will improve the tainted image and reputation of the company. This will work towards acceptability of the company by the public on grounds of social responsibility, particularly that of advocating for lenient charges for petty offenders. On the other hand, the company will be a first-mover in the electronic monitoring services industry, enjoying the merits in similar proportions it enjoys in the private prison services. The company will meet all the interests of the stakeholders, including their organizational goal of profit maximization as well as those of human rights activist and lobby groups of lenient punishment for petty offenders, a win-win situation. The EM business also takes advantage of incorporating technology into the business. Additionally, it follows the principles of Kant of improving goodwill (advocating for other lenient forms of punishment other than incarceration, which is what anyone fair and moral would ask for). Reference Tella, R. D., and Winig, L. (2010). The Market for Prisoners: Business, Crime, and Punishmnet in the “American Dream”. Harvard Business School. 9-710-042. Appendix 1 Expansion in the US (Alt 1) Expansion internationally to Europe (Alt 2) Diversification to private rehabilitation (Alt 3) EM Business (Alt 4) Implementation costs (Criteria 1) Positive Negative Negative negative Maintaining market share (Criteria 2) Positive Negative Positive Positive Improving goodwill (Criteria 3) Negative Negative Negative Positive Innovation (Criteria 4) Negative Positive Negative Positive Shareholders interests (Criteria 5) Positive Positive Positive Positive Fig 1: Table showing evaluation of the four alternatives using five criterions. Appendix 2 Utilitarianism Alternative The company should address some of the ethical issues brought forth by lobby groups, activists, and the public. These issues relate to public values like justice, safety, legitimacy, and rehabilitation. On the same issue, the company should present its concerns on the quality and efficiency of correctional services. The general idea is to create a situation that presents the greatest good for the greatest number. In this scenario, both parties should come into a common agreement on the cost of services as well as the quality of services offered. Libertarianism Alternative With reference to libertarian theory of ethics, the company should make no change. According to the current work methodology of the company, only one wing of the stakeholders is complaining about the services of the company. CCA provides quality and efficient rehabilitation and correctional services, which would otherwise be impossible in public prison facilities. Kant Alternative Focusing on Kant’s theory on ethics, CCA should improve on their services to cater for the concerns raised by the public and incarcerated individuals. However, the customers (federal, state, and local authorities) should adjust their reimbursement to cater for the changes in operating costs (Tella and Winig, 2010). CCA should also advocate for other forms of punishment other than incarceration, including paroles and electronic monitoring. This means that the company should venture into the global positioning system services like electronic monitoring of offenders. Rawls Alternative The only changes that may be effective considering Rawls’ theory would be to offer improved services to the incarcerated offenders, regardless of the reimbursement from state and federal authorities. The main point in this alternative is to maximize the benefits of the offenders. Read More