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SWOT Analysis of Walt Disney Company
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. It is without undeniable dispute that The Walt Disney Corporation has created an empire that is unmatchable. They strived for excellence and are continually changing. They have surrounded themselves with the best artists, the most innovative creators, and the newest technology to compliment it all. Above all, the consumers are the driving force behind the genius enterprise, and the two brothers never lost sight of the goal. Walt and Roy believed that he had to stay one step ahead of the competition in order to be the most innovative and creative animation company of all times. Strengths: Strong product portfolio. Walt Disney’s products include broadcast television network ABC and cable networks such as Disney Channel or ESPN, which is one of the most watched cable networks in the world. Combining the significant audience reach of these cable networks, and the solid growth of cable television, Disney’s product portfolio provides a competitive advantage for the company over its competitors. Brand reputation. Walt Disney brand has been known for more than 90 years in US and has been widely recognized worldwide, especially due to its Disney Channel, Disney Park resorts and movies from Walt Disney studios. The company is perceived as the primary family entertainment provider and was the 13th most valuable brand in the world in 2012. Competency in acquisitions. One of the strongest sides the company has is its competency in acquisitions. The Walt Disney Company had acquired Pixar Animation Studios in 2006, Marvel Entertainment in 2009 and Lucasfilm in 2012. The former 2 acquisitions have already proved to be very successful in terms of revenue and profit growth. The third acquisition is expected to be just as successful because Disney has acquired rights to all of the Lucasfilm previous works including Star Wars. Few other Disney competitors have had such record of successful acquisitions. Diversified businesses. The business operates five different business segments: media networks, parks and resorts, studio environment, consumer products and interactive media. These company’s segments are operated online and offline, in many different economies and are generating their income using different business models. Due to such diverse operations, Disney is less affected by changes in external environment than its competitors are. Localization of products. Recently, Disney has started adapting its products to suit local tastes. Besides the parks and resorts, company’s movies and consumer products are adapted for Chinese market to attract more visitors. This is rarely initiated by the movie studio itself and is something that few other studios are doing. Weaknesses: The company operates in some of the highly competitive markets in the world, with numerous other companies producing the same products, (Universal Orlando to their Disney World) (Dreamworks to their Pixar) The company derives the large majority of its revenue from the volatile and unpredictable child market, as one day the world’s kids might like one thing and next another character or story The company’s success is highly linked to the overall economic condition as their products are the complete opposite of necessities, in times of despair people are noting going to have the money to go on a vacation or buy gifts at the Disney Store Costs of operation are high. Heavy dependence on income from North America. Although, Disney operates in more than 200 countries, it heavily depends on US and Canada markets for its income. More than 70% of the business the revenues come from US alone, while the major Disney’s competitor News Corporation receives less than 50% of revenues from US, making it less vulnerable to changes in US market. Few opportunities for significant growth through acquisitions. The Walt Disney Company is the largest entertainment provider in the world and has become so due to acquisition of competitors. The last Disney’s acquisition had to be approved by Federal Trade Commission so that the company wouldn’t have to deal with antitrust problems. This means that the size of the Disney’s business has become a concern for the government due to significant market concentration and that the company has very few opportunities to acquire competitors. Otherwise, Disney may become a subject to antitrust laws. Opportunities: Additional acquisitions are always a possibility, as Disney has continuously proven in the past that they are willing to pay out large amounts of money to acquire its targets With the track record the company possesses of producing blockbuster hits and resulting valuable brand lines, it is always a possibility that in the future they could duplicate this success Develop more attractions for theme parks. Growth of paid TV industries in emerging economies. The Asia Pacific region accounted for more than 50% market share of the world pay TV subscribers (394 million) in 2011. It was expected to grow to more than 55% by the end of 2016, where China would account for more than 27% of the market. The similar growth is expected in India as well. Disney Company has already entered these markets and should continue to strengthen its position there to benefit from such high industry growth. Expansion of movie production to new countries. Disney has an opportunity to expand its movie production to such countries as India or China, where movie production industries have developed good quality infrastructure. This would result in lower movie production costs and more localized movies for India and China’s markets. Room to develop the market in emergent countries. Expansion into different segments Threats: Intense competition. Disney operates in very competitive industries such as media, tourism, parks and resorts, interactive entertainment and others. The competitive landscape changes quite drastically in the media industry, where news and TV go online and new competitors with new business models compete more successfully than incumbent media companies. Disney’s parks and resorts business segment also receives strong competition from local competitors who can offer better-adapted product. This results in growing competitive pressure for Walt Disney Company. Increasing piracy. The advancements in technology allow copying, transmitting and distributing copyrighted material much easier. With an increasing number of internet users and the speed of internet, this poses a great risk to Disney’s income, as fewer people would go to watch movies in a cinema or buy its DVD, when it’s freely available online. Strong growth of online TV and online movie renting. Besides internet piracy, Disney’s media and movie production businesses may suffer from online TV and online movie rental growth. Subscription to online TV streaming and movie rental websites costs much less than to usual cable television providers. In addition, internet infrastructure is often managed by different companies, thus taking the power away from cable network providers. A major threat to Disney’s success is the current market stagnation, as consumers do not have money to spend on Disney’s products and vacations Conclusion: Disney possesses many strengths, weaknesses, opportunities, and threats, however in the end appears to a financially solid company with an upbeat future. On any market pullback, this company appears extremely attractive, and is tremendous long-term investment.
Deepak Maltumkar
McKinsey 7S Framework for effective organisations
McKinsey 7S Framework This model was developed in the 1980's by Robert Waterman, Tom Peters and Julian Philips whilst working for McKinsey and originally presented in their article “Structure is not Organization". The 7S Model which they developed and presented became extensively used by mangers and consultants and is one of the cornerstones of organizational analysis. Essentially the model says that any organization can be best described by the seven interrelated elements shown above: The Seven-Ss (7-S Model) is a framework for analyzing organizations and their effectiveness. It looks at the seven key elements that make the organizations successful, the model shows that organizational immune systems and the many interconnected variables involved make change complex, and that an effective change effort must address many of these issues simultaneously. The 7-S model is a tool for managerial analysis and action that provides a structure with which to consider a company as a whole, so that the organization's problems may be diagnosed and a strategy may be developed and implemented. The 7-S diagram illustrates the multiplicity interconnectedness of elements that define an organization's ability to change. The theory helped to change manager's thinking about how companies could be improved. It says that it is not just a matter of devising a new strategy and following it through. Nor is it a matter of setting up new systems and letting them generate improvements. The model proposes 7 interdependent factors – 3 hard ‘S’ i.e. strategy, structure, systems; and 4 soft ‘S’ i.e. shared values, skills, style and staff. The hard ‘S’ are more tangible, easily to define and easy to influence than the soft ‘S’. Strategy Strategy is “plans an organization formulates to reach identified goals” and a set of decisions and actions aimed at gaining a sustainable advantage over the competition. What is the organization’s strategy seeking to accomplish? How does the organization plan to use its resources and capabilities to deliver that? What is distinct about this organization? How does the organization compete? How does the organization adapt to changing market conditions? Structure Structure is the organizational chart and associated information that shows who reports to whom and how tasks are both divided up and integrated. In other words, structures describe the hierarchy of authority and accountability in an organization, the way the organization's units relate to each other: centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. These relationships are frequently diagrammed in organizational charts. Most organizations use some mix of structures – pyramidal, matrix or networked ones – to accomplish their goals. How is the organization organized? What are the reporting and working relationships (hierarchical, flat, silos, etc.)? How do the employees align themselves to the strategy? How are decisions made? Is it based off of centralization, empowerment, decentralization or other approaches? How is information shared (formal and informal channels) across the organization? Systems Systems define the flow of activities involved in the daily operation of business, including its core processes and its support systems. They refer to the procedures, processes and routines that are used to manage the organization and characterize how important work is to be done. What are the primary business and technical systems that drive the organization? What and where are the system controls? How is progress and evolution tracked? What internal rules and processes does the team utilize to maintain course? Shared Values Shared values are commonly held beliefs, mindsets, and assumptions that shape how an organization behaves � its corporate culture. Shared values are what engender trust. They are an interconnecting center of the 7Ss model. Values are the identity by which a company is known throughout its business areas, what the organization stands for and what it believes in, it central beliefs and attitudes. These values must be explicitly stated as both corporate objectives and individual values. What is the mission of the organization? What is the vision to get there? If so, what is it? What are the ideal versus real values? How do the values play out in daily life? What are the founding values that the organization was built upon? Style "Style" refers to the cultural style of the organization, how key managers behave in achieving the organization's goals, how managers collectively spend their time and attention, and how they use symbolic behavior. How management acts is more important that what management says. What is the management/leadership style like? How do they behave? How do employees respond to management/leadership? Do employees function competitively, collaboratively, or cooperatively? Are there real teams functioning within the organization or are they just nominal groups? What behaviors, tasks and deliverables does management/leadership reward? Staff "Staff" refers to the number and types of personnel within the organization and how companies develop employees and shape basic values. What is the size of the organization? What are the staffing needs? Are there gaps in required capabilities or resources? What is the plan to address those needs? Skills "Skills" refer to the dominant distinctive capabilities and competencies of the personnel or of the organization as a whole. What skills are used to deliver the core products and/or services? Are these skills sufficiently present and available? Are there any skill gaps? What is the organization known for doing well? Do the employees have the right capabilities to do their jobs? How are skills monitored, assessed, and improved? Porter’s Value Chain Analysis According to Michael Porter value is the chain of activities for a company that operates in a specific industry. For gaining the competitive advantages, Porter suggested that going through the chain of organization activities will add more value to the product and services than the sum of added cost of these activities. And thus, the company will gain marginal value for that product or service. If these activities run efficiently the company gains competitive advantage on the product or service. For this case the customers should transact the product or services willingly and provide return on value to the organization. The value chain framework can be used as powerful analysis tool for the strategic planning and to build the organizational model ensuring an effective leadership model. The value chain concept can be applied also in the individual business unit and can be extended to the whole supply chains and distribution networks. To form a successful product for an organization it is important to add value in each activity that the product goes through during the life cycle. The best possible value can be achieved in the product development process by adding value in each stage. For that it needs all, or a combination of, value chain activities and a proper synchronization among all the related activities. A proper organization is required that contains all the required functional departments to perform these activities and a proper communication approach is required to synchronize the activities of these functional units efficiently. How to map the porter's value chain activities into business functional activities? To solve this problem, first we have to classify the value chain activities into functional activities: Classification of Porter's value chain activities: Porter classified the generic value added activities into two classes which are presented below. These activities are: primary activities which are classified as product and market related activities and support activities that are related to infrastructure, technology, procurement, and human resource management. Porter’s Value Chain Activities Primary activities can be classified into product related and market related activities which are described below: Product related activities: The activities that the organization performs to add value to the products and services itself. The activities are classified as: 1. Inbound logistics: For the production and development activities, organizations need inputs as goods which are received from the suppliers. Inbound logistics refer to all the activities related to receive goods from the suppliers, decision about the transportation scheduling, storing the goods as inventory, managing the inventory, and make the inputs ready to use for the production of end products. 2. Operations: These include the production process, development activities, testing, packaging, maintenance, and all other activities that transform the inputs into finished product. 3. Services: Organization offers the services after the products and/or services have been sold. These service activities enhance the product’s value in the form of after sales guarantees, warranties, spare parts management, repair services, installation, updating, trainings, etc. Market related activities: The activities that the organization performs to transfer the finished products or services to the customers. The activities are classified as: 1. Outbound Logistics: The finished products are developed using the product related activities. Now activities are required to transfer the finished products to the customers via warehousing, order fulfillment, transportation, and distribution management. 2. Marketing and Sales: These activities include the advertising, channel selection, product promotion, selling, product pricing, retail management, etc. The activities are performed to make sure that the products are transferred to the targeted customer groups. Marketing mix can be an instrument to take the competitive advantage to the target customers. Support Activities Although, primary activities add value directly to the production process, they are not necessarily more important than support activities. Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most important source of differentiation advantage. On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed. Procurement: This department must source raw materials for the business and obtain the best price for doing so. The challenge for procurement is to obtain the best possible quality available (on the market) for their budget. Technology development: The use of technology to obtain a competitive advantage is very important in today’s technological driven environment. Technology can be used in many ways including production to reduce cost thus add value, research and development to develop new products and the internet so customers have 24/7 access to the firm. Human resource management: The organization will have to recruit, train and develop the correct people for the organization to be successful. Staff will have to be motivated and paid the ‘market rate’ if they are to stay with the organization and add value. Within the service sector such as the airline industry, employees are the competitive advantage as customers are purchasing a service, which is provided by employees; there isn't a product for the customer to take away with them. Firm infrastructure: Every organization needs to ensure that their finances, legal structure and management structure work efficiently and helps drive the organization forward. Inefficient infrastructure is waste resources, could affect the firm's reputation and even leave it open to fines and sanctions. Organizational Culture The values and behaviors that contribute to the unique social and psychological environment of an organization. Organizational culture includes an organization's expectations, experiences, philosophy, and values that hold it together, and is expressed in its self-image, inner workings, interactions with the outside world, and future expectations. It is based on shared attitudes, beliefs, customs, and written and unwritten rules that have been developed over time and are considered valid. Also called corporate culture, it's shown in (1) the ways the organization conducts its business, treats its employees, customers, and the wider community, (2) the extent to which freedom is allowed in decision making, developing new ideas, and personal expression, (3) how power and information flow through its hierarchy, and (4) how committed employees are towards collective objectives. It affects the organization's productivity and performance, and provides guidelines on customer care and service, product quality and safety, attendance and punctuality, and concern for the environment. It also extends to production-methods, marketing and advertising practices, and to new product creation. Organizational culture is unique for every organization and one of the hardest things to change. “Culture is how organizations ‘do things’.” — Robbie Katanga Culture is consistent, observable patterns of behavior in organizations. Aristotle said, “We are what we repeatedly do.” This view elevates repeated behavior or habits as the core of culture and deemphasizes what people feel, think or believe. It also focuses our attention on the forces that shape behavior in organizations, and so highlights an important question: are all those forces (including structure, processes, and incentives) “culture” or is culture simply the behavioral outputs? “In large part, culture is a product of compensation.” — Alec Haverstick Culture is powerfully shaped by incentives. The best predictor of what people will do is what they are incentivized to do. By incentives, we mean here the full set of incentives — monetary rewards, non-monetary rewards such as status, recognition and advancement, and sanctions — to which members of the organization are subject. But where do incentives come from? As with the previous definition, there are potential chicken-and-egg issues. Are patterns of behavior the product of incentives, or have incentives been shaped in fundamental ways by beliefs and values that underpin the culture? “Organizational culture defines a jointly shared description of an organization from within.” — Bruce Perron Culture is a process of “sense-making” in organizations. Sense-making has been defined as “a collaborative process of creating shared awareness and understanding out of different individuals’ perspectives and varied interests.” Note that this moves the definition of culture beyond patterns of behavior into the realm of jointly-held beliefs and interpretations about “what is.” It says that a crucial purpose of culture is to help orient its members to “reality” in ways that provide a basis for alignment of purpose and shared action. “Organizational culture is the sum of values and rituals which serve as ‘glue’ to integrate the members of the organization.” — Richard Perrin Culture is a carrier of meaning. Cultures provide not only a shared view of “what is” but also of “why is.” In this view, culture is about “the story” in which people in the organization are embedded, and the values and rituals that reinforce that narrative. It also focuses attention on the importance of symbols and the need to understand them — including the idiosyncratic languages used in organizations — in order to understand culture. “Organizational culture is civilization in the workplace.” — Alan Adler Culture is a social control system. Here the focus is the role of culture in promoting and reinforcing “right” thinking and behaving, and sanctioning “wrong” thinking and behaving. Key in this definition of culture is the idea of behavioral “norms” that must be upheld, and associated social sanctions that are imposed on those who don’t “stay within the lines.” This view also focuses attention on how the evolution of the organization shaped the culture. That is, how have the existing norms promoted the survival of the organization in the past? Note: implicit in this evolutionary view is the idea that established cultures can become impediments to survival when there are substantial environmental changes. “Culture is the organization’s immune system.” — Michael Watkins Culture is a form of protection that has evolved from situational pressures. It prevents “wrong thinking” and “wrong people” from entering the organization in the first place. It says that organizational culture functions much like the human immune system in preventing viruses and bacteria from taking hold and damaging the body. The problem, of course, is that organizational immune systems also can attack agents of needed change, and this has important implications for on-boarding and integrating people into organizations. In the discussion, there were also some important observations pushing against the view of culture as something that it is unitary and static, and toward a view that cultures are multiple, overlapping, and dynamic. “Organizational culture [is shaped by] the main culture of the society we live in, albeit with greater emphasis on particular parts of it.” — Elizabeth Skringar Organizational culture is shaped by and overlaps with other cultures — especially the broader culture of the societies in which it operates. This observation highlights the challenges that global organizations face in establishing and maintaining a unified culture when operating in the context of multiple national, regional and local cultures. How should leaders strike the right balance between promoting “one culture” in the organization, while still allowing for influences of local cultures? “It over simplifies the situation in large organizations to assume there is only one culture… and it’s risky for new leaders to ignore the sub-cultures.” — Rolf Winkler The cultures of organizations are never monolithic. There are many factors that drive internal variations in the culture of business functions (e.g. finance vs. marketing) and units (e.g. a fast-moving consumer products division vs. a pharmaceuticals division of a diversified firm). A company’s history of acquisition also figures importantly in defining its culture and sub-cultures. Depending on how acquisition and integration are managed, the legacy cultures of acquired units can persist for surprisingly long periods of time. “An organization [is] a living culture… that can adapt to the reality as fast as possible.” — Abdi Osman Jama Finally, cultures are dynamic. They shift, incrementally and constantly, in response to external and internal changes. So, trying to assess organizational culture is complicated by the reality that you are trying to hit a moving target. But it also opens the possibility that culture change can be managed as a continuous process rather than through big shifts (often in response to crises). Likewise, it highlights the idea that a stable “destination” may never — indeed should never — be reached. The culture of the organization should always be learning and developing. Organizational Culture and Strategic Change Transforming an organization—for example, changing a service model or delivery area, or adding a new set of beneficiaries— is not just an exercise in creating new strategies and processes to accomplish the organization’s mission. It also means evaluating how the existing organization’s culture might positively or negatively influence the change that needs to take place—and then working to adjust the culture, as needed, so that it supports the change. Culture is in essence an organization’s operating environment: the implicit patterns of behavior, activities, and attitudes—shaped by a shared set of values and beliefs—that characterize the way people work together. In order for any strategic change to be implemented successfully, the organization’s culture needs to be aligned. Unfortunately, if it isn’t, the challenge is significant; changing culture is not an easy task. “Changing culture isn’t as simple as identifying the new behaviors you want to see and articulating a new set of beliefs and values associated with these,” explained Kirk Kramer. “Most people won’t change their behaviors until they observe the role models in their organization acting differently, and when they see this new behavior positively recognized and rewarded—a clear promotion, a plum assignment, a change in authority or responsibility, or simply praise from the top of the organization.” It has been found that the key levers leaders have to change culture are the ones that motivate and support different behaviors: who is on the leadership team, what they are doing, who makes key decisions, which people are in key jobs, who gets positive feedback through performance assessments, and even the right processes and systems that affect how people work together. Strong vs. Weak Culture Strong-Culture Companies: Strong-culture companies have a well-defined corporate character, typically underpinned by a creed or values statement. Three factors contribute to the development of strong cultures: a. A founder or strong leader who establishes values, principles, and practices that are consistent and sensible in light of customer needs, competitive conditions, and strategic requirements b. A sincere, long-standing company commitment to operating the business according to these established traditions, thereby creating an internal environment that supports decision making and strategies based on cultural norms c. A genuine concern for the well-being of the organization’s three biggest constituencies – customers, employees, and shareholders CORE CONCEPT: In a strong-culture company, values and behavioral norms are like crabgrass; deeply rooted and hard to weed out. Weak-Culture Companies: In direct contrast to strong-culture companies, weak-culture companies are fragmented in the sense that no one set of values is consistently preached or widely shared, few behavioral norms are evident in operating practices, and few traditions are widely revered or proudly nurtured by company personnel. Very often, cultural weaknesses stems from moderately entrenched subcultures that block the emergence of a well-defined companywide work climate. Weak cultures provide little or no strategy-implementing assistance because there are no traditions, beliefs, values, common bonds, or behavioral norms that management can use as levers to mobilize commitment to executing the chosen strategy.
Design Real Estate Project Launch
Launch of a New Residential Real Estate Project in Rajarhat New Town - Action Area I, Kolkata Project Name: Nouvelle Company Name: ABC Ltd. Product: Residential project comprising of 264 apartments on a land area of 3.5 acres (1, 52,460 sq.ft.) Location of the Product: Image from Google earth Total Construction Area: 5, 50,000 sq.ft. Total of 3 blocks of G+22 comprising of 4 apartments in each floor Product Mix: 3/ 4 BHK Apartments & Penthouses 3BHK - 1500sq.ft to 2000 sq.ft 4BHK - 3000 sq.ft. Penthouses - 5000 sq.ft. Product Features: Premium Facilities & Amenities like: Facilities · Fully Air Conditioned Club House · Swimming Pool with Jacuzzi & Kids’pool · Pool side deck with wooden finish and pool side coffee shop · Fully equipped gymnasium overlooking pool with steam rooms · Squash Court · Badminton Court · Banquet Hall · Landscaped water body spread over of 10000 sq.ft. · Children's Play Area · Temple · In House Grocery Store & ATM Amenities: · Modular kitchen with hob and chimney · Fully Air conditioned apartments · Italian Marble Flooring in Drawing & Dining · Shower Cubicles in all bathrooms · Premium quality bathroom and electrical fittings · Video Door Phone · Wooden flooring in all bed rooms · 24 hrs. treated water supply · High Speed Elevators · 3 tier security system · 24X7 powers backup and many more Target Audience · IT professionals: working in Sector 5 like directors & senior executives, rajarhat & salt lake area not having offices in Sector 5 · Pilots · Doctors · NRI's & NRB's · Business class & Investors · Other HNI's (i) Mindsets: · As we are aware that people working in IT companies are always under the pressure of delivering the project on time as majority of their clients are based in Europe, USA, Canada and other parts of the world so time becomes the factor. · They always have a mindset of leaving close to their office and so they can chose the Rajarhat action Area I because of the availability, clear title of land and overall New Town area which is very well planned by HIDCO and proximity of Rajarhat from main town, airport, upcoming Retail & Commercial developments, Hospitals, Metro, Hotels, IT Parks and Govt. Offices. · Pilots & Doctors too have the same mindset of leaving close to their working base so that they less time in travelling and more time with their family. (ii) Options: · As we can see we have a huge pool of target audience in that area who will be interested in buying a residential property in close proximity to their offices and working area and when it comes to good options it is limited. · As currently there is no supply of good residential project in Action Area I. We have few projects adjacent to Rajarhat Action Area I like Ideal Aqua View which is 85% sold , PS Panache which is 65% sold and there are two upcoming Residential projects from WBIDFC (West Bengal Infrastructure Development Finance Corporation) & Merlin Group. · As we can see the nearby projects are more than 60% & 80% sold out, so they have less option of providing the good flats to the customers. Also, the other two residential projects are upcoming and haven’t been launched yet. (iii) Influences: · Prime and on road location and very good connectivity · Lifestyle · Family (Nuclear family) & Marital Status · Near to their offices and working base (iv) Expectations: · Everybody has an expectations that when they are buying any kind of product, the product should be good and their hard earn money should go in safe hands. Target Market: (i) Geography: · New Town is located at 22.35* N 88.28* E. This township covers an area of 28 km and is located in Barasat Sadar subdivision of North 24 Parganas district. · Being a planned township New Town is divided into three areas: (a) Action Area I mainly consisting of Malls, a Sub - CBD (Central Business District) and planned residential and commercial plots (b) Action Area II is supposedly planned to have a main Central Business District (CBD), institutional plots, IT Business Parks like DLF and Unitech, and plots for large apartments complexes, it will also house the Kolkata Museum of Modern Art, a open Maidan with an Eco-park built around a water body. Action Area II C has many residential housing projects like Hiland Woods, Akankha, Sunrise Point, Starlit and moonbeam housing etc. (c) Action Area III mainly consists of high rise residential complexes and mini sub - townships like Uniworld City and Sukhobristi and upscale gated residential communities such as DLF Newtown Heights, Shrachi's Roosedale, Unitech's Uniworld City, Tata's Eden Court and Keppel's Elita Vista. Various leading institutes such as IIT Kharagour, St. Xavier’s College and IT majors Infosys and Wipro would be settling up their campuses there. A sprawling Arts Institute has already been set up. · New Town being 3 times the size of Saltlake has been allotted as the second IT Hub of Calcutta. · Already several IT majors are operational; while others like TCS (allotted 40 acres) and Wipro (allotted 45 acres) have been allotted space. · Real estate companies like DLF, Bengal Unitech of Unitech group, Shapoorji Pallonji, Tata group, Singapore based Keppel Land, Ambuja Realty, Bengal Peerless etc. are developing Commercial/Retail/Residential projects, some of which are largely operational today. · Some of the operational IT Companies in New Town includes : Cognizant, IBM, Genpact, Hewlett-Packard, Capgemini,TechMahindra, Accenture, Philips, HCL Technologies, Vodafone India, British Telecom, Other IT and ITes companies include eRevMax, Aegis, Xoriant Corp. and many mid-to small cap Tech firms. · IT majors like TCS, CTS, Infosys and Wipro have also acquired prime land in New Town and their facilities will be ready soon. The mega TCS SEZ facility is going to open by the end of 2014. Culture: · Kolkata is the cultural capital of India. · It has long been known for its literary, artistic and revolutionary heritage. · As the former capital of India, not only kolkata, West Bengal was the birthplace of modern Indian Literary, artistic and scholastic thought. · Bengalis tend to have a special appreciation for the art & literature, its tradition of welcoming new talent has made it a “city of furious creative energy" Language: · Bengali, the official state language, is the dominant language in kolkata. · English is also used, particularly by the white - collar workforce. · Hindi and Urdu are spoken by a sizeable population Target Competition New Town & Rajarhat · We face competition from running projects having a sizeable amount of unsold apartments like PS Panache, Ideal Aqua View, Elita Garden Vista & Club town Gateway · Unsold flats in Unitech Uniworld City in Action Area III · PS Panache and Ideal Aqua View , the awareness level these projects are very high and more than 60% of their stock is sold. All the existing customers of these projects will refer to their acquaintances whereas we yet to start the project. · Elita Garden Vista Phase I of the project is already sold and handed over and the developer is planning to launch the second phase soon between a price bracket of Rs. 4000 – Rs.4200/- per sq. ft. which is around 15% less than our estimated price. · Club Town Gateway is just opposite to City Centre II, very close to VIP road so anybody wanting a flat in the extended part of Kolkata near Airport will prefer this project. About the Company: One of the major players in FMCG sector having a net worth of around Rs. 50,000 crores had diversified themselves to Real Estate recently. PRICE Competition (Competitor Pricing) Sl. No. Project Name Developer's Name Location / Address Land Area / Height of Building No. of Apartments Expected Completion Date Current Base Rate Per sqft. 1 Unitech Fresco Bengal Unitech Universal Action Area III Within 100 Acres/ G+14, G+24 4000 approx. End 2013 5595/- 2 Unitech Air Bengal Unitech Universal Action Area III Within 100 Acres/ B+G+39 120 Dec-13 7000/- 3 Elita Garden Vista Sureka Group On the upcoming 2nd MAR, Close to DLF residential building 25 Acres / G+ 14,16,24 & 28 1278 January 2013 ( 1st Phase ) 3800 /- 4 Clubtown Gateway Space Group 200 mts from city center II 2.58 Acres / ( G+5) 155 End – 2015 5400/- 5 Panache P.S.Group & Srijan Backside of Salt lake Sec-5,close to to new Rajarhat Connector 319 cottah 8 chittaks/ Towers-6 (G+17,G+19,G+21,G+23,G+25) 520 2018 Rs 4900/- sq ft 6 Ideal Aqua View Ideal Group Mahesbathan,Newtown 450 cottah,6 Towers,G+18 650 2018 Rs 4350/- sq ft Pricing Strategy: Considering the current prices of other real estate properties in New Town Area and considering our location and cost of construction along with the current prices of land the Management has decided to price the product competitively so that we can attract huge number of potential customers and then gradually increasing the price based on demand and supply. How you arrived at your price? The real estate pricing is based on 1. FSI Cost ( Floor, Space, Index) - Floor area ratio (FAR), floor space ratio (FSR), floor space index (FSI), site ratio and plot ratio are all terms for the ratio of a building's total floor area (Gross Floor Area) to the size of the piece of land upon which it is built. The terms can also refer to limits imposed on such a ratio. As a formula: Floor area ratio = (total covered area on all floors of all buildings on a certain plot, Gross Floor Area) / (area of the plot) Thus, an FSI of 2.0 would indicate that the total floor area of a building is two times the gross area of the plot on which it is constructed, as would be found in a multiple-story building 2. Construction Cost - Expense incurred by a contractor for labor, material, equipment, financing, services, utilities, etc., plus overheads and contractor's profit. Costs such as that of land, architectural design, consultant and engineer's fee are not construction costs 3. Overhead Expenses - An accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Overhead must be paid for on an ongoing basis, regardless of whether a company is doing a high or low volume of business. It is important not just for budgeting purposes, but for determining how much a company must charge for its products or services to make a profit 4. Profit - A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business 5. Cost of Capital - It is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the shareholder's required return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet We have considered the FSI Cost of Rs. 800, Construction Cost of Rs. 2500/-, Overhead Expenses – 10% of Construction & FSI Cost and 35% of the profit margin. After taking the above mentioned points into consideration, we came to the final base rate of Rs. 5000/- Why should the target consumer accept it? The primary factor for deciding to purchase Real Estate is location, and then comes brand and price. So anybody looking for the property in New Town Area if they have a sizeable amount of budget will consider our project as we are located on a prime piece of land on the MAR (Major Arterial Road) in New Town from the well-known household brand and competitive price. Further the project is surrounded by Retail Malls like Hometown, Axis Mall, Extra Mall, DLF Galleria and upcoming Retail Mall just diagonally opposite to our project. If we compare with our rate viz a viz Elita Garden Vista which is in New Town Action Area III where there is no proper catchment and no future projects are planned as of it whereas we are surrounded with lots of Residential projects like Ambuja Utsa, DCL Shree, Greenwood Park, Greenwood Park Extension, Millennium Towers, Anamika, Eastern High, Greenfield Heights, Sankalpa (Phase II, III & IV) & other Residential complexes or land allotted by HIDCO. Plus our proximity from Sector V (IT hub of East India) and closeness to Salt Lake is another factor why our target consumer should accept it. The specifications which are provided by us is much superior than our competitors like Sl. No. Specifications Nouvelle Others 1 Flooring Imported Marble Vitrified Tiles 2 Modular Kitchen with Hob & Chimney Yes No 3 Air Conditioners Yes – In all Bedrooms, living & dining No 4 Shower Cubicles Yes - In all bathrooms Only in Master bedroom 5 Video Door Phone Yes No 6 Bathroom Fittings & Flooring European style wall & floor tiles Normal Ceramic tiles PLACE Distribution Channels: Ideally Real Estate is sold through two primary channels 1. Sole Selling Marketing Agents - It means, where a company appoints a person on behalf of company as an agent of the company who would be authorized for marketing & selling the product or goods of the company in an area where company may not have access. It also means that the person will be exclusively selling the product of that company or brand and not that of any others in full capacity. The Sole Selling Agent will be given salary or commission for the task taken like NK Realtors, Pioneer Properties, Modern Properties and many more. 2. Direct Selling by the Developers – It is the marketing and selling of products directly to consumers away from a fixed retail location. Peddling is the oldest form of direct selling. Modern direct selling includes sales made through the party plan, one-on-one demonstrations, and other personal contact arrangements as well as internet sales. A textbook definition is: "The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs. But we have decided to create a team of channel sales agents and direct selling network. Why did you choose the channel? We have chosen this channel networking to reach a larger base of target customers through our sales agents in India, US & UK and through our direct sales network we try to reach the target base of our own customers and investors. Channel Sales Agents - Agents in the sales process can represent either of two parties in the sales process; for example: · Sales broker, Seller agency, seller agent, seller representative: This is a traditional role where the salesman represents a person or company on the selling end of a deal. · Buyers’ broker or Buyer brokerage: This is where the salesman represents the consumer making the purchase. This is most often applied in large transactions. · Disclosed dual agent: This is where the salesman represents both parties in the sale and acts as a mediator for the transaction. The role of the salesman here is to oversee that both parties receive an honest and fair deal, and is responsible to both. · Transaction broker: This is where the salesperson represents neither party but handles the transaction only. The seller owes no responsibility to either party getting a fair or honest deal, just that all of the papers are handled properly. · Sales outsourcing involves direct branded representation where the sales representatives are recruited, hired, and managed by an external entity but hold quotas, represent themselves as the brand of the client, and report all activities (through their own sales management channels) back to the client. It is akin to a virtual extension of a sales force How do they effectively reach the target consumer? Each sales agency has a team of sales executives and they have their own set of databases and investors. We are planning to touch base with around 100 channel sales agents and if each agent deploys 2 sales executives for our project then in total we will be having a manpower base of around 200 hundred sales executives working for us. References: http://en.wikipedia.org/wiki/Floor_area_ratio http://en.wikipedia.org/wiki/Construction https://www.google.co.in/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=carpet+area+meaning http://www.propmart.com/faqs/faqs.asp?hdcat=BY&faqnum=164&txtSearch=&cbCategory= http://www.99acres.com/new-projects-in-rajarhat-east-kolkata-ffid http://www.commonfloor.com/upcoming-apartments-in-rajarhat/psr-5311800e84d66 http://www.nkrealtors.com/company-significant-transactions-residential-rajarhat.asp?lk=com9 http://www.magicbricks.com/property-for-sale/ALL-RESIDENTIAL-real-estate-Rajarhat-in-Kolkata http://www.hdfcred.com/properties-in-kolkata Notes: BHK – Bedroom, Hall, Kitchen MAR – Major Arterial Road CREDAI - Confederation of Real Estate Developers' Associations of India CBD – Central Business District WBIDFC - West Bengal Infrastructure Development Finance Corporation FSI COST (Floor, Space, Index) - Floor area ratio (FAR), floor space ratio (FSR), floor space index (FSI), site ratio and plot ratio are all terms for the ratio of a building's total floor area (Gross Floor Area) to the size of the piece of land upon which it is built. The terms can also refer to limits imposed on such a ratio. As a formula: Floor area ratio = (total covered area on all floors of all buildings on a certain plot, Gross Floor Area) / (area of the plot) Thus, an FSI of 2.0 would indicate that the total floor area of a building is two times the gross area of the plot on which it is constructed, as would be found in a multiple-story building. CONSTRUCTION COST - Expense incurred by a contractor for labor, material, equipment, financing, services, utilities, etc., plus overheads and contractor's profit. Costs such as that of land, architectural design, consultant and engineer's fee are not construction costs. OVERHEAD EXPENSES - An accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Overhead must be paid for on an ongoing basis, regardless of whether a company is doing a high or low volume of business. It is important not just for budgeting purposes, but for determining how much a company must charge for its products or services to make a profit PROFIT - A financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs and taxes needed to sustain the activity. Any profit that is gained goes to the business's owners, who may or may not decide to spend it on the business. COST OF CAPITAL – It is a term used in the field of financial investment to refer to the cost of a company's funds (both debt and equity), or, from an investor's point of view "the shareholder's required return on a portfolio company's existing securities". It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet SEO (Search Engine Optimization) & SEM (Search Engine Marketing) - Search engine marketing (SEM) is a form of Internet marketing that involves the promotion of websites by increasing their visibility in search engine results pages (SERPs) through optimization and advertising. SEM may use search engine optimization (SEO), which adjusts or rewrites website content to achieve a higher ranking in search engine results pages, or use pay per click (PPC) CARPET AREA: Carpet Area is the effective area available for use within the property, excluding the area occupied by the walls. It is measured from wall to wall within the property and translates into the actual area to lay the carpet. This area does not include the thickness of the inner walls. BUILT UP AREA: Built up area is the carpet area plus the thickness of outer walls and the balconies (in case of an apartment). It is around 10 percent more than the carpet area. A terrace is considered as half the actual area for calculating built up area. SUPER BUILT UP AREA: It is the built up area plus proportionate area of common areas such as the lobby, lifts shaft, stairs, etc. This is usually 25 percent more than the built up area. This term is therefore only applicable in the case of multi-dwelling units or apartment complexes. The plinth area along with a share of all common areas proportionately divided amongst all unit owners makes up the super built up area. Developers usually include the common areas such, swimming pool, garden, clubhouse, etc. to the super built up area. SEZ (Special Economic Zone) - It is commonly used as a generic term to refer to any modern economic zone. In these zones business and trades laws that differ from the rest of the country. Broadly, SEZs are located within a country's national borders. The aims of the zones include: increased trade, increased investment, job creation and effective administration. To encourage businesses to set up in the zone liberal policies are introduced. Their policies typically regard investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays.
The Application of Statistics in Business
Read and learn how companies and business have successfully implemented the use of statistical toolds to effect change!
Management Science – Decision Tree Analysis
Management Science in Practice - Case 1 – Decision Tree Analysis MEDICAL SCREENING TEST North Carolina A new medical screening test developed at the Duke University Medical Center involved using blood samples from newborns to screen for metabolic disorders. A positive test result indicated that a deficiency was present while a negative test result indicated that a deficiency was not present. However, it was understood that the screening test was not a perfect predictor; that is, false positive test results as well as false negative test results were possible. A false positive test result meant that the test detected a deficiency when in fact no deficiency was present. This case resulted in unnecessary further testing as well as unnecessary worry for the parents of the newborn. A false negative test result meant that the test did not detect the presence of an existing deficiency. Using probability and decision analysis, a research team analyzed the role and value of the screening test. A decision tree with six nodes, 13 branches, and eight outcomes was used to model the screening test procedure. A decision node with the decision branches “Test” and “No Test” was placed at the start of the decision tree. Chance nodes and branches were used to describe the possible sequences of a positive test result, a negative test result, a deficiency present, and a deficiency not present. The particular deficiency in question was rare, occurring at a rate of one case for every 250,000 newborns. Thus, the prior probability of a deficiency was 1/250,000 = 0.000004. Based on judgments about the probabilities of false-positive and false-negative test results, Bayes’ theorem was used to calculate the posterior probability that a newborn with a positive test result actually had a deficiency. This posterior probability was 0.074. Thus, while a positive test result increased the probability the newborn had a deficiency from 0.000004 to 0.074, the probability that the newborn had a deficiency was still relatively low (0.074). The probability information was helpful to doctors in reassuring worried parents that even though further testing was recommended, the chances were greater than 90% that a deficiency was not present. After the assignment of costs to the eight possible outcomes, decision analysis showed that the decision alternative to conduct the test provided the optimal decision strategy. The expected cost criterion established the expected cost to be approximately $6 per test. Decision analysis helped provide a realistic understanding of the risks and costs associated with the screening test. In 1998, the test was being given to every child born in the state of North Carolina. Based on James E. Smith and Robert L. Winkler, “Casey’s Problem: Interpreting and Evaluating a New Test,” Interfaces 29, no. 3 (May-June 1999): 63-76. Management Science in Practice - Case 2 – Decision Analysis DECISION ANALYSIS AND DRUG TESTING FOR STUDENT ATHLETES The athletic governing board of Santa Clara University considered whether to implement a drug testing program for the university’s intercollegiate athletes. The decision analysis framework contains two decision alternatives; implement a drug-testing program and do not implement a drug–testing program. Each student athlete is either a drug user or not a drug user, so these two possibilities are considered to be the states of nature for the problem. If the drug-testing program is implemented, student athletes will be required to take a drug-screening test. Results of the test will be either positive (test indicates a possible drug user) or negative (test does not indicate a possible drug user). The test outcomes are considered to be the sample information in the decision problem. If the test result is negative, no follow-up action will be taken. However, if the test result is positive, follow-up action will be taken to determine whether the student athlete actually is a drug user. The payoffs include the cost of not identifying a drug user and the cost of falsely identifying a nonuser. Decision analysis showed that if the test result is positive, a reasonably high probability still exist that the student athlete is not a drug user. The cost and other problems associated with this type of misleading test result were considered significant. Consequently, the athletic governing board decided not to implement the drug-testing program. Charles D. Feinstein, “Deciding Whether to Test Student Athletes for Drug Use,” Interfaces 20, no. 3 (May-June 1990): 80-87. Management Science in Practice - Case 3 – Decision Analysis INVESTING IN A TRANSMISSION SYSTEM* Oglethorpe Power Corporation (OPC) provides wholesale electrical power to consumer-owned cooperatives in the state of Georgia. Florida Power Corporation proposed that OPC join in the building of a major transmission line from Georgia to Florida. Deciding whether to become involved in the building of the transmission line was a major decision for OPC because it would involve the commitment of substantial OPC resources. OPC worked with Applied Decision Analysis, Inc., to conduct a comprehensive decision analysis of the problem. In the problem formulation step, three decisions were identified: (1) deciding whether to build a transmission line from Georgia to Florida; (2) deciding whether to upgrade existing transmission facilities; and (3) deciding who would control the new facilities. Oglethorpe was faced with five chance events: (1) construction costs, (2) competition, (3) demand in Florida, (4) OPC’s share of the operation, and (5) Pricing. The consequence or payoff was measured in terms of dollars saved. The influence diagram for the problem had three decision nodes, five chance nodes, a consequence node, and several intermediate nodes that described intermediate calculations. The decision tree for the problem has more than 8000 paths from the starting node to the terminal branches. An expected value analysis of the decision tree provided an optimal decision strategy for OPC. However, the risk profile for the optimal decision strategy showed that the recommended strategy was very risky and had a significant probability of increasing OPC’s cost rather than providing a savings. The risk analysis led to the conclusion that more information about the competition was needed in order to reduce OPC’s risk. Sensitivity analysis involving various probabilities and payoffs showed that the value of the optimal decision strategy was stable over a reasonable range of input values. The final recommendation from the decision analysis was that OPC should begin negotiations with Florida Power Corporation concerning the building of the new transmission line. * Based on Adam Borison, “Oglethorpe Power Corporation decides about investing in a major transmission system,” Interfaces (March – April 1995): 25-36 Note: The three cases on Decision Analysis are adopted from the Text Book “Management Science” by Anderson Sweeney Williams, Thomson South-Western publication for academic purpose with the objective of providing the participants live real business situations in Decision Analysis MANAGEMENT SCIENCE IN ACTION (Decision Tree Analysis) OHIO EDISON COMPANY* AKRON, OHIO Ohio Edison Company is an operating company of FirstEnergy Corporation. Ohio Edison and its subsidiary, Pennsylvania Power Company, provide electrical service to more than 1 million customers in central and northeastern Ohio, and western Pennsylvania. Most of the electricity is generated by coal-fired power plants. Because of evolving pollution-control requirements, Ohio Edison embarked on a program to replace the existing pollution-control equipment at most of its generating plants. To meet new emission limits for sulfur dioxide at one of its largest power plants. Ohio Edison decided to burn low-sulfur coal in four of the small units at the plant and to install fabric filters on those units to control particulate emissions. Fabric filters use thousands of fabric bags to filter out particles and function in much the same way as a household vacuum cleaner. It was considered likely, although not certain, that the three larger units at the plant would burn medium-to-high-sulfur coal. Preliminary studies narrowed the particulate equipment choice for these larger units to fabric filters and electrostatic precipitators (which remove particles suspended in the flue gas by passing it through a strong electrical field). Among the uncertainties that would affect the final choice were the way some air quality laws and regulations might be interpreted, potential future changes in air quality laws and regulations, and fluctuations in construction costs. Because of the complexity of the problem, the high degree of uncertainty associated with factors affecting the decision, and the cost impact on Ohio Edison, decision analysis was used in the selection process. A graphical description of the problem, referred to as a decision tree, was developed. The measure used to evaluate the outcomes depicted on the decision tree was the annual revenue requirements for the three large units over their remaining lifetime. Revenue requirements were the monies that would have to be collected from the utility, customers to recover costs resulting from the installation of the new pollution-control equipment. An analysis of the decision tree led to the following conclusions. The expected value of annual revenue requirements for the electrostatic precipitators was approximately $1 million less than that for the fabric filters. The fabric filters had a higher probability of high revenue requirements than the electrostatic precipitators. The electrostatic precipitators had nearly a 0.8 probability of having lower annual revenue requirements. · These results led Ohio Edison to select the electrostatic precipitators for the generating units in question. Had the decision analysis not been performed, the particulate-control decision might have been based chiefly on capital cost, a decision measure that favored the fabric filter equipment. It was felt that the use of decision analysis identified the option with both lower expected revenue requirements and lower risk, In this chapter we will introduce the methodology of decision analysis that Ohio Edison used. The focus will be on showing how decision analysis can identify the best decision alternative given on uncertain or risk-filed pattern of future event DECISION ANALYSIS AT EASTMAN KODAK Clemen and Kwit conducted a study to determine the value of decision analysis at the Eastman Kodak company. The study involved an analysis of 178 decision analysis projects over the 10-year period from 1990 to 1999. The projects involved a variety of applications including strategy development, vendor selection, process analysis, new product brainstorming, product-portfolio selection, and emission-reduction analysis. These projects required 14,372 hours of analyst time and the involvement of many other individuals at Kodak over the 10-year period. The shortest projects took less than 20 hours, and the longest projects took almost a year to complete. Most decision analysis projects are one-time activities, which makes it difficult to measure the value added to the corporation. Clemen and Kwit used detailed records that were available and some innovative approaches to develop estimates of the incremental dollar value generated by the decision analysis projects. Their conservative estimate of the average value per project was $6.65 million and their optimistic estimate of the average value per project was $16.35 million. Their analysis led to the conclusion that all projects taken together added more than $1 billion in value to Eastman Kodak. Using these estimates, Clemen and Kwit concluded that decision analysis returned substantial value to the company. Indeed, they concluded that the value added by the projects was at least 185 times the cost of the analysis’ time. In addition to the monetary benefits, the authors point out that decision analysis adds value by facilitating discussion among stakeholders, promoting careful thinking about strategies, providing a common language for discussing the elements of a decision problem, and speeding implementation by helping to build consensus among decision makers. In commenting on the value of decision analysis at Eastman Kodak, Nancy L.S. Sousa said, “As General Manager, New Businesses, VP Health Imaging, Eastman Kodak, I encourage all of the business planners to use the decision and risk principles and processes as part of evaluating new business opportunities. The processes have clearly led to better decision about entry and exit of businesses”. Although measuring the value of a particular decision analysis project can be difficult, it would be difficult to dispute the success that decision analysis had at Kodak. Based on Robert T.Clemen and Robert C.Kwit, “The Value of Decision Analysis at Eastman Kodak Company, 1990-1999,” Interfaces (September/October 2001): 74-92.
Introduction to Management Science
INTRODUCTION TO MANAGEMENT SCIENCE Linear Programming A financial analyst must select an investment portfolio from a variety of stock and bond investment alternatives. The analyst would like to establish the portfolio that maximizes the return on investment. A marketing manager wants to determine how best to allocate a fixed advertising budget among alternative advertising media such as radio, television, newspaper and magazine. The manager would like to determine the media mix that maximizes advertising effectiveness. A company has warehouses in a number of locations throughout the United States. For a set of customer demands, the company would like to determine how much each warehouse should ship to each customer so that total transportation costs are minimized. MANAGEMENT SCIENCE IN ACTION (Linear Programming) TIMBER HARVESTING MODEL AT MEADWESTVACO CORPORATION* MeadWestvaco Corporation is a major producer of premium papers for periodicals, books, commercial printing, and business forms. The company also produces pulp and lumber, designs and manufacturers packaging systems for beverage and other consumables markets, and is a world leader in the production of coated board and shipping containers. Quantitative analysis at MeadWestvaco are developed and implemented by the company’s Decision Analysis Department. The department assists decision makers by providing them with analytical tools of quantitative methods as well as personal analysis and recommendations. MeadWestvaco uses quantitative models to assist with the long-range management of the company’s timberland. Through the use of large-scale linear programs, timber harvesting plans are developed to cover a substantial time horizon. These models consider wood market conditions, mill pulpwood requirements, harvesting capacities, and general forest management principles. Within these constraints, the model arrives at an optimal harvesting and purchasing schedule based on discounted cash flow. Alternative schedules reflect changes in the various assumptions concerning forest growth, wood availability, and general economic conditions. Quantitative methods are also used in the development of the inputs for the linear programming models. Timber prices and supplies as well as mill requirements must be forecast over the time horizon, and advanced sampling techniques are used to evaluate land holdings and to protect forest growth. The harvest schedule is then developed using quantitative methods. *Based on information provided by Dr.Edward P. Winkofsky of MeadWestvoco Corporation. _____________________ MANAGEMENT SCIENCE IN ACTION (Linear Programming) ASSIGNING PRODUCTS TO WORLDWIDE FACILITIES AT EASTMAN KODAK* One of the major planning issues at Eastman Kodak involves the determination of what products should be manufactured at Kodak’s facilities located throughout the world. The assignment of products to facilities is called the “world load”. In determining the world load, Kodak faces a number of interesting trade-offs. For instance, not all manufacturing facilities are equally efficient for all products, and the margins by which some facilities are better vary from product to product. In addition to manufacturing costs, the transportation costs and the effects of duty and duty drawbacks can significantly affect the allocation decision. To assist in determining the world load, Kodak developed a linear programming model that accounts for the physical nature of the distribution problem and the various costs (manufacturing, transportation, and duties) involved. The model’s objective is to minimize the total cost subject to constraints such as satisfying demand and capacity constraints for each facility. The linear programming model is a static representation of the problem situation; the real world is always changing. Thus, the linear programming model must be used in a dynamic way. For instance, when demand expectations change, the model can be used to determine the effect the change will have on the world load. Suppose that the currency of country A rises compared to the currency of country B? How should the world load be modified? In addition to using the linear programming model in a “how-to-react” mode, the model is useful in a more active mode by considering questions such as the following: Is it worthwhile for facility F to spend d dollars to lower the unit manufacturing cost of product P from x to y? The linear programming model helps Kodak evaluate the overall effect of possible changes at any facility. In the final analysis, managers recognize that they cannot use the model by simply turning it on, reading the results, and executing the solution. The model’s recommendation combined with managerial judgment provides the final decision. *Based on information provided by Greg Sampson of Eastman Kodak.
How IoT is changing CRM
The Internet of Things is Changing the way we Manage Customer Relationships By Ric Merrifield Just as it’s hard to remember what life was like before the iPhone, it can be hard to remember business before there was CRM software — back when you still had to explain that it stood for “customer relationship management.” Today, CRM pervades the way many companies track and measure how they interact with other organizations, across many departments: marketing, sales, customer service, support, and others. CRM made it possible to determine precisely who responded to a specific marketing campaign and then who became a paying customer, which customer called the most for support, and so on. It gave companies some overall measure of revenue compared with marketing spend — something described in this 2007 article in The New York Times. But now that Big Data and the Internet of Things have come along, we can go beyond the transaction to every little detail of the customer’s actual experience. You can know when customers enter your store, how long they are there, what products they look at, and for how long. When they buy something, you can know how long that item had been on the shelf and whether that shelf is in an area of things that usually sell fast or slowly. And then you can view that data by shoppers’ age, gender, average spend, brand loyalty, and so on. Today, this sort of thing is possible not just for online experiences; it’s possible for physical experiences as well — and not just retail shopping. This vivid view of the end-to-end experiences is rapidly changing the way people think about, measure, and manage their customer relationships. Consider Waze, a wildly popular crowdsourced driving application that people use for real-time traffic information, warnings about hidden police, and turn-by-turn guidance about how to get around congestion. It only works because users give up their location information (on their mobile device) in exchange for information that will enhance their own experiences. So each mobile device pushes real time information into the main information hub, which processes all of the data and then pushes personalized messages back to every machine that is connected. It works incredibly well. Another offering that taps the power of the Internet of Things and Big Data (and in whose development I was directly involved) is Disney’s MyMagic+. Disney customers (aka “guests”) wear a MagicBand bracelet that allows Disney to know where they are at all times. Guests use an application called My Disney Experience to plan all of their bookable and non-bookable activities: dining, rides, attending parades, and so on. Then, Disney can use the tracking information and send them personalized messages via their smartphones about things like where they might find a cold drink if they are ahead of schedule, what they might skip if they are running behind, and, if they are heading toward a congested area, a better route to take. In addition, guests can use the band to get into their hotel rooms in their resort as well as the park (by tapping a Mickey Mouse icon instead of going through a turnstile). This has greatly increased the rate at which guests can enter the park. Customers can also tap the MagicBand to pay for things, and scanners read it during rides. This means that after you finish a roller-coaster ride, you no longer need to go and find your picture and write down some 10-digit number if you want to buy a copy; all of those images show up on your My Disney Experience page so you can buy them at any time. With every passing day there are more examples of Internet of Things adoption. And with every passing adoption, what people will accept (giving up things like their location information) and what they expect (“If Waze can help me with my driving, why can’t my grocery store tell me the fastest way to get through my grocery list?”) both change. As this intersection of what people will accept and what they expect evolves, the kinds of experiences that can be captured in the form of new big data evolves with it. Now you can have visibility into everything. Not only can you tell that Customer A (who has a shopping app) went into a Lord & Taylor store to buy an expensive pair of shoes (which you could know with CRM). In addition, you can know how long they were in the store, where they walked, and whether they lingered or went straight to the shoe department and bought the shoes. Then, you can compare that visit to every visit to that store that Customer A has had (since getting the app), and you can at least infer what is most valuable to her. If she is always a get-in, get-out kind of shopper, speed of service may be her #1 thing. If she spends a great deal of time shopping, maybe price or product selection is her thing. If she buys a lot at the store, maybe she wants some form of recognition for her loyalty (whether it’s points or just a “welcome back”). If you compare online experiences with in-store experiences and weekend vs. weekday behaviors, your picture of the customer becomes three-dimensional very fast. As exciting as it can be to talk about this and to see that it is happening right now in broad daylight, talking about how to assess customer experiences and how to engage customers differently when they have this inf0ormation gets complicated quickly. The important thing is to acknowledge that the measurements of yesterday may need an overhaul, and to understand where your customers are on the acceptance-expectation path so you can try to stay with, if not get ahead of, them. An increasingly common method for getting a handle on this is documenting the customer (and employee) experience journeys. What that means is examining high level areas such as: · Discover. How do they discover that they could have this experience? · Plan/Enroll. Do they need to sign up or enroll to have the experience? · Arrive. When do they begin to have the experience? · Engage. What are they doing while they are having the experience? What is their top priority (e.g., speed of service, best price, product selection)? · Complete. How do they choose to end their experience (e.g., when they are ready to leave that Lord & Taylor store)? Not all experiences start and end with entering a physical location, but that is a common, simple, and familiar experience boundary. · Reflect. After the experience, do they visit social-media sites to comment on their experience, do they look at a loyalty-program site to ensure they got the points or credits that they expected? Once the experience steps have been documented for the experience that occurred today, be specific about how you will make it different in the future because of the additional information that you have. Where will you and won’t you use that additional information? Will you greet them by name when they enter your store? Will you offer them what they had last time? Will you instruct your staff to leave them alone so they can feel anonymous? Many things are possible with all of this new experience information. Using it in a way that is aligned with your brand, improves the customer experience, and makes things easier for your staff are the things to prioritize and try. Your plan probably won’t be perfect, and you may need to make some new hires, or get some outside help from people who have done these Big Data and Internet of Things projects. But whatever you do, don’t underestimate the impact of acting on something seemingly minute. The right incremental changes can truly transform the way people experience your organization. So even if something seems trivial, try it and see how it goes. You might find that you had underestimated just how powerful a small change can be.