Operation Decisions of an Organization - Essay Example

Operation Decision of Affiliation: Operation Decision Organizational structure refers to the organization and the characteristics involved in a particular market, with the focus on the competition involved and the pricing aspects and strategy. An aspect of substantive importance pertaining to market structure is that its consideration should not only focus on the market share of the already existing organizations in the industry, however, any particular organization should always focus on other organizations that may make possible entry into the industry (Carl, 2012). Based on these aspects, this paper determines various operation decisions that an organization would make under different market environments. A number of factors determine a market structure. Some of the important features of a market structure include the number of firms. The number of firms in a particular industry, both the local and foreign, plays a substantive role in determining the market structure. The number of firms in a particular industry determines the level of competition that the market would have, either still or easy, and the prices of the products and services offered in the industry (Carl, 2012). The market share of the largest firm in the industry is also an element of consideration in determining the market structure of a business environment (Schindler, 2012). The above is an aspect that is dependent on the concentration ration of the largest market shareholder organization determines whether the player develops a monopoly approach to the market or oligopoly. Others include the nature of costs, the vertical integration in the industry, structure of buyers in the industry, the turnover of the customers and the differential extent of products in the industry (Pollak and Wales, 1992). In the low-calorie frozen, microwavable food industry, two of the leading competitors are McCain and Bord Ba. McCain is a family owned organization that deals in the importation of fresh fries from Canada. It has been in operation since 1968, when it started the provision of its services, however, today, it has grown significantly to accommodate the production of French-fries, vegetables, fruit, pizzas, frozen meals and potato specialties. According to a report by Bord Ba, it is clear that dynamic shifts in the global perspectives, social and demographic trend have contributed to a number of challenges to both a number of challenges to both a number of challenges for both the manufactures and the consumers by putting pressure on food suppliers. With such dynamics and changes in the environment, McCain has been able to stand strong in the available market as a market leader, which has changed substantively the manner in which it operates. First, McCain has reached a stage in which it has acquired the market power, and therefore, able to determine various aspects in the market structure such as the ability to determine its own optimal prices (Ryan, 2004). A number of factors contribute towards changes in the market structure and the environment around. Such factors affect various aspects most especially those pertaining to motivation, decisions, and opportunities in the market (Mitchell, 1991). Strategic decision-making process within an organization contributes immensely towards changing aspects pertaining to market structure (Schindler, 2012). With appropriate decisions, an organization is able to determine important elements in the industry such as pricing. This is ideally one area that McCain has made effort in establishing power in the industry. Other than effective decision-making processes, opportunities are yet other factors that contribute to change in the market structure. In every industry, there are usually a number of opportunities available, and therefore, it is only the organization with the ability of identifying the opportunities and tapping into them that acquires the market power. This clearly identifies opportunities as a factor contributing to changes in the market structure in the low-calorie frozen, microwavable food industry. With the ability to identify the opportunities available in the low-calorie frozen, microwavable food industry, McCain has been able establish its operations, thereby becoming a market leader in the industry (Ryan, 2004). With such a substantive market power in its setting, McCain has been able to bring about a number of canes in the new market environment. First, it has been able to determine the prices in the market, considering that it controls a substantive number of customers in the industry and therefore, determines the pricing fluctuations (Mitchell, 1991). Primarily, such a kind of change would contribute towards McCain setting the optimal prices in the market, a factor of substantive importance towards the increasing the profitability of the organization. In aspects pertaining to cost functions, it is significantly clear that in an organization’s operations, the long run costs function tend to vary in terms of the inputs, whereas the short run costs function, remain fixed in terms of the input (Pollak and Wales, 1992). TC = 160,000,000 + 100Q + 0.0063212Q2 VC = 100Q + 0.0063212Q2 MC= 100 + 0.0126424Q From the above information, it is ideal that marginal costs equal to Marginal Revenue and therefore, with a particular quantity of production, it is evident that the marginal costs would increase significantly. Such information is therefore, important for decision-making both in short run and long run in that it would determine the production quantity as well as the influence the marginal costs. There are certain circumstances in which McCain foods could discontinue its operations. The market structure has become less profitable to the organization in these instances. After becoming a market power, with the ability of determining the optimal pricing, it is essential that an organization develop appropriate retaining strategy. Circumstances in which McCain could discontinue its operations include instances in which competition has become stiff, with other players in the industry becoming the new powers in the industry. Competition plays a substantive role in determine the state of organization’s operation in the market (Ryan, 2004). The higher the number of service providers in the industry with quality services and a low pricing strategy compared to that of McCain could result into the organization discontinuing its operations as making significant profits in such instances is not an easy task and therefore, will no longer be in a position to control the market environment (Carl, 2012). Despite occurrences, there are different actions that could be taken by the McCain management team in confronting such occurrences. Variable costs are those that change in respect to the change in proportion of goods and services that an organization produces. In such respect, it is substantively clear that with the ability of McCain foods to produce goods at the optimal prices, it should therefore, produce more goods in the short run, while reducing costs in respect to increase in the production, and therefore, enable it continue in operations. Average total costs, which involves the total costs divided by the goods produced is also an essential means of enabling McCain continue in its operations. In terms of the average total costs in the long run, it is important for McCain to increase the production of more goods and offer better prices, for its establishment and control of the market environment (Johansen, 1972). Once McCain is able to control the market environment by determining all the factors affecting the market structure and developing appropriate strategies to curb them, then later determine the optimal prices to enable its influence in control of the environment. Such an approach in the long run would enable McCain foods continue in its operations (Ryan, 2004). A number of pricing strategies have been developed that increase the profit margins significantly. One of the greatest pricing strategies used is the value based pricing strategy. However, for this particular strategy to work most efficiently, then McCain must have the right customers and be in the right market for effective operations and maximization of the profits. Cutting down on prices has always been considered as the most effective way of retaining customers (Mitchell, 1991). In the value based pricing strategy, McCain is to determine and make price increases capturing greatest amounts that customers are willing and able to pay sufficiently. In such an instance, it is critical that the quality of products should be to the highest possible level. This ensures that the customers, despite paying higher prices, are able to get value for their money (Schindler, 2012). This is indeed of the ways through which McCain could maximize its profits. In the market demand equation, the quantity demanded (Q) is usually the function of Price f(P), which is equal to the sum of all the individual curves (q) (Johansen, 1972). Q= f(P) = q1 +q2 +q3+…………qn. With such information, finding the inverse demand equation is therefore, an easy task. In normal linear equations, the quantity demanded is usually the function of the price as already determined above Q=f(P). Determining the inverse demand equation is therefore, to solve for P in the demand equation. In a case in which Q= 120 – 2P Then, the inverse demand equation would be P = 60 – ½ Q. The right side of the equation is therefore, the inverse demand equation. The Total Revenue (TR) Function is usually P×Q. P = (60- ½ Q). Therefore, TR= TR = (60 – ½ Q) × Q = 60Q – ½ Q². Hence from the TR equation, the Marginal Revenue (MR) therefore, is MR = 60 – Q. The MR function is usually twice the inverse demand function. Using profit maximization rule MR=MC, it is evident that the profits obtained would be higher, mainly due to the aspect that McCain has gained substantive market power and with the application of value based pricing strategy, it is evident that the profits would be higher (Johansen, 1972). Based on such a perspective, the most appropriate plan to be used by McCain in determining its performance would be that of optimal pricing especially in the short term. This would influence the management towards making a decision of increasing production to enable a balance in the average of the profitability. In the case of a short run basis, it would be better for prices to be lower, while increasing the number of customers and production quantity, considering that quantity produced is a function of the price. In such a perspective, the managerial decision would be influenced towards improving quality and quantity in equal measures to enhance profitability (Carl, 2012). The above are aspects pertaining to a very competitive environment and therefore, McCain has to do all in its power to beat the stiff competition. Stiff competition usually requires that an organization attracts as many customers and provides the best of service and products. Based on such an aspect, the above strategy would be the most effective plan. McCain could take a number of actions in increasing its profitability and delivering more value to the stakeholders. One is to invest in employees’ future. With better trainings, employees are able enhance their productivity and therefore, make the organization more profitable (Johansen, 1972). Another action most appropriate increasing profitability and delivering more value to stakeholders is by offering appropriate incentives and motivation to employees. This would work towards improving performance and quality of production thereby adding value to stakeholders while at the same time while increasing profitability. References Carl, S. (2012). Market Structure. Delhi: Orange Apple. Johansen, L. (1972). Production functions; an integration of micro and macro, short run and long run aspects. Amsterdam: North-Holland Publishing. Mitchell, E. G. (1991). Profitable pricing strategies. Melbourne: Business Library. Pollak, R. A., & Wales, T. J. (1992). Demand system specification and estimation. New York: Oxford University Press. Ryan, D. (2004). Potato evaluation trials - McCain Foods (Aust) Pty Ltd. Sydney, N.S.W.: Horticulture Australia. Schindler, R. (2012). Pricing strategies: a marketing approach. Thousand Oaks, Calif.: Sage Publications, Inc. Read More