Going for Growth by Investing in People, Products and Plant - Assignment Example

?GOING FOR GROWTH BY INVESTING IN PEOPLE, PRODUCTS AND PLANT Q1: What is meant by investment appraisal? Discuss the three main reasons that led Hazlewood sandwiches to make capital investment? (400 words) The objective of every company is to enhance their business and maximize on profits. One of the methods of increasing chances of profits is by greater investment. This investment should be properly evaluated from all angles, to study what the returns would be for the extra capital investment done. Thus, the analysis of the potential of capital investment done by a firm and the study of how the investment has helped in increasing the value of firm is termed as ‘Investment appraisal’. There are many methods of investment appraisal. Each method analyses the investment in different ways. The three main methods are: ‘Payback time’, ‘Average / Annual rate of return’ and ‘Net present value (NPV)’. Payback method is used to compare various projects for a business; the project which gives the best returns is considered. It generally calculates the time taken for the return of capital invested. Similarly if the annual return rate is considered, the projects are selected based on the one providing highest annual returns. The company’s cash flow can change from time to time; thus, this method is helpful as it considers the ‘rate of returns’. Usually, there is a time lag in receiving the payment for the business done and money value might be inflated or deflated during this time lag. Hence, in the ‘Net Present Value’ or ‘Discounted Cash Flow’ method, the ‘real value’ of the money is considered. The returns calculated using this method is called ‘Real Return’ (Investment Appraisal, 2008). With respect to Hazlewood Sandwiches, capital investment was made for the following reasons: It was observed that people, in general, had become very busy with their existing jobs or multiple jobs and hence had very little time to cook. This was the main reason to foresee an increase the demand for sandwiches. Secondly, due to good earning and spending power of the people, they preferred to pay others to get their food prepared, rather than painstakingly cooking food themselves. This served as a time saver and therefore increased demand for readymade sandwiches. Thirdly, Hazlewood Sandwiches could provide foodstuffs with better quality than the best existing in market, promising exponential growth in market. In support to these factors, the new factory setup assured a superior production flow line which decreased the number of workers needed to move materials within the factory and helped to manage the inward movement of raw materials to outward movement of finished goods. Hence, these three reasons mainly influenced Hazlewood Sandwiches’ decision to make capital investment. Q2: Discuss the differences, advantages and disadvantages of the three investment decision techniques mentioned in the case. Investment appraisal decisions are very crucial for any company, since it involves the future of the company. Decisions have to be made between various alternative project plans which decide the next steps of the company. There are 3 techniques of investment appraisal: The first technique is ‘The Payback Method’. It directly calculates how quickly the return of the investment covers the investment on the project. Returns on investment are calculated for all the alternative projects in hand. It is based on the shortest payback period, contributing in the prevention of cash flow problems. It is known for its simplicity and adaptability to changing technology as the cost of machinery can be recovered before the next new model is released. The disadvantage is that the returns after this period are ignored. Additionally, the real value of money is not accounted since value of money is considered directly without considering the inflation effects on money value (Business Studies online, Investment appraisal, Chapter 4a.2.2, 4a.2.3). The ‘Average Rate of Return’ method is used for calculating the rate at which the investment can be covered each year; i.e., the ‘net returns’ each year. Here, the project is selected based on the ‘fastest annual rate of returns’. An acceptable rate is decided by the decision makers. The main advantage of this method is that it calculates with clarity, the profitability a given project. The very direct disadvantage could be that this method is quite complex. In this method too, the effect of inflation is not considered. (Business Studies online, Investment appraisal, Chapter 4a.2.2, 4a.2.3). The real return value is calculated using the ‘Net Present Value’ method. ‘Real return’ means, the net cash flow is adjusted as per the change in value of money over time. When there is a time lag in receiving money, the value of money reduces due to inflation. Longer businesses are affected more due to this. It is also known as ‘Discounted Cash Flow method’. Though the complexity of this technique is a disadvantage, it considers the real value of money which is the greatest advantage over the other two methods. There is also a clear understanding of business cash flow in this method. Inflation is more often unpredictable which is rather disadvantageous. It is also very difficult to consider a reliable discount factor for extended future calculations. (NGFL WALE S business studies A level resources, 2008). The ‘Profit and loss forecast’ was also used in deciding whether to invest in the project. All in all, these were the techniques that helped Hazlewood Sandwiches decide on the investment strategy. Q3: Explain why it is important for organizations to invest in people; describe ways in which organizations, such as Hazlewood Sandwiches invests in its employees, support your answer with other examples. (400 words) ‘Motivation’ is a key factor that is critical to most organizations today. It is very important for a company to select the right resources and establish proper channels to implement motivational strategies. ‘Employee development’ is a significant arena that a company should focus on in order to create ‘high commitment’ resources. It also plays very important role in shaping employee behavior and attitudes. It becomes very important for the company to understand its employees’ needs and invest accordingly in its people. A study by Gutteridge et al. (1993) researched that employee retention, employee skills and morale are enhanced deeply with employee development efforts. The development strategy employed may be ‘formal’ or ‘informal’; irrespective of method, the outcome is of prime-most importance. Hence, for every company their work force is its greatest asset. In order to deliver the best result, a motivated, soundly trained and committed work force is essential. The same can be observed in Hazlewood Sandwiches. Sandwich - making is a labor intensive process. All the ingredients should be arranged by hand, except applying the butter and mayonnaise. This requires a dedicated and committed work force. Manton offers a conducive work environment in its support. Various programs must be implemented, so as to derive the best dedication from the workforce. An extensive induction program is needed to train the individual about the process and also, to understand the vision of the organization. The company has to motivate employees to upgrade themselves with National vocational qualifications related to the food industry, which help in development of knowledge and skills of its employees. ‘Flexible shifts’ catering to the specific needs of individuals such as ‘young mothers’ should be accommodated, in order to motivate young mothers to continue to serve to their best. Organizations should also provide gymnasium facilities, cash machines, state-of-the-art restaurants, etc. as on-site facilities. A good transport facility or a residential facility nearby to the work place can greatly influence the dedication of the workers and inspire feelings of organization commitment. Indeed, each company would need to identify their best way of investing on their people, based on the work profile and industry type. Proper development programs would increase employee retention (reducing turnover), increase the productivity and quality of the product or service of the organization. Q4: Many businesses see their workforce as their greater asset, discuss from the HRM functions and accounting perspectives. (400 words) A company can successfully convert its workforce in to an asset by proper strategic Human Resources Management and proper management accounting. A key role is played by the leadership training development program and helps employees strategize planning and decision making, as well as by measuring and reporting performances. Hence, Human Resource Management plays a very important role. Increased competition and demand for efficient work force has increased with time. “Becker, Huselid, and Ulrich (2001) have drawn from a study of nearly 3,000 firms to develop a seven-step measurement process they call an HR scorecard” (Rishma Vedd, 2005). The measurement system explained in ‘HR scorecards’ provides emphasis on Human Resource being a sustainable competitive advantage and driver of value creation. It is very important to develop key leadership qualities in all managers by providing training and development opportunities to equip present and future leaders in their decision - making skills. It is also important to train the divisional workforce in the fields of their work domain and see to it that they have a well qualified workforce. Strategies have to be implemented to improve employee relationships. This will help every employee to attain a sense of satisfaction which ultimately translates to higher customer satisfaction. This is clearly justified by the statement given by ‘The Royal Mail’, under ‘Agenda of Leadership’ as, “…this is about communication, openness, trust among employees. The three areas on which we need to focus are: recognition, leadership and communications. Our employees are the obvious resources for our competitive advantage, but we need to have good employee relations and also good customer relationships. We have got to maintain that level of trust, and be more responsive to changes. It’s about responsiveness and having the right people.” (Rishma Vedd, 2005). Flexibility also matters a lot when it comes to increasing employee interest towards the company’s objectives and growth. Various strategies of flexibility have to be implemented to satisfy the employees and hence, the customer. These strategies are based on the type of employees and their specific needs such as a provision for a “mothers shift” for young mothers, initiated by Hazlewood Sandwiches. Thus, it is very true that many businesses see their workforce as their greater asset. A proper strategy of human resource development can be decided by exclusively catering to the workforce thoroughly. The Human Resource team must dedicate ‘quality time’ to understand the needs and issues faced by their employees, to introduce an ideal strategy for employee development. This would raise the motivation of employees and give rise to higher performance! References: 1. Investment appraisal, NGFL WALES business studies A level resources, 2008, September – 2 2. Chay Hoon Lee and Norman T. Bruvold, Creating value for employees: investment in employee development, Int. J. of Human Resource Management September 2003, page: 981–1000 3. ‘Investment appraisal’ From www.businessstudiesonline.co.uk/AsA2BusinessStudies/.../PDF/08%20In, referred on 26th April 2013 4. Rishma Vedd, Management Accounting and Strategic Human Resource Management: A Comparison of the UK Royal Mail and Canada Post, Problems and Perspectives in Management, 3/2005 Read More