The Current Flat Management Structure in Fortunes Inc. Company - Essay Example

? FORTUNES INC. COMPANY Fortunes Inc. Company Current and recommended portfolio The Fortunes Inc Company members came together and under the spirit of cooperative (Employee's pension scheme, 2008, p. 4) decided to restore the operations of the business by running as a cooperative and with all members having an equal capacity to decide on the direction to be followed by the business. Besides the initial contributions by the employees who turned to be the proprietors, they managed to formulate policies through which the members continuously contribute to the welfare of expanding and perpetuity of the cooperative. They followed a relatively unclear structure while contributing and deciding on investment plans where the trustees would just come up with suggestions during monthly meetings and decide on what investments to undertake as well as what contributions to be make. Besides the contributions by the members, the cooperative enjoys the loan facilities that are extended to the cooperative unlike the case with other cooperative societies. Through the lack of ranks within the management positions or the general employee’s positions, the members enjoy an equated level of salaries despite their experience as well as despite their period of stay within the cooperative society. The cooperative society still has relatively low level of operations because it has been in operation for relatively little period after its re-establishment in the last ten years. Based on the reason that the cooperative lacks a well-defined structure of administration, all members comprehensively are wholly liable for the consequences of decisions made. Moreover, the lack of this well-defined structure of management has often placed the business at a risk because the decisions made lack the professional approval because members lack management skills and professional expertise. However, the modern day cooperative operations would suffer severe losses in the event of operating without well laid out structures as Fortune Inc does. Business operations at any level necessitates clearly laid down structures and hierarchy in operations for the ease of its operations. The cooperative needs to establish a central management team who would be responsible in decision making while at the same time taking the responsibilities in consequences resultant from the decision made (Background paper on cooperatives, n. d., p. 1-3; Co-operative in the 21st Century, 2001, p. 6-7). The size of the cooperative, which has an employee base of twenty-five people, is relatively small compared to other large organizations. However, decision-making processes would be very tedious and time consuming while incorporating the decisions of all the employees, hence the need for a clearly established framework of organizational management. The organization incorporates employees from the age of twenties to the mid-fifties and as such has a well-distributed working age. Beside, members are paid on an equal basis through which all employees earn an equal salary besides contributing equal amounts to the cooperative. However, the structure of operation that lacks to define responsibilities as well as the structures of authorities is undesirable due to the reason that the organization would lack command in operations. Moreover, the organization would fail to confer responsibility to any person in the event of liability to be suffered and as such, the people would fail to take responsibility in decision-making or regarding acting on behalf of the organization. Among other objectives to be pursued by the cooperative would be to establish legal documents and register the cooperative as a distinct entity with the registrar of cooperatives. Besides registration, other important documents defining the employees and the shareholders are necessary. Besides the responsibility outline, there is the need to have the cooperative establish a management team who would serve as the vision bearers to the team and therefore champion the direction of operations of the organization. This dictates that the cooperative will have distinctions in salaries and remunerations at the different operation stages. Besides the efficiency that results from the established chain of command, the cooperation will have structures to boost or determine the motivation levels of the employees with distinction between the employees and the shareholders in terms of period of service as well as through varying levels of remuneration. The current flat management structure enables the employees to have the ultimate decision regarding the structure to be adopted for distributing working hours, the resources, the benefits to be enjoyed by all members as well as the investment procedures to be adopted when there is a need to further invest or buy more equipment for the organization. However, the dilemma of the cooperative has been on determination of the most appropriate number of membership through which decision making process after growth would not be inhabited. This therefore justifies the concern of how many employees would be most effective in serving within decision-making committee of such an organization. This is because the cooperative fears that decision-making by a high number of participants would become complicated as well as ineffective. However, basing the argument on their postulation, thirty-member committee has no empirical evidence that it would turn to be unworkable and complicated. Before an agreement was arrived at by the trustees on the most appropriate manner of contributing and setting up a common pension scheme, (Starting a Co-operative, 2008, p. 7; European Fund and Asset Management Association, 2008, p. iii-iv) there existed confusion. Some trustees had the proposition that each member needed to establish own personal pension scheme while others still had the stand that it was the responsibility of the cooperative to start and run the members’ pension scheme. However, the disputes came to a settlement when the trustees unanimously agreed to have a common pension scheme ran by the organization. The trustees agreed to have a fixed contribution towards the common pull of pension, which was to be six percent of the total wages annually. A formula to have each member get 1/60 of an annual pay from the organization towards the pension scheme was agreed upon, and this was to be based on the years of employment. Besides this agreement, the organization was to pay a lump sum equivalent to a full year payment to the members upon retirements. Moreover, the agreement had it that the founder members had to receive a lump sum computed from their initial contribution which was worth five thousand pounds where this initial contribution was to be given having attracted a five percent per-Annam compounded interest. However, despite the above postulations by the members, there still lacks an affirmation of the derivation of this formula, which leaves the trustees in a state of uncertainty of whether to add to the fixed figure of contribution to the pension scheme or to maintain it as it has been. Cooperative management strategies stipulates that while the running of a cooperative would be on the hands of the trustees, a management team should be in place in order to develop and champion the direction of formulating policies and strategies that affect the smooth running of the organization. Based on the confusion that is seen through decision-making process, it is clear that the cooperative lack professionalism in matters of decision-making process, which necessitates the recommendation by this paper that the pension scheme formula should be realized through the help of a profession. However, the current proposition for the contributions lack a basis of adoption in that it is not clearly defined. Fears would be in that the annual contributions would not be favorable to all in the reason that the service time is not equal to all. There are those employees, twelve in number, who has an average of about twenty years to retirement while the new employees have an average five-year term of service to the organization. This therefore leads to the conclusion that the strategy (Nielsen, 2008, p.1-2; Carvalho, 2012, p. 191) adopted to draft the formula fails to acknowledge this fact that the service periods to the organization varied from the trustees who started the cooperative and those that continuously add to the number as the organization runs. Through this analysis, having a constant strategy to have the pension scheme fixed for all the employees and the trustees, an equating formula needs to be derived to have equality while claiming the pension benefits. Nevertheless, the claim formula has no much argument though it equally fails to illustrate the way it was arrived at empirically. Risk is defined as any factor that has the capability to interfere with successful performance in an organization (AIRMIC, ALARM, IRM, 2002, p. 2). In our case, we take risk to imply any factor that inhibits the realization of the objectives of an organization. The management of risks is therefore said to refer to the ability of the management or the decision makers in an organization to analyze the potential of a risk to happen and establish relevant policy frameworks or strategies meant to avert the effect that would be felt by the organization. An organization runs into a more risky position whenever it lacks analysis and mitigation of risks. Therefore, it is necessary for every running organization to have plans of action on the best practices to identify and manage possible threats likely to hamper the smooth running of the organization. Management of risks within an organization has four phases, which include risk identification, risk analysis, mitigation as well as planning for the risks and responding to the risk (Risk Management: Guidelines and Best Practices, 2003, p. 5-6). Therefore, in the case of Fortunes Inc, there is the need to determine the cooperatives objectives together with the trustee’s objectives. It is also necessary that the management (in absentia) identifies the possible risks and analyze them in matters of the likelihood of occurrence, the risk exposure as well as the consequences likely to be suffered. Nevertheless, a risk management plan is often established right in the business planning stage through which the organization management follows to perpetuity of the organization. In the case of the cooperative in context, it lacks the basic framework to be followed in assessing and managing the risks likely to face the organization. Among the basics of a risk, management process is the presence of a working management team, which in this context is lacking (Paranjothi and Ravichandran, n. d., p. 1-3). Moreover, the management policies and objectives are not clear as the organization suffers lack of managerial expertise in place. Besides, the flat leadership within the organization confers to no responsibility of spearheading the organization’s mission, vision as well as goals thereby becoming complicated to apply risk management tools. One of the most widely used tools to reduce risks to businesses is through diversification. It refers to a process where a business adopts many lines of businesses concurrently with a motive of reducing the risk that would be severe when directed to only one business line of operation. Besides taking different lines of operations, a cooperative can opt to increase the trustees or business partners (Hermalin and Katz, 2000, p. 1). Moreover, cooperatives also establish and run portfolios regarding risks likely to be suffered through adopting research and development or engaging in diverse natural resource exploration. Agency relations within corporate ventures also serve as appropriate risk management practices. In other dimension, the security holders within corporate are not the direct beneficiaries of risk management practices but on the centrally, the trustees or shareholders benefit more directly. This is because in the case of such a venture as a cooperative, the vision bearers are the trustees who also contribute the capital for operation of the cooperative society. Nevertheless, the analysis of Fortune Inc cooperative reveals that we cannot ascertain the presence and effectiveness of the risk management practices. This paper therefore suggests the need for the trustees to formulate an appropriate risk management strategy, which would clearly show the risks that are likely to be suffered, and the possible solutions to the risks. However, we propose that the cooperative adopts diversification tools, which are likely to shield it from the impact of possible risks that might be suffered. We recommend that it adopts other lines of business such as photography, running of libraries for commercial library services as well as investing in non-print media such as in web hosting which would serve to reduce risks likely to be suffered only through print business. Moreover, this paper challenges the limitation of the potential trustees because more trustees serve as more partners who are likely to reduce the impact of a risk suffered within the cooperative (Diaz-Hermelo et al., n. d., p. 1). Therefore, it is the finding of this paper that the cooperative runs the security risks of failure of accountability due to lack of management structure, lack of diversification, limited trustees which implies that there is a low capital security among others. However, the most prevalent security threat to the running of the organization is the risk of lack of professionalism as is seen through decision-making. Low literacy levels or incompetence in decision making result to increased security risks in the sense that decisions adopted may be exposing the organization more to risks. The process of asset valuation entails a number of steps, which vary from one business type to another. However, the basic framework to be followed while assessing the worth of a cooperative society will be collecting and reviewing the available information on the assets (Gosling, 2010, p. 1). The information would be the initial cost worth of the assets at registry, the information on maintenance, and the foregoing financial records besides consulting the depreciation value of capital assets. Statistical methods are widely used in the process of determining the depreciation value of assets and ascertaining the remaining functional value of the assets. However, the technicality in asset valuation is encountered while valuing the forgoing utility level of the assets as well as economic and functional obsolesces of the assets (Oeveren, 2009, p. 1-3; Valuation Techniques, 2005, p. 20-21). This therefore equally requires that the cooperative hires valuation services of highly competent personnel; an actuary. Asset allocation in an organization often follow a number of approaches depending on the nature of the asset, the type of business the organization engages in as well as on the basic structure within the operations of the organization. The allocation of assets often follows the approaches of country, asset vehicles as well as sector. In understanding the asset allocation dependent on country, such factors as the environmental factors to refer to geographical phenomena within the country, the political structure within the country as well as the economic situation is of paramount importance. Beside the country characteristics, the allocation is also dependent on the vehicles to be used for allocation. These equally depend on the nature of assets that are being allocated and the nature of the business itself. Another approach is through the analysis of sectoral asset allocation which reveals the allocated service sector to which the assets are committed (Ghosh, 2012, p. 1-12). 30 June 2010 ?000 30 June 2009 ?000 Turnover 2,500 2,300 Wages (500) (480) Other costs (1,100) (965) Operating Profit 900 855 Interest Payable (60) (15) Taxation (120) (75) Earnings 720 765 Distributed to members 500 480 Retained in business 220 285 Summary Profit and Loss Account for year ended Performance evaluation of the cooperative would be based on the profit-loss account as presented from the report as well as on the future perspectives of the organization. In the analysis of the profit-loss account as presented above, the turnovers, the operating profits as well as the earnings of the business appear to have risen through the years in perspective (2009-2010). Nevertheless, wages and other costs show a rise, which implies that the cooperative society had unfavorable business environment, and practices, which would result to the rise in costs. The rise in costs of operations through the general costs as well as through the rising wages shows the possible effects of the unfavorable business operations or the poor business management practices. The level of taxation also rose which would partly show the higher level of operations that the cooperative undertook within the year. However, the most worrying trend deductible from the analysis is that the cooperative reduced the level of retained profits from the amounts retained in the previous year. This therefore is a course of alarm and there is the need of increasing the retention capacity for the sake of growth. Besides, general poorb performance of the cooperative would be noted in matters of poor management, lack of professionalism as well as in risk management practices. Suitable performance evaluation strategies and procedures recommended on the cooperative would be derived from the prevailing portfolio as well as the projected future portfolio. The gap analysis shows that there exists a gap between the standard cooperative management practices and the practices observable from the Fortune Inc. For instance, gaps are observable on management structure, which are in absentia or are not observable. The evaluation would therefore focus on such aspects of the organization as the leadership, the operations undertaken, the risks as well as the security matters faced by the cooperative. The existence of gaps as observed necessitates restructuring and the adoption of better and appropriate told in the areas of focus. The suitability of the procedures adopted by the organization is determined by outcomes noted, ease of realization of set targets and goals as well as professional evaluation. Professional evaluation of the procedures reveal the accompanying shortcomings or strengths of procedures adopted. Moreover, effective procedures establish goals and targets which represents the benchmarks of performance. The simplicity, measurability and realistic nature of benchmarks adopted reveal the appropriateness and effectiveness of the procedures adopted. Finally, risk adjustments within an organization are realized through the adoption of efficient evaluation procedures and practices. Adoption of efficient risk adjustment practices determines the effectiveness of the risk management practices adopted and thus the overall performance of a cooperative. Besides, risk adjustment procedures are part of the entire process of risk mitigation and management. In conclusion, the analysis of the case study reveals that a wide gap in the operations of the cooperative exists in comparison to the standard operations of a cooperative society. The current portfolio illustrates that the cooperative has a relatively low employees base, and that the employees form part of the general management team. It also shows that the cooperative runs only one line of business, which deals with print media. Leadership is not properly defined and as such everybody takes the responsibility and is liable to any eventuality of the cooperative. Lack of professional skills and competences explains the current decision-making practices which are ad-hoc and whose outcomes are not easily discerned. From the analytical report, the cooperative lacks clearly defined vision, mission as well as goals and objectives, which are central to the running of every organization. Contributions as well as pension benefits realized are not standard as the organization lack basic structures in professionalism through which the standardization of the contributions as well as the pension claims would be realized. The Fortune cooperative lacks basic frameworks as outlined above and which defines a cooperative society. The methods adopted for running and managing the cooperative fails to meet the expected management practices for standard operations. Benchmarking is not evident from our analysis, which therefore shows that the cooperative runs in a manner of confusion. This paper therefore recommends the adoption of an alternative portfolio, which would be instrumental in restructuring the performance of the organization. A well defined portfolio dictates that the organization would adopt sound management structures, have written vision, missions as well as objectives which are attainable and easy to evaluate. Besides, risk management strategies are necessary for the new portfolio to consider and this paper recommends diversification as a basic tool to be sought in management oif risks to the organization. Moreover, the adoption and incorporation of professional expertise would be necessary while restructuring the new portfolio for the sake of effectiveness and efficiency. Through establishing these basic tools, it is possible to note and mitigate the risk factors likely to inhibit the realization of the cooperative’s objectives. Bibliography Airmic, Alarm, Irm. 2002. A Risk Management Standard. Available at: < http://www.theirm.org/publications/documents/Risk_Management_Standard_030820.pdf> (Accessed on 5 July 2013) Background paper on cooperatives. N. d. Un.org. Available at: < http://www.un.org/ar/events/cooperativesday/pdf/more.background.info.pdf> (Accessed on 5 July 2013) Carvalho A. D. 2012. The Cooperative Development and Strategy. International Journal of Accounting and Financial Reporting, 2(1) pp. 191-202 Co-operative in the 21st Century. 2001. The Co-operative Start Up Manual: The essential field guide for starting co-operatives in Victoria. Available at: < http://www.australia.coop/coop_start_up_%20manual.pdf> (Accessed on 5 July 2013) Diaz-Hermelo F. et al, nd. Incorporating Member Responses into the Analysis of Cooperatives' Alternative Capital Management Strategies. Available at: < http://www.agecon.purdue.edu/staff/gray/research/cacms.pdf> (Accessed on 5 July 2013) Employee's pension scheme. 2008. Epfindia.gov. Available at: < http://www.epfindia.gov.in/sites/pdf/EPS95_update102008.pdf> (Accessed on 5 July 2013) European Fund and Asset Management Association. 2008. Defined-Contribution Pension Schemes: Risks and Advantages for Occupational Retirement Provision. Available at: < http://www.efama.org/Publications/Public/Long-Term_Savings_and_Pension_Steering_Committee/oxera_report.pdf> (Accessed on 5 July 2013) Ghosh B. 2012. Emerging Markets: Developing a Structured Approach to Country Allocation. white paper. Available at: < https://www.credit-suisse.com/us/asset_management/doc/empaper_june12.pdf> (Accessed on 5 July 2013) Gosling S. 2010. A scenarios approach to asset allocation. A journal of portfolio management, 37 (1) p. 1-13. Hermalin B. E. and Katz M. L. 2000. Corporate Diversification and Agency. Research Program in Finance Working Paper RPF-291. Available at: < http://www.haas.berkeley.edu/groups/finance/WP/rpf291.pdf> (Accessed on 5 July 2013) Nielsen R. P. 2008. Cooperative strategy. Strategic management journal, 9(5) pp. 475-492. Paranjothi T. and Ravichandran K. nd. Professionalisation of management and governance in Cooperatives. Available at: < http://c.ymcdn.com/sites/www.istr.org/resource/resmgr/abstracts_-_barcelona4/ravichandran.kalimuthu.pdf> (Accessed on 5 July 2013) Risk Management: Guidelines and Best Practices. 2003. Oa.mo.gov. Available at: < http://oa.mo.gov/itsd/cio/projectmgmt/PDF/risk_manual.pdf> (Accessed on 5 July 2013) Starting a Co-operative. 2008. Uk.coop.pdf. Available at: < http://www.uk.coop/sites/storage/public/downloads/starting-a-co-operative_0_0.pdf> (Accessed on 5 July 2013) Valuation Techniques. 2005. Bc.edu. Available at: < http://www.bc.edu/clubs/bcfa/docs/vault/Valuation%20Techniques.pdf> (Accessed on 5 July 2013) Read More