Organizational Theory, Design, and Change - Case Study Example

Running head: Organizational Theory, Design & Change Organizational Theory, Design & Change s Table of Contents Organizational Theory, Design & Change Introduction Throughout this report I will attempt to identify the problems that De Beers are at present facing. I will then formulate a set of recommendations for action to facilitate them to move into the U.S. market by means of proposing a relaxation of U.S. antitrust laws with limitations on illicit diamonds, and in conclusion I will finish off with a number of implementation steps intended for the solutions that have been suggested. Over View of the Organization The De Beers Cartel is a organization that mines diamonds , which was set up by the South African mining magnate, Sir Ernest Oppenheimer, in 1934 ( Stefan 1993 p 5) . Over eighty percent of world sales of rough diamonds are on account of this marketer. One mine in this cartel is the Venetia Diamond Mine, South Africa's largest diamond producer, and the centre of De Beers' investments. This $400 million employs 760 people, working day and night. Challenges and Major Problems De Beers is at present being faced with a quantity of new challenges that are making it essential for us to believe a change in the way that they do business. With new chaos in Western Africa, where illegal diamonds are starting to come from war torn villages, as well as other sources of diamonds are being discovered in Russia as well as Australia, it is obvious that they seriously need to start to move into the U.S. market. Antitrust Laws and Diamond Sales U.S. officials to consider settling a years-old price-fixing indictment and allow diamond monopoly to conduct business in the U.S. despite antitrust laws (http://www.professionaljeweler.com/archives/news/2000/020300story.html) Competitors Its competitors are also a challenge which it has to face, competitors are tiffany &co they sell diamonds as well. Antitrust Law Antitrust law permits the imposition of a maximum fine of $10 million, or twice the gain or loss caused by a price-fixing scheme. The indictment does not specify how much the scheme cost purchasers of industrial diamonds. (http://www.nytimes.com/2004/07/10/business/worldbusiness/10diamond.htmlex=1247112000&en=20aa08705cd558b8&ei=5090&partner=rssuserland) Environmental Factors with the Greatest Impact Environmental Factors A PEST analysis has been performed on the current situation facing De Beers. In the following section, I will focus on the most important problems identified in the PEST analysis for which we must find solutions and also on the most important positive forces that we must leverage to our advantage in order to maintain or gain market share. Please see Exhibit 1 for details on the PEST analysis and additional information on other issues we are facing and forces that might help or hinder our market share in the U.S. The most important of the problems we are faced with are due to Political issues in the United States and elsewhere. Due to war in western Africa, diamonds are beginning to flow from the war torn fields of Sierra Leone and Angola, and in Russia, mines are being controlled locally as opposed to in collaboration with De Beers. These challenges alone pose a threat to the power that De Beers currently holds over the diamond industry. Due to these challenges, we initiated a branding campaign attempting to brand De Beers diamonds to the consumers. This campaign was cantered in the U.S., where "legally, the entire De Beers group - its officers, its operations, its marketing structure - was in violation of the U.S. antitrust law" .This prohibited De Beers from directly selling in the United States. Additionally, a political issue that we need to leverage to our advantage is the U.S. foreign policy towards helping to rebuild Africa. These political issues will be further addressed in the recommendations section. Economically, there is an expected surge in diamond sales expected to occur in the U.S. this year. This emphasizes the fact that we need to be uninhibited in our marketing and sales efforts in the U.S. if we are to continue to be a successful company. Another economic issue that we are facing is that the historical price of diamonds is levelling off and may even be decreasing as new sources of diamonds are being found. This decrease in prices could be devastating to De Beers and the diamond industry as a whole and needs to be avoided at all costs. The other large economic issue we are facing is our method of stabilizing the diamond prices. The stockpiling we currently utilize to control the supply of diamonds and, more specifically, control the price of diamonds, is eating away at our profits, resulting in a low stock price. Our shareholders, of whom 21% are from the U.S., are starting to voice dissent about our low share prices. Technically, we have been using our single channel distribution system to work our way around the antitrust laws in the United States and to keep an arms length from the U.S. legal system. By selling to diamond merchants through the Central Selling Organization in London, and controlling the supply of diamonds offered to these merchants, we control what stones enter the market at what price. This single distribution channel has been at the core of our ability to regulate the diamond market and without this means of distribution, De Beers and the entire diamond industry would greatly suffer. By winning relaxed antitrust laws in the U.S., we would be able to continue to leverage the power of the single channel distribution system. Socially, the perception of diamonds is that of a beautiful and rare stone that is a symbol of romance and of greed and has been treasured as such for centuries. In the nineteenth century, the supply of diamonds increased, turning the stones from something only the elite could purchase, to a commodity that could be purchased by the mass market. Even with this increase in supply, the perception of diamonds remained that of a rare and valued commodity. Therefore, even though the supply of diamonds increased, the perception that they were rare was not tarnished, leaving the price of this commodity high. This is a key point that we need to leverage: consumers expect and want the price of diamonds to remain the expected price of a unique and high valued commodity. Best Measures to Evaluate the Organization's Effectiveness Measures Effectiveness Like any organization that sells products De beers too measures it's effectiveness by its sales. If De beer's effectiveness is measured by sales than De beers has proven to be highly effective as De Beers remains positive in its outlook for consumer demand for diamond jewellery for the remainder of the year. It continues to forecast growth in diamond jewellery demand in the four-to-five percent range for the full year. De Beers also says that it has "seen improvements in the rough diamond market in the second quarter of 2007, following the correction in rough diamond prices in the second half of 2006. Rough diamond demand is currently good, prices have been rising, and while the second half should improve on first half sales trends, full year sales by the DTC will continue to be constrained by availability (http://194.90.203.38/magazine/magazine.aspid=5286) Creating Value In 2001 The De Beers Group, the world's leading diamond group, and LVMH Moet Hennessy Louis Vuitton, the world's top luxury products group, have decided to set up an independently managed as well as operated company to expand the global consumer brand prospective of the De Beers name (Matthew 2003 p 12). The investment is anticipated to generate long-term value equally for both Groups and will turn out to be a catalyst for brand competition in the retailing of jewellery made of diamonds. Out put process Debeers's out put process constitutes of distribution channel as well as convince each and every one of the members--miners, cutters, polishers, wholesalers--that a stable, smoothly functioning, single-channel system was in all the stakeholders greatest interest. Diamond output from De Beers's self-owned as well as self-operated mines constitutes only 43 percent of the total world value of rough diamonds. Because it is not the sole producer of rough stones in the world, De Beers has had to join forces with other major diamond-producing organizations, forming the international diamond cartel that controls nearly three-quarters of the world market. (http://www.accessmylibrary.com/coms2/summary_0286-10656642_ITM) Input Conversation Stakeholders and input conversation The primary stakeholders that will be affected by this impending move into the U.S. market and relaxation of the U.S. antitrust laws are De Beers and its shareholders, the African economy, the diamond industry as a whole, and diamond consumers. If these antitrust laws are not relaxed, then De Beers market share will crumble while being replaced by lower priced competitors, leading to an overall decrease in the diamond prices, leading to less profit to everyone in the diamond industry. The African economy also has a large stake in this decision. If the diamonds from war torn fields are accepted into the diamond market, consumers will unknowingly be supporting rebel controlled diamond mines. Lastly, if the antitrust laws are not relaxed, the shareholders of De Beers will most likely experience a short term increase in stock price while the stockpile is being depleted, but in the long run, the stock price will bottom out and will not rise again because the price of diamonds will be permanently lowered. The stakeholders that will be most impacted here are De Beers as a corporation and the diamond industry as a whole, including the African economy. Recommended Solutions The following solutions are being recommended for De Beers to implement in order to convince U.S. policy makers to relax the U.S. antitrust laws and allow De Beers to directly do business in their diamond market. De Beers needs to approach U.S. policy makers with the following arguments and ask for relaxation of the U.S. antitrust laws with some restrictions. The criterion for these solutions is that they are feasible to implement with our current resources and that they do not generate negative press about past lawsuits. Illicit Diamond Embargo De Beers needs to work with the U.N. to place an embargo on illicit diamonds coming from the war torn fields of Angola and Sierra Leone. These diamonds come from rebel controlled mines, and by allowing these diamonds to enter the marketplace, they are supporting the bloodshed involved in mining these diamonds. Therefore, they need to pledge our support to stop these illicit diamonds from merging with our diamonds in the marketplace. Branding They need to continue our marketing efforts aimed at branding our diamonds. In addition to creating more prestige around our brand of diamonds, we are also certifying that our diamonds do not come from the war torn rebel controlled mines of Africa. By continuing our branding effort, we will continue to increase the demand for the De Beers diamonds, which will help to decrease our stockpile, and in turn slowly increase our stock price, pleasing our shareholders. In addition, it has been proven that with these marketing efforts, consumers are willing to pay a premium for a De Beers diamond, which will further protect us from the possibility of decreasing prices in the future by increasing our profits. Conclusion De Beers are facing some difficult challenges and are being forced to look at the way we run the business. In looking at our methodology we have determined that the way we run our business, and the way the diamond industry works, is in the best interest of De Beers as a corporation, the diamond industry as a whole, the African economy, and consumers. As an African company, our paramount concern is to use the diamond industry to help the African economy begin to rebuild itself. We believe that by relaxing the U.S. antitrust laws and abiding by the restrictions mentioned above, the United States can help us further enhance the African economy while maintaining a strong diamond industry, which in turn, benefits the consumers in the United States by preserving the value of their diamond investments. References Stefan Kanfer 1993; the Last Empire: De Beers, Diamonds, and the World Diane Pub Co p 5 Matthew Hart 2002; Diamond, Penguin Group p 12 http://194.90.203.38/magazine/magazine.aspid=5286 retrieved on 13 September 2007 www.professionaljeweler.com/archives/news/2000/020300story.html 20 September 20 2007. Read More