Decision Making

Budgeting lies at the foundation of every financial plan. It doesn’t matter if you’re living paycheck to paycheck or earning six-figures a year, you need to know where your money is going if you want to have a handle on your finances. Unlike what you might believe, budgeting isn’t all about restricting what you spend money on and cutting out all the fun in your life. It’s really about understanding how much money you have, where it goes, and then planning how to best allocate those funds. Here’s everything you need to help you create a budget using different approach.

Incremental Budgeting

This is where the current budget and actual figures act as the starting point or base for the new budget. The base is adjusted for forecast changes to, for example, the product mix, sales volume, sales price, expenses and capital expenditure that are expected to occur over the next budget period. It is called incremental budgeting as the approach does not focus on the base, but focuses on the increment (the changes from the base). An example would include increasing last years operating expenses by the rate of inflation to calculate the new budgeted figure.

The major disadvantage of this is that the major part of the expense (the base) does not change and in fact is overlooked and not questioned under this approach. For example the base figure may be distorted due to extraordinary events in the previous period which are not expected to reoccur. Thus if this is not taken into account, the budget could be misleading. Advantages of Incremental Budgeting Easy to implement If you are looking for a budget that is very simple to implement, incremental budgeting might be for you. You do not have to send your department managers to any special type of training in order to utilize this budgeting system.

It is easy to learn and the process can be completed within a very short period of time. Gradual Change One of the benefits of incremental budgeting is that it allows gradual change for the business. If you value gradual change instead of trying to change everything quickly, this type of budget is ideal. Many times, if your business tries to change too fast, it can become unstable and lose sight of what it does best. There are some other benefit regarding the incremental budgeting:

 Flexibility

This type of budgeting is very flexible. You can easily do it from one month to the next.

This allows you to see change very quickly when you implement a new policy or budget.

Avoid conflict–Companies with many different departments often run into conflict between departments because of their different budgets. With this method of budgeting, it is easier to keep everyone on the same page and avoid conflicts between departments.

The model operates under a stable and predictable system and any change will be gradual.

Managers can operate their departments on a consistent basis.

Conflicts should be easily avoidable if departments can be seen to be treated similarly. It is Appropriate where there is a large number of cost centres/budgets to calculate and forecasts do not change significantly from one year to the next

Co-ordination between forecasts is easier to achieve.

The impact of change can be seen quickly.

Disadvantages of Incremental Budgeting

It assumes that activities and methods of working will continue in the same way. It allows no proper incentive for managers to develop new innovative ideas.  Its normally on an upward trend, hence providing no incentive for managers to reduce costs. It encourages spending up to the budget limits so that future estimates are maintained next year.  The forecast may become out of date and no longer relate to the level of activity or type of work being carried out. The priority for resource allocation may have changed ever since the prior estimates were originally set.  May perpetuate past inefficiencies. In other words incremental budgeting does not cause serious challenge to the status quo of managers concerned because different methods of achieving performance objectives are not put to test .There may be budgetary slack built into the estimates, which is never reviewed.

In other words Managers might have overestimated their requirements in the past in order to obtain a forecast which is easier to work towards, and which will allow them to achieve favorable results.  Does not account for change–This method is based on the idea that expenses will run pretty much as they did before. However, in business, this is rarely the case. There are always variables.  No incentives–Such a simple method of budgeting really does not provide your employees with much reason to be creative.

They have no incentive to innovate and come up with new ideas or policies. When a budget allows a little extra room for innovation, you might find that your employees come up with something great.  Use it or lose it–Many employees view this as a “use it or lose it” system. They know that next year’s budget is going to be incrementally based on this year’s. Therefore, if they do not spend everything that is allocated to them, they may not have enough money to work with next year. This creates an environment where waste is encouraged.

Zero Based Budgeting his method was briefly popular during the 1970s but didn’t quite make it as a widely held practice. Yet in today’s current business set-up, the method is being revived and regarded as the better approach. ZBB starts off with practically nothing on which to base one’s budget assumptions. This stands in contrast to the traditional method, in which managers and supervisors calculate their projections by using the previous year’s budget as their baseline. ZBB as a budget preparation method lost its popularity due to the numerous documentation requirements imposed.

Managers and supervisors have to justify every projected cost and its purposes, plus the presentation of one or more alternative courses of action, which should be similarly justified. The procedure doesn’t end there, as every proposed budget and its alternatives have to be measured in terms of productivity and efficiency performance, including the results of cost-to-benefits analyses. Moreover, the manager is also required to present the consequences, in case a majority of the top management members would vote against the proposed cost projection.

It’s no wonder that ZBB lost its following in its early years, since the procession of numerous calculations, justifications, analyses and documentation are indeed too tedious for comfort. But that was in the ’70s, when computerization was still in its budding stage and personal computers were unheard of. Under the current business set-up, in which research and data analyses are common, all those requirements can be produced in a jiffy, by simply using business intelligence capabilities. Inasmuch as the best budget estimations are those that are closest to the real thing, zero-based rojections may finally come of age by getting the support it needs from today’s data marts and data warehouses. (Charles, 1995) Pros and Cons of Zero-based-budgeting This budget preparation method is actually a spin-off of the budget plans introduced during the 1920s. Due to the excesses and corrupt practices of local public officials, the federal government developed a system of controlling the disbursements of public funds by way of a revised budget plan. The success of this method encouraged other industries to adopt the same system.

It was modified through the years, along with certain developments in the methods of accounting for manufacturing costs. However, as businesses grew and flourished, the financial managers and accountants became overly burdened by the processes involved in developing ZBB plans. Too much time and effort were being wasted in collecting, summarizing and analyzing recorded data, only to be set aside for future implementations, which oftentimes did not materialize. Despite this drawback, ZBB was regarded as a sensible approach because of its high degree of efficiency in controlling costs and maximizing productivity.

In fact, government sectors and non-profit organizations still make use of the ZBB approach, as it allows each organization to visualize the incoming year’s performance based on present trends and conditions. In summarizing all documentation to support the master budget, redundancies in initiatives and functions become more visible and are thus eliminated. Although no longer popular, some industrial companies still make use of a zero-based budgeting approach on a per-department or per-project basis.

This is particularly true if the departments or projects require a greater degree of cost leveling, inasmuch as their outputs do not directly contribute to business profitability Financial managers today are hardly affected by the re-emergence of this budget approach, as their trainings are basically founded on methodologies that make use of research and data analysis. Not only that, the advent of PCs and business intelligence applications and tools makes the preparation of supporting documentation as easy as pie, so to speak.

All they have to do is click or double-click on their mouses and the BI financial report writers will simply drill-down, drill-around, and drill-through databases and data warehouses or even from web-based browsers to produce reports that will provide up-to-date information. There is spreadsheet integration and its capability to automate calculations, as well as the intelligent trees, process diagrams, and balance scorecards that can establish hierarchies, workflow mapping and key performance indicators.

The drawback that was once attributed to the zero-based budget planning method has become part of its history, but its usefulness fits perfectly with the methodologies of the 21st century. (Cantoria, 2011) (c)Rolling Budget Businesses are increasingly using rolling budgets. Also called continuous budgeting, rolling budgets always involve maintaining a plan for a specified time period in the future. To implement rolling budgets, many advocate leveraging new technological resources, which means software.

It must be understood that the technology (e. g. , bolt-on software packages) is not the solution. It is a tool by which and an environment in which management can have the opportunity to develop solution sets. Published surveys of financial officers of the largest industrial companies in the United States, Australia, Holland, Japan, and the United Kingdom show a number of interesting similarities as well as differences in budgeting practices across countries.  First, the use of master budgets is very widespread in all of these countries.

Another significant finding is that financial managers in many countries distinguish between cost behavior patterns–variable versus fixed costs–for a common reason: They want to prepare more meaningful budgets by building flexibility into the model. How do these facts impact the concept of rolling budgets? Rolling budgets always involve maintaining a plan for a specified time period in the future. This result is achieved by adding a new time period in the future as the current time period that ended is dropped.

Large companies, such as Electrolux and General Electric, prepare strategic plans and then integrate annual operating budgets that are divided into four-quarter rolling budgets, and smaller high-tech public companies, such as Keithley Instruments in Solon, Ohio, follow a similar pattern of planning. The annual operating budgets are prepared based upon best estimates of what management expects to occur and wants to achieve during the coming year. Flexibility is built into the process by considering how costs and revenues will change if different levels of activity occur (e. g. flexible budgeting), and each quarter’s changes are made to reflect changes in the economic and financial environment–things such as what the competition is doing, how the economy is spending for capital goods, and any planned changes in their product mix (adding or dropping a product line). In short, sound managers operate an entity with one eye always on the horizon, and a well-prepared business plan as reflected in a “flexible rolling budget” can be one of the financial managers’ best tools to assist them in their role of planning and controlling the operations of this company.

For publicly traded companies, an earnings forecast “miss” can have an immediate and devastating impact on share price. And for both public and private companies, effective allocation of resources mandates that the organization have the best possible understanding of what the short-term and long-term future brings. The speed of change in today’s economy has generated a trend toward adopting continuous forecasting as part of the planning process. While this type of “rolling forecast” offers many benefits, organizations often have trouble separating their forecast from and coordinating their forecast with the operational budget.

Instead of truly forecasting–which ideally should be a higher-level projection–organizations end up preparing mid-year or even quarterly “re-budgets,” with all of the associated effort. The result is a budget that takes too much time and effort–not a forecast that provides vision and direction. Advantages of Rolling budget No More Free Ride The result: an always-current financial forecast that reflects not only the company’s most recent monthly results but also any material changes to its business outlook or the economy.

In addition, it provides fewer opportunities for account directors to ride the coattails of past performance. Although traditional one-year budgets are still the norm at most companies large and small, many accountants argue that rolling budgets can be a far more useful tool. Unlike static budgets, they encourage managers to react more quickly to changing economic developments or business conditions. They discourage what is too often a fruitless focus on the past (“Why didn’t we meet our numbers? ”) in favor of a realistic focus on the future.

And they produce forecasts that, over the near term, are never more than a few months old, even when companies are rolling them forward on a quarterly basis—the more common approach—rather than REL’s monthly basis. Implementing rolling budgets doesn’t necessarily require any fundamental change in the way a company has been doing its budgets—except, of course, it no longer does the job just once a year. However, companies that decide to step up to rolling budgets may want to take advantage of the decision to make a change and consider what else they can do to improve the process.

After all, if a company can get everyone on board to make such a fundamental change, a further nudge to make the process more effective and efficient in other ways may be possible, too. (Morrow, 2010) The Problem Of Relevance In the view of many accountants, traditional budgets too often are useless because they are out of date soon after they are assembled. Assuming that much of the decision making that goes into them gets done in the fourth quarter of the prior year, by the end of the following year, traditional budgets reflect thinking and data more than 12 months old.

Not surprisingly, such documents tend to get short shrift from front-line managers. In worst-case scenarios, they can even promote behaviors and business decisions that are counterproductive. Consider the real-world example of a Fortune 500 company that has been talking with REL about how it might improve its forecasting to produce better financial results. The company uses a traditional static annual budgeting process in which it sets monthly sales goals for each of its products.

If the company misses its sales targets in the first month, product managers will typically push those projected sales into the final quarter of the year. By doing that, corporate management is acting as if the outlook for the full year remains unchanged even though sales were off to a slow start. But if the slow pace continues and product managers begin to realize that their lost sales can’t be made up in the last quarter, they start to budget them out over all of the remaining quarters of the year. Frequently, they wind up running massive discounting programs at the end of each quarter to hit their annual targets.

Fortunately, the company can afford such budget maneuvering because it enjoys relatively high margins on its products, but such manipulation isn’t maximizing its return on investment. Acting Rationally The static budget encourages managers to create artificial demand for their products, not end-user demand. In other words, the company stuffs its distribution channel and simply delays future shipments. If the company had a more realistic budget, product managers would be able to act more rationally, eliminating the last-minute forced discounts. Payne, 2010) Not only are static annual budgets restrictive, it turns out that many managers don’t really like them. Most of the clients complain that their current planning process is extremely painful and time-consuming. General manager of the Stanford, Connecticut, office of Parson Group, a national consulting firm focused on finance, accounting and business systems. Assuming the client is operating on a calendar year, everyone runs around feverishly in October and November to do budgeting, and then at the end of the process, they’re happy to get it over with—knowing they don’t have to do it again until the next November.

Manage The Information Implementing a rolling budget involves more than going through the annual budgeting process four times a year instead of one. Because the time between budgets has been compressed, management must access and process information more quickly than it was able to do in the past. To do that, line managers must become more involved in the process and the company must embrace technology that will allow it to quickly capture and disseminate the raw data needed for decision making and forecasting.

Most organizations today rely on Microsoft Excel spreadsheets to do their budgeting. They work, but they can be laborious, requiring finance managers to piece together input from all the operations managers throughout the organization. The process was slow and exhausting, producing a static and reactive product that was built on data that was typically at least six months old. Today, that company uses a specially designed budget planning, forecasting and analysis software product to do the job. (For a list of such software, see the sidebar “Software for Budget Planning and Analysis. ) This kind of software makes it easier for managers throughout a company to access, enter and share data on a real-time basis, using the Internet as a communications medium. “Managers used to spend a lot of time allocating expenses among different segments of the business. Since the new software automates the process, managers can spend more time analyzing the data. (Swaller, 2010) The Big Picture For public companies, the benefits of more timely and accurate budgets may ultimately extend beyond operations. Under Wall Street’s close scrutiny, meeting earnings forecasts has become more important than ever.

A misstep, even one that’s just a penny per share below expectations, can translate into a sharp stock sell-off and, in the long run, drive up a company’s cost of capital. Theoretically, between rolling budgets and predictive accounting, companies can minimize the controllable factors that cause inaccurate earnings projections, Therefore, they would have fewer actual-to-forecast variations, which in turn would help cut down on stock price volatility. ” Although no budgeting technique can predict the future, these techniques allow companies to get much closer to the ideal.

The only holdback is the willingness of a company’s managers to use these new technology tools that are now available. Unfortunately, most “static” annual budget processes fail to provide a clear vision of the enterprise’s impending direction. Forecasting allows organizations to close the gap between the overall strategic plan and the detailed operational budget. An ideal planning cycle includes an ongoing forecasting component that flows directly from the overall strategic plan and integrates with the operating budget. The output from this higher-level planning system then directly impacts the outcome of the detail budget.

This principle of a continuous/rolling forecast that drives a target-based detail budget is a key financial component of many organizations’ highest-level strategic planning process. The “Strategic Plan” involves many nonfinancial processes (competitive analyses, initiative-focused plans, and the like) and becomes the driver for the rolling forecast. The forecast translates broad-based initiatives into key statistical and operational factors and results. The operating budget, in turn, provides plans and budget-to-actual control functions at the lower levels of the organization (e. g. cost center) Another useful feature of the forecasting system is to visually portray trends of such metrics. For example, a forecast for product revenue might include the historic revenue-per-salesperson ratio and allow a manager to forecast this future rate, in combination with the expected number of salespeople, in order to determine future revenue (see Figure 2 for a parameter-driven forecasting layout). Statistic- or parameter-driven results provide a useful basis for review of the forecast. (Montgomery, 2010)

DISADVANTAGES OF ROLLING BUDGET.

1. It is very expensive because of the elaborate set up of the budget department. .
2. The budget might be so reviewed on such a manner that there will be no significance between the budgeted and actual results. The managers may tune budget to actual and it will not serve as a good yardstick
3. It requires account forecast of changes in economics, political, social ecological and business conditions. In practice this changes may not be ascertainable because of lack of statics. Above is the major limitation of rolling budget.
4. It is very expensive and elusive fro small organization.
5. It is cumbersome for data collection except where computer is in use. (d)Activity Based Budgeting

Activity based budgeting is an approach to the budgeting process that focuses on identifying the costs of activities that take place in every area of a business or organization, and determining how those activities relate to one another. The data regarding those activities and how they relate to one another is used to establish goals that allow the organization to move forward. By understanding the relationship between all the activities of the organization, it is often possible to create realistic budgets for each department that are more equitable and in the best interests of the company in the long run.

The concept of activity based budgeting is different from the process known as cost-based budgeting. Often, the cost-based approach relies on assessing the actual expenditures connecting with a previous budgetary period, and simply adjusting those amounts based on the current rate of inflation, or to account for changes in the amount of revenue generated. By contrast, activity based budgeting is more concerned with what is being done within the organization, how those actions or activities work together, and then allocating funds to each activity based on how much it will cost to successfully complete those activities. Brimson, 1991) Proponents of activity based budgeting see this approach as more realistic, since it involves looking inward at activities and costs rather than basing the budget on outward influences. From this perspective, this strategy is understood to create financial forecasts that are more accurate, and thus prompt the organization to make the most efficient use of its resources.

As a bonus, the analysis of each activity and its contribution to the ongoing success of the organization means that any activities that do not appear to relate to other activities within the organization structure may in fact be unnecessary, and can be eliminated without having an adverse effect on the overall operation. Those who favor a cost-based approach over the use of activity based budgeting note that this approach does not necessarily allow for the possibility of events such as an increase in the cost of raw materials or the need to replace outmoded equipment.

According to this line of thinking, the inward focus of the activity based method only accounts for part of the data needed to develop a workable budget. Only when this inward analysis is coupled with consideration of outside factors that could exert some degree of influence during the upcoming budgetary period can the organization hope to draft a budget that is truly practical and likely to meet the needs of the organization over the course of the upcoming period. ( Gietzman, 1992) Disadvantages of Activity-Based Budgeting Complexity

The many advantages of activity-based budgeting notwithstanding, this technique remains a comprehensive and time-consuming exercise. The process requires identification of activities, estimation of activity output demands, and estimation of the costs of resources needed to provide the demanded activity output. The budgeting of physical inputs and costs as a function of a planned activity requires the use of an activity-cost hierarchy and making estimates on the consumption by such activities. Activity-based costing bases itself on defining or analyzing the relationship among costs and activities, which might not always be possible.

Even otherwise, the contextual information that plays an important role in shaping the results may not always be available or considered. Success of activity-based budgeting depends on a thorough and in-depth understanding of the business processes and an accurate activity analysis. Not all managers remain competent to perform such tasks, and the resultant distortions make the activity an exercise in futility. Resources Among the major disadvantages of activity-based budgeting is its consumption of organizational resources.

Spending too much resource on an analytical function such as activity-based budgeting becomes counterproductive. The complexity of the activity-based budgeting exercise means that it takes away considerable organizational resources in the form of managerial time and money. Such resources, if deployed in a core operational activity, would contribute to a much better bottom line. The broad scope of activity-based budgeting invariably necessitates an activity-based budgeting software, as well as training all managers to use the software and learning how to make correct activity analyses, adding to the resource demands.

Duplication A major limitation of activity-based budgeting is that it is not a control budget and as such does not replace the department or line-item budget. Activity-based budgeting only provides supplemental information, and it acts as a panacea rather than a tool. It therefore does not eliminate or substitute any process but adds to the administrative functions of an organization. Short-Term Focus Finally, another major activity-based budgeting disadvantage includes its tendency to focus on the immediate and short term and ignore the long term.

Activity-based budgeting uses historic data for forecast analysis, which may not always be practical. Focusing on activities that create immediate results might work well in the short term, but might cause long-term damage to an organization. While activity-based budgeting helps the organization if implemented with the correct data, preparing an activity-based budget with distorted data runs the risk of arbitrary budget cuts and creates a dysfunctional organization. (Morrow,1991) Behavior Aspect of Budgeting

A main problem involves a variety of behavioral conflicts that are created when the budget is used as a control device. To be effective, the budget must be used by the managers it is designed to help. Thus, it must be acceptable to all levels of management. The behavioral literature on budgeting supports the view that the budget should reflect what is most likely to occur under efficient operating conditions. If a budget is to be used as an effective planning and monitoring device, it should encourage a high level of performance and efficiency, but at the same time, it should be fair and obtainable.

If the budget is viewed by managers as unfair, (too optimistic) it may intimidate rather than motivate. One way to gain acceptance is referred to as participative (rather than imposed) budgeting. The idea is to include all levels of management in the budget preparation process. Of course this process must be coordinated by a budget director to ensure that a fair budget is obtained that will help achieve the goals of the total organization. Rahman,2011) Another way to reduce the behavioral bias against budgeting is to recognize the concepts of variation and interdependence when using the budget to evaluate performance. Recall from our discussion of the statistical control concept in that there is variation in all performance and most of this variation is caused by the system , (i. e. , common causes) not the people working in the system. The concept of interdependence refers to the fact that the various segments of a company are part of a system. Inevitably, these segments, or subsystems influence each other.

Failure to adequately recognize the interdependencies within an organization tends to cause behavioral conflicts and motivate participants to optimize the performance of the various segments (subsystems) rather than to optimize the performance of the overall system.

THE ‘BEYOND BUDGETING’ MODEL – PRIVATE SECTOR

In the private sector, managers are forced to consider current and future opportunities and threats, particularly where rolling monthly forecasts of financial performance operate together with a focus on other non-financial ‘value drivers’.

In essence, the ‘beyond budgeting’ model entails devolved managerial responsibility where power and responsibility go hand in hand. The view held by proponents of the beyond budgeting model is that the following benefits may accrue as a result of its successful application by management: (Johnson,1995) . It creates and fosters a performance climate based on competitive success. Goals are agreed via reference to external benchmarks as opposed to internally-negotiated fixed targets. Managerial focus shifts from beating other managers for a slice of resources to beating the competition. It motivates people by giving them challenges, responsibilities and clear values as guidelines. Rewards are team-based, in recognition of the fact that no single person can act alone to achieve goals.  It devolves performance responsibilities to operational management who are closer to the ‘action’. This uses the ‘know-how’ of individuals and teams interfacing with the customer, which in turn enables a far more rapid adaptation to changing market needs.  It empowers operational managers to act by removing resource constraints. Key ratios are set, rather than detailed line-by-line budgets.

For example, gearing and liquidity ratios may be used to show there is enough cash in the bank to meet liabilities. Local access to resources is thus based on agreed parameters rather than line-by-line budget authorisations. This is aimed at speeding up the response to environmental threats and enabling quick exploitation of new opportunities.  It establishes customer-orientated teams that are accountable for profitable customer outcomes. These teams agree resource and service-level requirements with service departments via the establishment of service level agreements. It creates transparent and open information systems throughout the organisation, which should provide fast, open and distributed information to facilitate control at all levels. The IT system is crucial in flexing the key performance indicators as part of the rolling forecast process.

THE PUBLIC SECTOR

The legal framework of public sector organisations would probably prevent such a system being introduced. As with all alternatives, the success of a particular process depends on the needs of the individual organisation.

The alternative of the beyond budgeting model places considerable emphasis on the need for organisational, managerial and cultural changes in order that it may be successfully applied by organisations. This will present considerable behavioural challenges and individual managers might become overwhelmed by the complexity of decision-making in such an unregulated decision-making environment. In the public sector, the budget process inevitably has considerable influence on organisational processes, and represents the financial expression of policies resulting from politically motivated goals and objectives.

Yet the reality of life for many public sector managers is an increased pressure to perform in a resource-constrained environment, while also being subjected to growing competition. In essence, a public sector budget:

establishes the level of income and expenditure  authorises that expenditure, once agreed, out of the planned income acts as a control on expenditure and income communicates policies and plans  focuses attention on the future  motivates managers and staff. While these issues may be common with the private sector, a number of issues arise which are specific to the public sector.

For example, UK local authorities are prevented by law from borrowing funds for revenue purposes or budgeting for a deficit. If the beyond budgeting model is to allow greater freedom for managers then it will take a considerable change of mindset in the public sector to achieve the flexible agenda envisaged, especially where such flexibility would involve considerable and increased delegation to managers. One wonders therefore, from a behavioural perspective, if such managers are capable of making this change, as it would entail the adoption of a radically different approach.

Local authority financial regulations also tend to prevent the transfer of funds from one budget head to another (otherwise known as virement) without compliance with various rules and regulations. These rules (expressed in the financial regulations of public sector organisations) will be consistent with the policies of the organisation and are designed to prevent expenditure on items such as permanent staff where such costs would go beyond the budget year and represent a commitment of future resources.

Budgets in the public sector tend to concentrate on planning for one financial year ahead. Attempts are being made by UK central government, through the comprehensive spending review, to place an emphasis on the longer-term. However, considerable difficulties exist within the individual organisations that make up the public sector when creating a budget system that reflects longer-term objectives and goes beyond the annual cycle. It also remains to be seen how the relatively new system of resource accounting in central government will fit into the budgeting framework.

Traditional methods of budgeting in the public sector centre on the bid system and incremental budgeting. These approaches focus on changes at the margin and generally reflect acceptance of the budget base from the previous year. This is partly a reflection of the size and complexity of public sector organisations, but also the internal political power of large departments, which protect their positions through their relative strength. Bid systems also minimise conflict, as debate and power struggles are only concerned with the ‘incremental’ items.

More advanced approaches are represented within financial planning systems, and include such concepts as zero-based budgeting and planned programme budgeting systems with a timeframe greater than one year. Whether the public sector can adapt to the concept of greater flexibility – which lies at the heart of beyond budgeting – remains a matter of ongoing debate. Such an adaptation would require a mindset which not only moves away from control but also requires a reduction in the internal political power of large departments which has been at the heart of public sector budgeting for many years.

The desire to generate improved performance – essentially considered the driver for the beyond budgeting model – is present in the public sector evidenced in initiatives such as key performance indicators and ‘best value’ plans. But this is not matched by a desire for the flexibility inherent in the model. In terms of beyond budgeting, managers in such organisations are likely to remain constrained by the inability of their organisation to change. Finally, the behavioral conflicts associated with budgeting are reduced by using flexible budgets when evaluating performance Other factors affecting behaviour

Dysfunctional behaviour may be caused by the following budgetary problems:

1. Budget targets that are perceived by employees as too difficult to attain will result in resentment and a feeling of stress.
2. Budget targets that are perceived by staff as too easy to achieve do not provide a challenge and may lead to a slipshod performance by staff.
3. Managers may experience a loss of autonomy by being hemmed in by the budget and not having sufficient flexibility to use their own initiative.
4. Managers may become narrow minded, focusing only on their own department, and create disadvantages for the organisation as a whole.

The emphasis on financial goals to the detriment of non-financial goals may havea debilitating effect on the organisation. Budgetary slack or sometimes it is referring to budgetary bias, is a common process where implementer intentionally underestimates revenue or overestimates expenses in the tight budget. Managers may attempt to create budgetary slack in three ways. Managers may deliberately underestimate the production or sales budgets potential. For example, the sales budget for the month of July is RM 1 million. If the manager is able to achieve the target budget then the sales budget for the following month will be increases to RM 1. million. Manager creates budgetary slack by undervalue the budget so that the budget for August will be easier to achieve although they are able to hit the tight budget. Manager may also attempt to achieve slack by cost overestimation. They purposely used more than the budgeted expenditure so that the budget will be increases for the following months. After that they spend less than the budgets to shows that they have improve in their performance. For instance, the cost budget is set to be RM 1 million in January. Then the manager spends RM 1. 2 million in their expenditure so that the cost budget will be increase to RM1. million in February. Subsequently, they spend only RM 1. 1 million in March which is RM 0. 1 million lesser than February to prove that they have better performance. Moreover, manager may use up all the budgets to pretend that there is no slack in the recent budget. Manager may waste his extra cost budget on non-essential expenses. Let say the cost budget is RM 2 million for March, the manager will try to finish his allowance although he only spend RM1. 8 million. This may cause by the fear of the manager that the future budget will be reduces unless the allowance is fully utilise. Rahman,2011) We see the behavior aspect of budgeting as having particular relevance for knowledge-based companies which are increasingly a feature of a developed economy. Other companies may see specific benefits in such a system, given the rapidly changing environment in which they also operate. These changes will not be introduced without conflict and difficulty due to the challenges faced in introducing change. Such challenges may be beyond the achievement of the public sector, due to the expression in the budget of politically-motivated policies and objectives eveloped within a complex legal and financial framework. What we can say, however, is that if we are to see the successful application of the beyond budgeting model in both private and public sectors, then this must be underpinned by a considerable organisational, cultural and managerial change. Otherwise it is doomed to failure. (John, 1995).

References

• Brimson, J&Fraser, R. (1991), The Key Feature of ABB, 42-43 Cantoria. c. s, (2011)Walking Through an Example of Creating a Zero-Based Budget * Gietzman, MB,(1992) The Development and Design of An Activity Based Budgeting System, Initial Experience. Johnson, HT. (1988)Activity Based Infromation:A blue Print for World Class Management. 23-30 Johnson, S. (2005), Beyond Budgeting, Retrieved from, http://www. acca.co.uk/students/acca/exams/p5/technical_articles/2950520
•   Lynn, M. P, Madison, R. L,(2004) A closer look at rolling budgets: the challenges associated with an effective implementation of rolling budgets are management challenges, and software technology can only become part of the solution when managers are ready to use it to enhance their decision making Montgomery,P. 2010) Effective rolling forecasts: Make sure your projections are high-level strategy and not just a Rehash of the operating budget. (Budgeting/Forecasting).
• Morrow, M & Connolly,T. (1991)The Emergence of Activity Based Costing. 38-43  Randy Myer(2001), Budget on a Roll, Retrieved from http://www. journalofaccountancy. com/Issues/2001/Dec/BudgetsOnARoll. htm. * Rahman, K. A. (2011) The Pattern of Behaviour in Response to Budgeting. * Sargent,Charles W. PH. D. (1995), Zero-Base Budgeting and the library,  http://www. ncbi. nlm. nih. gov/pmc/articles/PMC225295/pdf/mlab00085-0055. pdf

The following is a discussion on the achievements and the capabilities of both “Pauline Hanson” and “Dick Smith” with regard to being the current leaders and what should future leader of Australia be like. Achievements Pauline Hanson: Pauline Hanson was a part of conservative liberal party and got the seat of Oxley in Queensland.

Australia’s One Nation party was founded by her as well, she was of the view that immigration of Asians and other ethnic groups to Australia will affect the nations coming generations and will dilute the culture of the country in such a way that the culture of Australia would be totally influenced by the foreign cultures. Dick Smith: Dick smith has played an important role in the campaign against the foreign owners of the Australian food producers, and for this purpose Smith formed the Dick Smith Foods in 1999.

With this thought of promoting Australian goods, Dick Smith Foods sells only Australian products. In 1999 on the honors of Australia Day, Dick Smith was awarded an Officer of the order of Australia for the services he has rendered to the Australian business and the community. Dick Smith has also been awarded the award of the Australian of the year for the year 1986. Dick Smith has been active in his support for the disadvantaged – Notable ones being his open support for Peter Qasim, who was detained by the Australian government for over 7 years.

Apart from that Dick also paid a part of the ransom to free the Australian and Canadian journalists held hostage in Somalia. Hanson and Smith as Leaders with reference to the text Hanson I do not think that Hanson would be an effective leader as her style of leadership is very autocratic and she tries to impose her feelings and emotions over what is best suited for the country which in long-term would affect her political carrier and it has.

Smith The charismatic visionary style has been adopted by smith as he promoted what he believes in and what thousands of Australians do, he took a step for stopping the foreign food companies but in doing so he kept in mind that he had to come up with something which could replace the foreign need so he started his own company such visionary ideas are of a true effective leader who gives a sense of direction to his followers.

Factors contributing to the success of both Hanson According to my research the key factors to Hanson’s success are the firm believes of a small group of people who think as one with this woman they see the same fate of their beloved country which is going to be changed by the immigrants and that is why they support her other than that I don’t think that on rational grounds her success is because of her anti migrant campaigns. Smith

The success of smith is defined by the way he has put forward his words into action and made his vision into reality he is truly a realist and a patriot, his words were not only to depict his emotions but they were to be the guideline for people of Australia to stand up and take responsibility if you don’t like other to over take your markets than find the potential in yourself and shape your future. Hanson and Smith leaders of the 21st century Hanson

For Hanson I would say no as 21st century leader you must be seeing both sides of the coin but Hanson only sees one side, she sees in Asians and other immigrants a threat to Australia’s culture and resources but what she lacks to foresee are the opportunities being brought by these people Asians no matter from which part they are, they are a cheap source of labor along with many other qualities so Hanson according to me does not qualifies as an effective leader.

Smith Smith as I have mentioned earlier is a man of vision and a leader that not only listens to his own agenda but addresses the opposition as well he truly is the leader of 21st century where emotions are kept in mind but rational is preferred and he has proved it that he is capable of turning his mud to bricks and then can make a future out of it for fellow Australian’s and Australia itself. Developing and nurturing leadership qualities

Yes I believe that leadership qualities can be developed and nurtured, a leader is a person who has to create a path for his followers in such a way that the followers don’t get lost and keep on moving on the path of the success. Human beings are ever evolving creatures we understand and act according to the knowledge we have, knowledge is what we learn from our experiences and how we use it to be beneficial for us and all.

So without learning and getting to know what is wrong and what is right we cannot be good leaders and if education can teach us to become good human beings and it can turn out leaders like “Nelson Mandela” so yes it can also help to nurture and develop leadership qualities. Conclusion In the end I think that leadership is should be focused on making decisions what are beneficial for both the nation and the country instead of doing what you believe and putting your own beliefs over the interests of the country for this I highly regard “Dick Smith” and disregard “Pauline Hanson”.

REFERENCES Bonnie Malkin (2010 February). Right-wing Australian politician Pauline Hanson to move to Britain. Retrieved August 22, 2010, from <http://www. telegraph. co. uk/news/worldnews/australiaandthepacific/australia/7239699/Right-wing-Australian-politician-Pauline-Hanson-to-move-to-Britain. html Probyn, F. (1999 April). ‘That Woman’: Pauline Hanson and Cultural crisis. Australian

Feminist studies Volume 14, Issue 29, Pages 161-171 Roden M. (2004 April). Australia’s Mightiest Heroes. The Morning News. Retrieved August 22, 2010, from <http://www. themorningnews. org/archives/stories> Toni O’loughlin (2010 February) Australian anti-migrant campaigner Pauline Hanson to emigrate. Retrieved August 22, 2010, from <http://www. guardian. co. uk/world/2010/feb/15/australian-migrant-pauline-hanson-uk>

I have rated the fourteen steps to guiding children’s behavior based on personal belief and experience. 1. Model Appropriate Behavior: Show, demonstrate, model and supervise. Children are watching you therefore you need to be the best role model you can be. As a positive role model you need to make good choices and encourage children to do their best too. It has been proven that children with positive role models have higher self-esteem, do better in school and social settings, and are more likely to make good choices in difficult/stressful situations. Positive role models can last a lifetime. 2.

Meet Children’s Needs: Children need to eat nutritional foods, drink plenty of water, and get enough sleep and exercise. Children need a safe environment at home and at school. Children need love, affection and respect. Children need to be given opportunities to be successful so they can build self-esteem. Children need to be given responsibility and independence so they can experience self-actualization. As caregivers, it is our responsibility to provide all of these needs, children need us to do this for them. 3. Use and Teach Conflict Management: Teach children how to successfully resolve conflicts.

Children need to learn how to handle difficult situations, they don’t know how to resolve a problem if we don’t show them how. As a role model, it is important to display conflict resolution, children will learn by watching you. It is important to show children how to share, talk it over, take turns, choose to do something else, and say “sorry”. I think it is so important that adults apologize to children when it’s appropriate, respect goes both ways, if you expect a child to say “I’m sorry” to you then as a role model you should apologize to children when necessary too. . Know and Use Developmentally Appropriate Practice: Learn as much as you can about children, have high but appropriate expectations. As an instructor, it is crucial to always continue learning about Early Childhood Education, stay up-to-date with current methods and trends. 5. Teach Cooperative Learning and Living: This is such an important step because it’s a lifetime step. It is crucial to discuss cooperation with children because life is full of social interactions, they need to know how to cooperate in a group settings and how to recognize different behaviors.

Talk with children about different behaviors and reactions so they understand how they are feeling and how to react appropriately. 6. Develop a Partnership with Parents, Families, & Others: As an instructor, it is your job to communicate with people who are important in your students life because they are influencing the child outside of the classroom. Make it clear to parents and caregivers that you are always available for communication, that you care about the child and want whats best for them.

I think it is extremely important to involve parents and caregivers in classroom activities, they should know what you are teaching and how children are learning. Overall, if there is understanding and communication between parents and teachers then the child will probably have a more rewarding learning experience in the classroom and at home. 7. Empower Children: Children need to learn that they are ultimately responsible for their own behavior, allow children to have choices and support them. It is important that children know you trust their decisions and feel successful when they make positive choices. . Establish Appropriate Expectations: The expectations you have for children should be attainable and used as guideposts in learning. Children should have a clear understanding of rules and limits, this way they know what is expected of them. As an instructor, you should always be clear about exactly what you expect and what the consequences will be if rules and limits are broken. 9. Clarify your Beliefs about Guiding Behavior: It is important to be certain about what you want for children in the classroom and at home.

Use a philosophy of education to guide your teaching and review it often, be sure you are always doing your best to do best for the children in your classroom. 10. Use Social Constructivist Approach: Teachers should always be guiding students to behave in a socially appropriate and productive way. Once again, you are a role model, be the best role model you can be, children are watching your decision making and behaviors. Make responsible choices so children can ape this behavior. 11. Help Children Build New Behaviors: Give children praise when necessary.

I am a strong believer in the power of positive reinforcement, children react positively when you reward them for . It is important that children know you recognize they are choosing to make a good choice because it lets them know you are watching them and acknowleding their efforts to control their behavior. 12. Recognize & Value Basic Rights: We all have basic rights, children too! Respect their basic rights and it will be easier to guide and direct children’s behavior. 13. Avoid Problems: Positive reinforcement is a great way to focus on good choices and show children that you appreciate their good behavior.

Too many times I see parents and instructors who focus on negative behavior and forget to acknowledge positive decision making. If you ignore negative behavior children will learn that they will not get attention or reward for negative behavior. Be sure to always reward and focus on good decision making. Children will learn that by making good choices they will receive praise and rewards. 14. Arrange and Modify the Environment: The classroom should be a safe place of learning and fun. As an instructor, it is your responsibility to provide an annpropriate environment that supports learning for everyone.

Financial mangers often use different capital budgeting methods to evaluate the feasibility of projects. All potential investors require a minimum rate of return on their investments in any project. In order to evaluate the return on an investment financial managers often use different capital budgeting techniques which ensure that a project is feasible for investment or not. It is a rule of thumb that cash flows are often used to evaluate the return on investment in most capital budgeting methods due to the factor of time value of money.

From an analytical perspective, the investment analysis can be classified into two categories, non discounted and discounted cash flows. Average rate of return and payback method is the part of non discounted cash flows. Both methods are very easy to compute and also quite handy to understand results. Both non discounted methods are very popular among practitioners. However, a slight problem is that they can’t consider the factor of time value of money. In discounted cash flows three methods Net Present Value (NPV), Internal Rate of Return (IRR) and benefit cost ratio.

In all of the three procedures, the factor of time value of money is discussed before making the investment. All in all, capital budgeting decisions can bring about a significant impression on the organization’s future business operations. One can argue that a high-risk project with a good return is less desirable than a lower-risk project with a similar return but in this context we cannot neglect the risk associated with the return. The risk indicates the probability of the company getting a specific benefit from the proposed investment. Where the probability of success is high, risk is low and vice versa.

Adaptations and practices of new approaches of capital budgeting in the spotlight of global business scenario is quite handy for financial managers as it helps them make the appropriate decision at the appropriate time. Also an important feature of capital budgeting techniques is to identify the existing gap between the theory and practical which create hurdles the future’s financial managers in adopting the appropriate decision.

INTRODUCTION

Capital budgeting plays a very dominant part in making important financial decisions. Capital budgeting is a technique that helps the financial managers to support and base their business decisions on.

Capital budgeting techniques may be employed when making capital investments. The firm mainly focuses on the outlays which mainly comprise of fixed assets and have significance in relation with the cash resources which also has an impact on the future cash flows. In this context, addition, disposition, modification, impairment and replacement of fixed assets also bears some importance in capital budgeting. Such paramount decisions may have some implications on the profitability and also consequences for the firm’s future growth. Capital budgeting can be a sophisticated practice or exercise.

An efficient and meaningful capital budgeting analyses translates the simple picture of the benefits, costs, and risks associated with potential investments and expenditures. In addition, a capital budgeting decision and the adaptations of the techniques may have long-term effects on the company’s future cost structure. The rationale behind the capital budgeting decisions is efficiency. Acceptance of strategic investment changes the company’s expected profits and also the risk which is associated with these profits.

TECHNIQUES OF CAPITAL BUDGETING

When a finance manager makes an investment portfolio, he/she focuses on adopting proper investment appraisal technique becauses every potential investor looks for reward when he/she makes an investment. Discounted Cash flow is an approach aimed at evaluating the financial aspects of a project, a company or its assets, and it uses the concepts of Time Value of Money (Pike and Neale 2006, p. 240). All future cash flows are discounted and estimated to their present values. The discounting methodology is employed in determining the economic attractiveness of capital investment projects, which reduces the value of future cash receipts or payments.

The selection of proper investment appraisal technique is upon the discretion of the investor. There may be various types of techniques used for capital budgeting, the most common ones include NPV, IRR and Payback, which are briefly discussed below:

The Net Present Value, in simple words, can be described as the present value of cash flows minus the investments. The NPV of an investment in a particular project is the present value of expected cash inflows less the present value of the project’s expected cash outflows, discounted at the appropriate cost of capital as described by Brealey, Myers and Marcus (2001)

IRR is defined as the rate of return that equates the Present value of an investment’s expected benefits (inflows) with the present value of its costs (outflows), as expressed by Mathur (2002). Equivalently, the internal rate of return may be defined as the discount rate for which the NPV of an investment is zero.

Payback period is another method of investment appraisal which is measured in terms of time. It describes the amount of time required until cash flows recover the initial investment of the project. The payback rule states that a project should be accepted if its payback period is less than a specified cut-off period.

Mathematically; Payback Period = Cost of project / Annual cash inflows As a rough rule of thumb the payback rule may be adequate, but it is easy to see that it can lead to nonsensical decisions. Myers, Brealey and Marcus (2001) have described an example, comparing projects A and B. Project A has a 2 year payback and a large positive NPV. Project B also has a 2-year payback but a negative NPV. Project A is clearly superior, but the payback rule ranks both equally. This is because payback does not consider any cash flows that arrive after the payback period.

A firm that uses the payback criterion with a cut-off of two or more years would accept both A and B despite the fact that only A would increase shareholder wealth and also ignores the total profitability and cash flows anticipated over the entire life of an investment (Pettinger 2000, p. 105) . A second problem with payback is that it gives equal weight to all cash flows arriving before the cut-off period, despite the fact that the more distant flows are less valuable. For example, look at project C. It also has a payback period of 2 years but it has an even lower NPV than project B.

This is because its cash flows arrive later within the payback period. To use the payback rule a firm has to decide on an appropriate cut-off period. If it uses the same cut-off regardless of project life, it will tend to accept too many short-lived projects and reject too many long-lived ones. The payback rule will bias the firm against accepting long-term projects because cash flows that arrive after the payback period are ignored.

Another method is Modified Internal Rate of Return (MIRR) which debates on the discount rate at which the project cost is equal to the Present Value (PV) of its terminal value.

Another feature of MIRR is that it is invested at the firm’s cost of capital. Moreover, MIRR also makes a reflection on the profitability of the project.

Benefit Cost Ratio (BCR) debates on the overall value of money that is to be invested in any project. This ratio is quite beneficial in discussing the cost and benefits associated with the project. This ratio is also beneficial in decision making process regarding the project. Moreover, all costs and benefits expressed in discounted present values.

EXPLANATION

It was observed that most of the firms use Net present Value (NPV), Internal Rate of Return (IRR) and payback period when analysing any proposed investment. Going first with payback period, their is a debatable issue attached to it and that is firms with capital constraint mostly consider only the short term net cash-flows attached to any project when employing payback (Sagner,2007, pg. 39). It is often observed that businesses reveal a lot of money on their balance sheets but have fewer attractive capital investments

Similarly investors tend towards short term investment rather than long term investments (Sagner, 2007, pg. 39). It is primarily known that CFOs of most companies give preference to Payback over DCF analysis, which includes both NPV and IRR, the reason being that the future is uncertain and both NPV and IRR ignore all the macro-level factors that may directly effect the cash flow stream attached to an investment. Financial managers know for a fact that worthwhile capital investments are unusual and likely to be short lived

Most of the financial managers suggest that it is not an appropriate decision to allocate the funds to a project, only on the basis of a higher NPV and IRR. Because as stated earlier NPV and IRR do not address other important factors that may affect the expected cash flows. It is primarily evident that prediction regarding future cash inflows are based on optimistic grounds and most of the time it works upon hope and desire that a project be funded rather than be based upon hard research and specific evidence

There may be various factors that can be difficult to forecast, a change in which may create deviation of the net cash flows from the expected. This may include factors such as a new tax policy, increase in oil prices, or prices of other raw materials, or any macro-level factor that impacts the future cash flow streams. The current world era determines its dimensions regarding the use of probabilities in improving capital budgeting decisions (Sagner, 2007, pg. 43).

It is an open book fact that the future is uncertain and unpredictable, due to which financial managers focus on discounted payback plus (DPP) and sensitivity analysis (Sagner, 2007, pg. 43). In sensitivity analysis, worst case scenarios are taken into perspective, varying in different variables’ assumptions. In DPP, financial managers estimate returns on a projected payback moments plus an assignment of probabilities for cash inflows beyond the payback period (Sagner, 2007, pg. 43). The use of probabilities makes it a lot easier to evaluate the risk attached to a project.

DPP and sensitivity analysis both consider the risk factor from the cost of funds rather than focussing on returns that the firm expects to earn on the investment. Due to the new economic dimensions better valuation for capital budgeting techniques should be incorporated. RO analysis is a powerful financial tool that resolves the complexities that the project management team faces in the form of uncertainty. It also resolves the complexity of independent investment decision of new economy. It adds great value to a firm’s worth.

Also more flexibility that exists in RO analysis supports the managers in decision making and has an obvious advantage over NPV. RO analysis, in fact is not separate to the NPV technique, rather it is an expansion and improvement in the technique itself, giving better insights into strategic valuations (Madhani, 2008, pg 65). According to Arnold and Hatzopoulos, from the theoretical perspective text books often tend to prefer or rate NPV as a better technique arguing that it is has an edge over other methods. Arnold and Hatzopoulos also states that most of the financial books argue in favour of the NPV.

The reason behind is the increasing knowledge and acceptance of the arguments presented in the textbooks. When companies use other methods, all the studies and textbooks followed assumptions are not always met in practice.

ADVANTAGES OF CAPITAL BUDGETING METHODS

There are some advantages of different capital budgeting methods which are stated below:

• Payback method is quite handy in those industries where products become obsolete more rapidly.
• Both Payback and ARR take lesser time in providing the result.
• NPV provides best results in mutually exclusive events.
• Both NPV and IRR consider the factor of time value of money.
• IRR deals in terms of the total cash inflows and outflows.

DISADVANTAGES OF CAPITAL BUDGETING METHODS

There are different methods used for evaluating investment appraisals, but on the whole NPV is the method which is widely used by the financial managers. In NPV different forecasts regarding the assessment of the project is used in order to get a single forecast for the average project value, neglecting the irrelevant information in the data set (Madhani, 2008, pg 49).

From the perspective of NPV, alternative investment appraisal projects with the same amount of capital investment are non-existent practically.

• One cannot compare the result of NPV with payback method and ARR.
• IRR does not recognize investments as long term or short term
• The major shortfall of IRR is that all cash flows are reinvested at the percentage of IRR.
• Accounting rate of Return (ARR) is simply focusing on accounting profit rather than on cash flows.
• Both ARR and payback method ignores the factor of time value of money.

Sometimes the assumptions used might be insufficient or inappropriate, which might put the firm in a position of defending the numbers, rather focusing on the information that helps the manager to make a good business decision. If the project has not proposed a clear strategic or financial goal, then the underlying assumptions are useless.

RECOMMENDATIONS / OUTCOMES

After evaluating and accessing the various approaches to capital budgeting, a summary of the expected outcomes is stated below:

• The ethical dilemma that the financial manager bears is that there is too much cash chasing too few acceptable projects.
• Carefully focus on the underlying assumptions used in capital budgeting in an appropriate manner like making plans to utilise the additional working capital, when making investments or forecasting the future cash flows.
• Take a realistic approach to evaluating the project’s risk and the factors and determinates associated with.
• From the theoretical perspective, most of the instructors argue in favor of the NPV and provide substantial and valid evidences to support NPV.

CONCLUSION

In conclusion, non financial factors may dictate the appropriate course of action. Such factors may include, for example, compliance with laws, corporate image, employee morale, and various aspects of social responsibility. Management must remain alerts to such consideration. Sometimes the assumptions used might be insufficient or inappropriate, which might put the firm in a position of defending the numbers, rather focusing on the information that helps the manager to make a good business decision.If the project has not proposed a clear strategic or financial goal, then the underlying assumptions are useless.

REFERENCES

1. Arnold, Glen C. and Hatzopoulos, Panos D. (2000). “The theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom”. Journal of Business Finance & Accounting 27(5) & (6).
2. Brealey, Richard A. , Myers, Stewart C. & Marcus, Alan J. (2001). Corporate Finance. McGraw-Hill.
3. Keown, Arthur J. (2004). Financial Management: Principles & Applications. Collier Macmillan. Mathur, Iqbal (2002). Introduction to financial m

As a result of restructuring, this company is now contending with challenges that threaten the overall functioning of its employees and most importantly the organisations productivity. The changes that accompany an organizational restructuring will affect the well-being of the members of the organization, especially given the potential for uncertainty that may accompany such changes. There is a need to better understand the consequences of organizational restructuring and consider some of its potential side effects on motivation and team effectiveness.

Employees in a post-restructuring context are understandably wary about the future direction of the organization and their roles within it. In order to identify best practice, this report will initially give a brief outline of the change process and its challenging the realities in organisational restructuring.

The key issues that are addressed are:

• The change process and what is involved.
• Fostering a learning culture.
• Competing values amongst disciplines
• Motivation and
• Team effectiveness.

Finally, this is followed with our recommendations as how to overcome the barriers, and ultimately ensure effective organisational restructuring.

Introduction

This report has been commissioned to facilitate organisational restructuring in a multinational company. The rational for the report is supported by the fact that staff are visibly expressing fears and resistance in response to the existing change methodologies. Hence we will review the concepts and controversies around organisational restructuring and this will be followed with practical key recommendations that will ensure effective organisational restructuring.

Change Process and its Effects

A multinational organisation faces many challenges when implementing a planned strategic change in its structure. An understanding of the changes in the work environment within the organization that have undergone restructuring is important so that corrective measures can be taken promptly to address negative changes as a consequence of restructuring (Bowman and Singh, 1993).

The fact that this company is a multinational organisation means that it is necessary to address the different cultural values within the organisation and consider them when reviewing the companies missions and goals. This organisation is changing from a hierarchical structure, which would have provided stability and continuity, as well as defined roles, predictable career paths and reward systems for its employees.

In the hierarchical system decision-making and accountability, flow from above to below, and individuals are confined to set groups that are determined by area of expertise. In a flat structure the responsibility and workload is spread out and teams consist of members from different departments. In this new structure the organisation is likely to encounter problems such as role uncertainty, problems in determining working relationships, and for it to work a high degree of employee involvement in decision making will be necessary.

Before initiating change in the organisation it is important to identify the purpose and aim of change, and who is affected by it, and how will they respond to it. A core criteria in the change process is the importance of fostering a will for change, and this is supported by identifying people in the organisation who will be the change agents. To be effective these change agents are derived from a broad base of professionals across the organisation.

Through this engagement of the change agents, it is envisaged that the professionals will move from working in mono-disciplinary settings to working in multi-disciplinary settings and ultimately to working within trans-disciplinary settings. In the latter individual professionals not only draw from their own knowledge base but they also synergise their expertise therefore forming dynamic progressive highly motivated performing teams. In this process of change, role conflict, role confusion, and power struggles are expected to initially have an negative influence on the whole value structure and performance. Even if employees are educated of the details of the changes, it will take time for them to adjust and become familiar with their new roles and how and where they fit into the company’s new strategy.

Fostering a Learning Culture

Education in the organisation has to take cognisance of adult learning theories. These theories very clearly demonstrate that in order to create a culture of continuous learning within an organisation it is recommended that the adult is facilitated to draw from their own empirical, professional, ethical, and the aesthetical ways of knowing from within their own discipline and from other relevant disciplines.

With this in mind any training programme will need to revisit and revise the underpinning philosophies and this is followed by mapping out and clearly identifying the organisations vision and mission. From this the organisational goals, benchmarks and audits will emerge and be copper-fastened. Hence this training programme will have to be continous with the professional development needs regularly reviewed in order to match the training to those identifiable needs. The training programme will need to be holistic in nature and therefore should made of workshops, action-learning, and reflection in and on practice.

Central to training will be the identification of the values that are important to each of the professionals. The Competing Values Model devised by Quinn (1998) enables organisations to understand organizational dynamics and assumptions regarding the purpose/nature of work, relationships among workers, decision-making functions and organisational culture within the workplace. Essentially, the model asserts that every organization has four competing “domains:” Change causes uncertainty, stress and anxiety both in those affected and in those managing the change, even if committed to its implementation.

These feelings have an impact on motivation and performance, due to a loss of self-esteem. Maintaining motivation in the workforce is a particular challenge for managers who are also seeking to implement change in organisational structures or the way in which work is carried out. Many studies have shown that group motivation has a positive correlation to a better work environment. Definition of motivation: Motivation is the psychological feature that arouses an individual to action toward a desired goal. Motivation can also be the reason for an individual’s action or that which gives purpose and direction to behavior. In other words, motivation is an incentive that generates goal-directed behavior (Aldag, 1979).

Unmotivated employees need encouragement because it will help them to contribute more in the workplace (Losoncy, 1995). Reward systems are strategic mechanisms that are used to help achieve the “initiator’s” goals (Klubnik & Roschelle, 1996). There are many companies that are beginning to realize the importance of compensation and reward systems in reinforcing motivation levels in employees. “New emphasis is given on interpersonal and group dynamics at the workplace, where trust is seen as one of the critical elements. If trust is absent, no one will risk cooperation in increasing effectiveness” (Lasoncy, 1995, p9).

This is significant when considering the current situation at your firm with regard to the restructuring of teams. The fact that all of the departments have been split up and reassigned to teams which mix individuals of differing skills has posed a threat to the levels of trust within the enterprise as a whole. Each group is made up of individuals that feel isolated from the other members of the team because they cannot consult with each other on specific problems in their given area of expertise. It is also important that employees self-confidence is developed now that they no longer have the comfort zone of their old department

An important role for management in doing this is to establish trust between individuals in these new groups. It is important that they understand that while they cannot consult with new members on specific problems as they did in the past, they can still operate as a coherent and productive unit. A unit that’s strong point is its diversity. A lot has changed within the job environment in recent times. Society is changing drastically and the way in which jobs are done is changing and motivating techniques are changing. Traditionally people were motivated by material gains, this is still the case but people also want meaning and purpose in their lives. They want to feel that they are working for more than just money so team leaders should give the team a positive purpose (Losoncy, 1995). A team leader or manager should encourage them verbally by letting them know that what they do is important and is contributing to others within the company.

According to Aldag there are two types of motivation, extrinsic and intrinsic. “The employee attributes job behaviours to outcomes that are derived from sources other than the work itself through extrinsic motivation”. Some examples of extrinsic outcomes include pay increases which were suggested above for this reason (Aldag & Brief,1979,p23). Intrinsic motivation comes from job satisfaction. An employee who is intrinsically motivated tends to be committed to the job and self-fulfilled through it (Klubnik & Roschelle, 1996). Intrinsic motivation makes employees engage in tasks longer than the employees who are not intrinsically motivated this increases productivity levels (Klubnik & Roschelle, 1996). Intrinsic motivation is harder to establish but can be encouraged by the introduction of goal setting. Setting and achieving goals appeals to individuals’ ambition to achieve.

Latham and Locke (2007) suggest that an employees’ motivation is affected by challenges which can be presented in the form of goal setting. Goal achievement leads to satisfaction as it “serves as the standard for evaluating one’s own performance” . Koestner (2002) maintains that goal setting affects performance as well as a persons subjective well-being. Goal achievement results in positive affect and decreases in negative affect

Prabhjot Kaur Communication Theory Final Paper ASSUMPTIONS: A high level of cohesiveness is usually present when groupthink occurs, and there is a great reluctance on the part of group members to stray from the group’s position. They do not want to leave, be forced out, or be ignored by other members. This “oneness” associated with cohesiveness is typically a desirable condition except when the group relies too much on solidarity that the desirable ends are not focused on. They are likely to operate in the group in a manner that seeks the approval and even affection of the other group members.

This is not the same as wanting to please the group leader with little or no concern for the opinion of the other group members. Cohesiveness is just one of three conditions necessary for groupthink to exist. The second assumption relates to the process of problem solving in small groups marking it a usually unified process. When a group is given the task of making a decision they usually go in with the thought of reaching a unanimous decision and strive to get along. They are also susceptible to adapt to the cohesiveness of the group due to affiliative constraints.

An affiliative constraint refers to members withholding their own opinions in fear of being rejected by the group. (West & Turner, 243) This is vital to the outcome of groupthink because if the members with opposing views did not fear rejection and argued their views the decision making process would be further delayed and would affect the cohesiveness of the group. The third assumption is that groups and decision making are frequently complex. There must be other alternatives available than just the one option the group is picking and the members of the group must be aware of these options.

If there are no other options then groupthink does not apply because there is no valid input being withheld by the members. Group members must know the who the other members are and be able to understand the position of the other members. Many factors such as “age, size of groups, intelligence of group members, gender composition, competitive nature of group members, and leadership styles that emerge in the group” (West & Turner, 244), will affect on how group members behave and choose to challenge the group’s decision.

Group members who are similar in one or many of these areas to one another are more conducive to groupthink. Homogeneity can foster groupthink among members and discourage them to challenge the group. (West & Turner, 244) CONDITIONS THAT PROMOTE: The first condition that promotes groupthink is presence of the cohesiveness we discussed earlier causes pressure for members to conform. The other two conditions are; group structural factors and group stress. The structure of the group does affect the way the group will function when faced with a complex problem to solve.

It is important for the group to have strong group insulation or “the ability to remain unaffected by outside influences” (West & Turner, 246). Impartial leadership also can cause people to not have access to the full information available to help them make their decision. Leaders who have their own personal agenda prioritize that first before the well fare of the group. Final structural flaw that could lead to groupthink is the lack of decision-making procedures.

If the procedures are not clearly established then the members have no structure to follow and reach a valid decision and can easily get lost in the influence of others to conform. Also, if there is no diversity in the backgrounds and experience present in the group then it may be very difficult for the group to be able to see all sides of the issue before making their final decision. PREVENT: West and Turner outline four major ways when discussing how to prevent groupthink.

The first recommendation is to require oversight and control committee to enforce the procedures set for decision making and make them aware of their responsibility to challenge collectivism. The second recommendation is to embrace whistle blowing, so the members will report unethical or illegal practices. The third recommendation is to allow for objection because conscientious objectors who refuse to participate in the decision-making process due to violation of personal conscious need a safe environment for members to challenge the collective view without fearing rejection or other forms of negative reactions.

The last recommendation is to balance consensus and majority rule. It is too much pressure to get a consensus instead it is better to work towards a majority decision. EXTENTION: Geert Hofstede is a Dutch social psychologist that did a study on of cultures across modern nations. Geert Hofstede (2001) defines Power Distance to “the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally”. The U. S. s considered a low power distance country, meaning within institutions and organizations here people relate to one another more as equals regardless of formal positions. However in high power distance countries the less powerful accept power relations that are higher in status. Hofstedes’ data from his study of over 40 countries shows that India has the highest power distance score for culture. This score implies a high level of inequality of power and wealth within society. This condition is a cultural norm for the India rather than a negative effect of groupthink.

This presence of a high power distance helps facilitate groupthink. Sinha (2008) explains, “The seniors in a group set the pace and make decisions, which the rest of the group members are likely to accept without further questioning. ” This custom is carried over to personal life as well where the elderly of the family will make decisions that the rest will follow. Geert Hofstede (2001), a Dutch social psychologist, defines power distance as “the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally.  A low power distance country such as the United States is where individuals relate to one another more as equals regardless of formal positions; however, in high power distance countries like India, the less powerful accept power relations that are of higher status. Hofstedes’s cultural data research of 40 countries shows that India has the highest power distance score, which implies a high level of inequality of power and wealth within society.

Sinha (2008) explains, “The seniors in a group set the pace and make decisions, which the rest of the group members are likely to accept without further questioning. ”  Rather than groupthink having a negative effect on group decision making, this is a cultural norm in India. This custom is carried over to personal life as well where the elderly of the family will make decisions for everyone. This presence of a high power distance facilitates groupthink in various aspects of Indian society.

Introduction

Total quality management is globally recognized system to review and control the overall quality of any organization. It can also be called as a philosophy which supports the quality management procedure of organizations including such benefits as improving overall customer satisfaction, enhancing employee motivation, reducing wastage of resources, developing the service and product quality and maintain a growing performance of the organization.

TTS generally is considered as a problem solving technique that specially focuses on the continuous improvement of the laity of product and service provided by a certain company. In this approach the management and employee can work together for the overall improvement by using quality and management tool aimed at increasing business and reducing losses in the extended track.

Several key concepts that are the basis often are such as customer’s requirements define the quality, quality improvement is a direct obligation to the top management, systematic analysis and development of work process brings the result of enhanced quality, the effort is somewhat incessant in nature and is lead all the way through the organization.

Functions of TTS

There are several tasks that are maintained worldwide to proper manage the TTS process.

The following functions are mentionable of them all:

• Promise of employees and management
• Gratifying consumer predilections
• Bargain of development time
• Just In time production and manufacturing
• Lessening of product and service cost
• Expedite system development
• Possession of line management
• Employee involvement and empowerment
• Benchmarking and stimulating goals
• Upgrading plans
• Incorporation of strategic planning

Company Summary

Apple Inc. is basically an American multinational corporation which designs, develops ND sells consumer electronics and software.

It is recognized as world’s second largest electronics company considering the revenue earned. The company was established on April 1, 1976 by Steve Jobs, Steve Waking and Ronald Wayne. This company belongs to computer hardware, computer software, consumer electronics and digital distribution industry.

Nowadays there are 408 retail stores for Apple and the overall functions of TTS is maintained by the following workers:

• Display Calibration & Instrumentation Engineer
• Mechanical Design Engineer
• Program Manager
• Video Code Architect
• Regulatory RFC Systems Engineer
• Hardware Systems Engineer
• Java Software Architect
• Data Analyst
• Firmware/SW Engineering Program Manager
• Engineering Project Manager
• Quality Assurance Engineer
• Facilities Manager
• Visual Designer
• Market Researcher

These are Just a few of the total recruits who manage the TTS. There are many more who maintain the system to serve the consumers. Reasons for adopting TTS for Apple Apple already has created great customer loyalty over the years. But there is an obligation of holding the position that they tend to possess.

Defining the Weaknesses

Apple lacks the variation in product that is very much important in this era of business. This is Just a simple weakness that can be pointed out very easily. But several weaknesses are such that cannot be assessed or controlled. TTS would be of great use in defining that feebleness at instance. Identify priorities and actions: Information regarding the cores that are to be performed by the employees is very much important.

There is a function of TTS that emphasizes on the information system. The collected information would help Apple to direct their concentration awards important functions. TTS keeps track of data related to importance of any job which is a helping hand to prioritize the things that are to be performed first by the company employees. Selection of proper actions regarding the object is also is a feature of TTS. Development of communication system: TTS emphasizes on the overall communication system which ultimately results in an efficient communication model.

The supervisors and subordinates are allocated with authority to control their workers. Whereas Apple is considered as a large company, distribution of responsibility and authority is necessary to improve the company reference. Direct comprehension: The use of TTS would serve uninterrupted insight into the company and personnel data by eradicating the barriers between staff areas and maintaining supportable relationship with acquaintances. This type of initiative is always helpful to companies like Apple which is bound to remain updated about their current situation.

Perfection of productivity and competence

Keeping track of the overall production cost and controlling the material costs is one important function of TTS. Well produced products generally help to increase the demand of the total service as well as product. This opens the opportunity to produce more and leads to lower average cost of production facility. On the other hand, consumer loyalty increases over time and helps to gain efficiency over production. Though Apple has a huge production capacity at present, it can be utilized better with the help of TTS and enhance customer loyalty.

Adoption of Quality Driven Strategy

Whereas every other company is trying to snatch the overall market share from Apple in various segments, it is time for Apple to gain competitive advantage based on quality products. TTS development would certainly result in higher customer distraction and serve as a competitive edge over the competitors. Proper stuff management: In the context of Apple, TTS will help the company staffs to work more vigorously to accomplish the consistent actions related to the explicit objectives of the organization as the process eliminates the measure that obstructs the devotion of personnel.

Total Quality Management principles of Apple Apple has accepted the importance of TTS long ago. But there is always difference in the application of TTS in different organizations. There are certain philosophies obtained by Apple Inc. ND employees oblige by these principles if any confusion appears in making quality related decisions. The principles are as stated- There is no obligation to hold the current quality management procedure if adoption of new procedure bring about good to the company. Adoption of new technique should be subject to reducing overall cost or enhance value of product or service.

The TTS procedure must support the concept of relentless improvement. Training is essential to develop the performance of the employees and necessary measures to train employees are type of investment. Friendly working environment is directly elated to employee service quality and ensure settlement of non-performance related problems. Authority is not certain to be held by the top level management. Rather, apt allocation of power inclines to lessen the workload as well as improves the overall speed of work.

Cross-functional effort is deliberated as the most apposite solution to reduce quality erosion. There is compulsion to improve planning, enhance production capability and serve on a constant basis. Every eligible employee is a suggestion provider in Apple Inc. And has right to speak about problems in any system that needs to be persisted. Moreover, the solutions given by other employees have importance to the top management all together. Integration between suppliers and organization is equally important as serving the customers according to their needs.

Apple ensures the integration through contractual relationship. Application of Total Quality Management Principles in Apple Total quality management mainly a method which continuously concentrate on the development of quality of all the separations of a company with a view to providing quality service to the clients beyond their potentials. It enlarges its functionality from upper to lowest level of a firm. To make a fruitful total quality management a company must have expert employees who can make qualitative decisions in any situations.

The total quality management principles can be greatly applied to Apple Corporation in different conditions. They are given below.

Customer centric approach

The main purpose of a business is to manufacture goods & services for the customers. Whatever Apple does like appointing expert employees, installing high- tech machines for production, or incorporating technologies for high quality management; if the ultimate customers do not like the products or services all approaches will be failed. So the main strategy of Apple is that it develops all its plans keeping customers in highest priority.

• Apple does not compromise with quality
• It has strong supplier partnership
• It has strong customer driven strategy
• It also maintains good customer relationship for future marketing.

Employee involvement

In Apple all employees should work to achieve the ultimate goal of the organization. It is strictly maintained by Apple to motivate the employees and to bring out what it needs from employees. Apple has a reputation for appointing talented pools in its employee lists. After Job’s return Apple has concentrated on employee’s best performance.

For this they developed Apple fellow program, awarding the employees who made extraordinary contribution to the organizational growth. Active participation of stuffs can be achieved by making more workspace for the employees. Apple has followed some rules for employee involvement. They are:

• Apple develops employees with training
• It also has suggestion arrangement
• It measures the performance
• It offers employee acknowledgment
• It develops exceptional group

Process approach

Process approach is the initial part of the TTS process.

Process can be explained as converting raw materials & raw suppliers into processed items or final items that can be delivered to the customers. All parts of production need expertise to complete the process properly. In Apple, processing of resources is important to accomplish a project efficiently & effectively. Apple managers are very proactive decision makers about the needs & wants of the customers. As a result it is helpful for them to the path of continuous improvement in the company. So apple takes some initiatives to accomplish the project perfectly.

Apple develops well-informed staffs for processing parts Apple builds proactive decision making process It always measures the performance of the employees After measuring it monitors constantly the overall works process of the organization. Integrated system Every business has its own functionality to perform which divide into different department. These functionalities are interrelated with various sources or horizontal processes which help to increase the continuous business improvement process. So every employee should have the knowledge of the company’s policies, standard, procedure, objectives etc.

In Apple it is strictly maintained by the staffs to be aware f their goals & vision. Without having all sorts of knowledge about their work they cannot be dedicated to their work. Mainly Apple is famous for its strictly enforcing accountability. Each project of their company has a directly responsible individual. So Apple tries to maintain integration through some strict rules & regulation. As integration increases more, the type of competitive advantage also increases. Small processes add with larger process and it makes an integrated process.

So every employee in the apple should understand the overall mission of the company as well s the quality process to develop a successful project. Suppose if Apple maintains continuous monitoring process for continuous improvement then it integration of employees can be achieved. Apple has its own business culture & environment. If the integrated approach integrates all the elements of TTS then Apple can achieve the continuous improvement process with an effort that exceeds the customer expectation.

Strategic & systematic approach

Strategic & systematic part of the TTS is one of the most critical parts of TTS.

The main element of this process is to continuously improving the functionality of the many. Accepting quality control as the main element of any business can be the core success of any kind of business. So Apple must adopt systematic plan or approach to reach the ultimate goal of the corporation. After analyzing the overall working process of Apple, it can be said that it has a strong systematic plan to reach its goal. Moreover realizing, understanding, & managing the business objective can be effective for systematic approach.

All this activities create an integrated process which contributes the effectiveness & efficiency of the company.

Fact-based decision making

In any organization, performance measurement plays an important role for having a clear idea about the current improvement of the company. For effective TTS a company must collect information & evaluate them perfectly to have a clear understanding of the performance measurement, making effective decision & forecast.

But every decision must be develop according to the situation & statistical analysis. Any kind of emotional based decision should be evaded. In Apple monitoring & evaluation of performance is strictly maintained. Suppose if Apple wants apply fact based decision making process for continuous improvement then the corporation has to measure the performance effectively & efficiently in every phase of projects. Apple should maintain statistical control method Team focused on problem solving can be another solution for fact based decision making process.

Continual improvement

Continual improvement is the basic aspects of total quality management. A continuous improvement process helps to continuously thinking about creative & innovative ideas for any kind of projects which eventually help to grow more competitive advantage against other competitors. In Apple if the managers follow the step by step solution of any problem rather than focusing or making rebellion on any specific site, it would be better to continuously improve on that sector. And from top to bottom level all the employees should be motivated to gain the ultimate craving result.

In summary Apple can follow the following rules for improvement:

• Apple can systematically measures the performance of any project
• It can develop active cooperation
• It can also accomplish cross functional process

Communication

Communication is one of the important parts often because it develops the motivational stimulus during the daily operational activities. In Apple after analyzing the working process we can say that the manager continuously involve employees in operational activities for better communication. It also gives them the feel of empowerment in the organization which is very helpful. It creates unity among the Apple’s employees.

And it is the leading criteria for the ultimate success of the organization. So it is true that a communication process in apple leads to better quality improvement of the company. Evaluation of Apple’s TTS on the basis of philosophies TTS generally is done through different approaches by different companies. But few techniques have been stated by specialists which ensure success to some extent if applied carefully. Amongst those techniques the popular ones are- Six sigma procedure Deeming 14 principles Concept of continuous improvement.

Six Sigma Procedure

Six sigma is a measurement of quality in an organization which is near to perfection.

Six sigma is a disciplined data driven process which eliminate any kind of errors or defects in an organization or any process, from manufacturing to transaction & to reduce and service. The I-J department of trade & industry says- ‘Six sigma is a data driven method for achieving near perfect quality. Six sigma can focuses on any elements of product or services and has strong emphasis on statistical in design, manufacturing & customer oriented activities. ‘ None 2005) Both six sigma & total quality management have one common aspects and that is continuous improvement of the organization.

While total quality management works for different departments in an organization, the six sigma has the capability of delivering even sharper result than the TTS. Six sigma DYNAMIC process elements

• D- define opportunity
• M- measure performance
• A- analysis opportunity
• l- improvement performance
• C- control performance

Six sigma is mainly based on pre-planned project charter that mainly forms the basic scale of the project, financial budget of the project, benefits of the project etc. A company which follows the total quality management system may not be aware of the financial gains in the future.

But company uses six sigma which based on MIMIC can be helpful for making measurement, identifying problems & providing exact solution at the right time. Apple is a corporation where it is very important to have continuous innovation of new products with hi-tech technology, upgrade features etc. In this situation it very challenging for them to continuously innovating new features products. Application of six sigma may helpful for Apple organization to measure what improvement they are making & what will be the consequences after marketing the product to the market.

Six sigma basically give us a core road map for understanding the improvement process of an organization. Applying six sigma in Apple can have following benefits:

• Leadership commitment: Six sigma plays an important role in deployment cycle. In Apple managers can apply Six Sigma for leadership commitment. Managers of Apple can arrange training program to leaders of the organization through the principles and tools to develop their managerial infrastructure. The main advantage of this training program is that it will reduce the managerial hierarchy & procedural barriers of Apple Inc.
• Customer focus: In six sigma organizational work process is developed in such a way that organization will have close communication with all the customers, suppliers, vendors, internal & external parties etc. After applying this theory Apple will be able to eliminate the scope of defects from the organization.
• Strategic deployment: Six sigma mainly concentrate on the organizational principals like right people, right customers, project, tools, improvement tools etc. That are relate to bottom line principles. In Apple organization strategic deployment can be applied to achieve the bottom line success.
• Integrated infrastructure: In this process the leadership team explains & reviews the overall process of the organization. So Apple may use this approach to remove barriers. The leaders of Apple Inc.
• Disciplined framework: Six sigma follows the roadman of measure, analysis, improve & control. This disciplined framework helps to build up a clear communication way for the members of the organization. In Apple six sigma outlines can play a vital role for the development of communication process between internal & external elements. This disciplined element helps to build up continuous improvement in Apple Inc.
• Education & training: Six sigma believes that true success can be attained by true understanding in the firm.

So Six sigma uses its superiority & gears to transform the real problem to a real solution. In Apple, managers can try to maintain this superiority & gears to transform the practical problem into practical solution.

Eight steps to build successful Six Sigma in Apple

Burning platform & shared vision

First of all for applying six sigma Apple’s needs to identify the burning platform like Apple is suffering from huge quality loses & it reasons 45% of their cost or Apple’s competitors are gaining market share of every quarter by 12%. Without having these types of burning problem Apple won’t be going for any six sigma solution. Finally, Apple’s need to take act to achieve their vision; it safeguards that they gain credibility and strong provision from leadership. Leadership patrons safeguard will meet Apple’s vision, thereby reaching superiority.

Resources

The main core of this part is that do not hesitate to hire right resources for the right place or people. It is true that resources alone cannot bring success in Apple. It should deploy them as a team & this team will work as a change agent. It is also necessary that the team will carry out the resources and make a success by using them. Apple’s need to take care of their resources both in terms of pays and also the source appropriate and obligation to applying the common vision.

Teach

For six sigma the success can be achieved by teaching the employees. Apple needs to teach or give training the team for successful & powerful change agent. This can be achieved by assuring that the team is 100% trained & well performed their duties at the right time.

Arrange

As Apple has gathered resources, well rained team then the next part is to make the people aware from the top level of the firm to the bottom level. For this Apple needs to learn what to manage and where to take threat, and the query here is how good Apple’s service is in terms of risk modification and anticipation organization in terms of meeting the key anticipation of organization’s objectives.

Ownership

With ownership we can understand pride & power. Here Apple can make integrity by assuring team accountability, engagement & commitment. The key for success relies on these rules of accountability, engagement & commitment.

Measurement

Creating a proper measurement system may ensure proper baseline. To achieve a targeted goal, Apple must have a measurement system. The key for measurement is to get the cost for quality right. But having lots of measures on Apple’s record may shift devotion away from the serious few. So they need to classify and amount the key important pointers instead of evaluating the many cover pointers.

Governance

The key to success of any project can be attained by proper governance. Improper governance may lead to destruction of the project. So Apple can create a business quality council at the upper level of the group can level and clear all hurdles; this would generate interaction and also clear ways for following to timeliness. Proper governance would create best practices in the organization.

Recognition

Reward or recognition plays an important role in the organization which creates energy in the team for their effort & also motivates them for further work. Proper recognition in Apple can create excellence in the performance & also create consistency.

Deeming 14 Principles

The statistician Dry. W. Edwards Deeming stated the model of 14 principles which basically explained the philosophies and development procedure through total quality management. These principles are certainly capable of maintaining the overall TTS of Apple. Constantly improving product and service: Apple should be planning considering the long term effects of any decision regarding quality management. It would be helpful to predict and prepare for the upcoming challenges in the long run which would have adverse effect on the business.

On the other hand, the decisions should be focused on the intention of improving the products and services.

• Adopting new philosophies: The current philosophies should always be subject to change according to the business requirement. The customer need has to be emphasized mostly as well as the competitive pressure and Apple is aware of it.
• Avoiding inspection to achieve and ensure quality: Inspection is in fact done at Apple to maintain proper quality. As a result the additional price is paid by the customers at the consumer level. There is no intention to avoid the inspection program at present. But today or tomorrow a better option must be found by Apple to deduct the overall cost of production as the competition is getting more intense nowadays.
• Using single supplier for any one time: This is not the case always because Apple has contract with different producers to provide raw materials in case of some items. However, most of the materials are supplied from one supplier at a time. This is important to keep a decent and viable relationship with suppliers and encourage them to evaluate Apple based on the quality but not the price. The use of single supplier will ensure the trustworthiness of Apple.
• Improved planning, production and service constantly: This is one sector where there is no scope of complaining against Apple. The employees are constantly working to improve the development innovative products and please the customers with enhanced service factors. More and more employees are being engaged to cultivate strategic planning for quality control measurements.
• Training employees to achieve success: Tons of resources are being spent in Apple to train their workers.
• The promise of highly technical and consistent service urges for the need of trained employees. There are several programs that are in operation to proper train the workers and maintain not only the caliber of employees but also the overall company image.
• Implementation of leadership: The proper allocation of authority serves as the injection as the cure of many complexities regarding decision making. Apple has been successful to achieve this function to an extent.
• Driving out fear: Employees should always feel safe from any unexpected behavior from their superiors if any mistake is committed by them.
• Apple has been successful to create a friendly environment amongst the superiors and subordinates where mistakes are not a subject to direct action. Rather, immediate measures are taken but to solve the mistaken functions.
• Elimination of barriers amongst stuffs: Cross-functional teamwork is the major concern of this philosophy. Apple at large uses this method to best utilize the capability of their workers.