Management of Business

Table of Contents
Aims and Objectives
Methodology
Description
Analysis
Evaluation
Recommendations
Appendices
Reference

AIMS AND OBJECTIVES

The aims of this internal assessment are as follows: 1. To identify the changes in the firm’s external environment over the period 2004 to 2008because since the firm was affected by changes during this time period.

2. To examine how these changes have impacted on the firm’s objectives.

3. To examine and assess the effectiveness of the firm’s decision making process in light of the changes in its external environment.

METHODOLOGY
In order to collect data to achieve the objectives of this project, both primary and secondary sources were used. Primary data was obtained from the use of a questionnaire, an interview and observations. A questionnaire was handed out to the owner (See Appendix 1 ) which consists of thirteen questions, some being open ended and the rest closed. The interview was conducted with the owner Danny during the period of September 2009. Furthermore, observation was used during the time when the firm’s decision making process was being inspected . The questionnaire allowed the respondent to give short, clear and direct answers to the various questions which assisted in making the formulation of this project easier and less complicated. Also the interview allowed the researcher to get detailed responses explaining aspects of the running of the business not covered in the questionnaire.
Moreover, secondary sources in the form of the Internet and textbooks were utilized in order to obtain a lucid understanding of the topic and the foundation and theory behind the research.
LIMITATIONS OF THE METHODOLOGY: 1. Time was a constraining factor because time was not always available to conduct interviews and for observation purposes. 2. There were complications for collecting data as it depended on the co operation of the interviewee. 3. The owner of the business was reluctant to allow us to access their financial records.

DESCRIPTION
This portfolio is based on the company, Danny Color Shop which is located at El Socorro Main Road, San Juan. The business operate as a private limited company but has franchise distributorship from session paints to Danny’s color shop .Danny’s color shop has been in operations for approximately twenty years . There are sixteen employees and the firm’s owner (See Appendix 5).
Stocks are obtained from local factories and warehouses, some of which are manufactured and imported form foreign countries. Furthermore, Danny’s Color Shop provides services to the general public this type of production can be classified as tertiary.

ANALYSIS
A firm’s leadership cannot plan for the future unless it takes into account important micro and marco environmental factors. A firm’s ability to compete will be affected by how well the leaders have learnt to(1) identify these environmental factors and (2)assess the extent of the impact of each of them on the corporate strategy.
Danny’s Color Shop noted changes in their external environment during the period 2004-2008. These factors included: * Competition * Legal * Economic * Social * Technological * Environmental and social responsibility

Competition
In the area of San Juan, a considerable number of paint retailers existed but over the five year period from 2004 to 2008, the number of competitors for Danny’s Color Shop shrank to a relatively small number. The existing paint retailers in San Juan include: * J-Fab Limited * Danny’s Color Shop * Maustapha Faud Hardware * Flying Colors Limited
The reason for this small number is because some firms were unable to cope with the effects of the change that took place in the external environment which proved to be a threat or constraint on their business activity. Example increased cost, dealing with sales and inflation.
Thus the remaining successful competitors have expanded their operations to cater to their large customer base as well as to compete locally with the other firms in the paint retailer industry.
Legal
This is concerned with how changes in the political climate can influence the types of legislation that can influence corporate spending. Legal or political factors can be restrictive or beneficial.
Restrictive factors are those that limit profits such as constraints placed on enterprise through tax laws, corporations tax minimum wage legislation and pollution laws. However, the beneficial factors include government grants and protectionist policies which promote the well being of firms.
In Trinidad and Tobago, the Occupational Safety and Health Act (OSHA) was enacted in 2004 this act provided a comprehensive range of safety measures to cover the firm’s premises as well as health and welfare measures to ensure that cleanliness, lighting, ventilation, drinking water, canteens, restrooms and such facilities exist on the compound otherwise the firm will be charged. Since the implementation of OSHA, Danny’s Color Shop was required to fulfill those conditions.

In 2006, the water and pollution laws were amended so that no firm can release a water pollutant such as the chemicals found in their paint into any water approved by a competent governmental entity for human consumption without treatment or where treatment has been limited solely to disinfection.
Thus, Danny’s Color Shop had to abide to the water pollution laws when disposing of their paints.
According to the owner of Danny’s Color Shop, no government grants or assistance was received during the period 2004 to 2008. However the paint retailer did benefit from a decrease in the rate of corporation tax. During the two year period of 2004 to 2005, corporation tax measured 30% but fell to 25% for the following years of 2006 to 2008.
Economic
The volatile economy had a significant impact on the viability of the corporate strategy of a firm.
With respect to inflation, throughout the five year period of 2004 to 2008, it can be said that it increased significantly (See Appendix 4 ). In December 2004, inflation measured 3.3% but eventually decreased to 3.1% in 2005 and sharply increased to 9.6 % in 2006. Consequently, the cost of paints increased thus reducing the purchasing power of their customers.
Additionally, energy prices also fluctuated during the period of 2004 to 2008 (See Appendix 2). The price of oil reached its peak on July 11th of 2008 and this affected the variable costs of Danny’s Color Shop since oil is used as a raw material in the production of paint.
The economy also experienced economic growth as a result of a rise in the Gross Domestic Product (GDP) [See Appendix 3 ]. GDP defines the total value of goods and services produced in a country in one year according to CSO data2008. In Trinidad and Tobago, GDP grew by 48% between 2000 and 2006 measured in local currency terms. However it must be noted that although there was economic growth, the percentage change in GDP increased up to 2006 where there was a decline in the following years up to 2008. The factors which lead to economic growth in the economy were increases in output resulting from an increase in productivity due to technological changes and improved training of staff. Also increases in demand for the products made by the industry encouraged businesses to increase output.
Social
This is concerned with social changes taking place outside of the business such as crime level and changes in the ageing population.
During the period 2004 to 2008, the area of San Juan suffered a sustained increase in the levels of crime committed (See Appendix 7 ). These include, theft, kidnappings of businessmen and assault. This escalating crime rate is a continuing concern for both employees of Danny’s Color Shop as well as their customers. According to the Central Statistical Office of Trinidad and Tobago (CSO) 2008, the number of homes built as well as other institutions such as health centers and schools has increased by over 10% over the period 2004 to 2008. This would mean that these facilities need painting or interior decorating thus propelling the demand for Danny’s Color Shop’s products to increase.

Technological
Technological factors are the scientific advances which influence the competitive position of the enterprise. New technology as cited in ‘Certo ,S.(1997).Modern Management. Upper Saddle River, NJ: Prentice Hall’. can change the demand for a product, render current manufacturing processes obsolete, reduce costs to undercut competitors, produce new products and a host of other possibilities.
During the period 2004 to 2008, several technologies relating to paint supplies have been developed. In 2005, there was the emergence of color matching technology using a spectrophotometer or ‘color-eye’ which allows retailers to automatically generate new formulas for custom colors. This new technology has already been adopted by some of the local paint retailers.
Additionally, since 2004, computerized information systems were introduced to manage point of sale inventory, purchasing and accounting tasks.
I 2004 was also the advent of room stimulation programs locally. This program essentially helps customers visualize how colors may look in real life settings as opposed to on color chips.

Environmental and social responsibility

Certo (1997, p. 51) defines social responsibility as a managerial obligation to take actions that protects and improves both the welfare of the society as a whole and the environment.
During the years of 2004 to 2008, environmental awareness among consumers and firms have sky rocketed as a result of pressure groups such as Greenpeace. Therefore, firms are adopting business strategies which are socially responsible, for instance, environmentally friendly products. These include the new Sherwin William’s green paint “Harmony” which is eco friendly and offers benefits for hospitals and schools since there is diminished exposure to pollutants.
Therefore, the changes in the external environment constituting of competition, legal, economic, social, technological and environmental forces provide many of the challenges faced by Danny’s Color Shop when striving to profitably market its goods and services

EVALUATION

“We focus on customer needs” is the mission statement of Danny’s Color Shop. This is further broken down into their strategic and operational objectives. In essence, strategic objectives are concerned with the general direction and the overall policy of the business. They are also known as long term objectives and can influence the performance of the business. Danny’s Color Shop’s strategic objectives include: * Maximizing profits * Revenue maximization * Increasing market share and growth
Thus the operational objectives are the lower level, short term objectives. They are the focus on specific targets for the day to day operations of the firm. Examples of operational objectives within Danny’s Color Shop are: * Increasing market share by 20% * Cutting overheads by 15% * Meet weekly sales quota of 500 items * Increase profit margin by 10% However, due to the changes in the external environment of Danny’s Color Shop, they had to revise their objectives to take into account the external factors of competition, legal, economic, social, technological and environmental. With respect to competition, although the number of competitors in San Juan fell, the level of competition rose with the advent of technology and the expansion of these other paint retailers. Thus, in order to effectively compete, Danny’s Color Shop had to make high quality and low costs of production one of its priority objectives. In order to achieve this, Danny’s Color Shop embarked upon research and development to determine the best, low cost production techniques to reduce costs of production. Additionally, they also incorporated advanced technology to increase both efficiency and quality of the products retailed. The legal changes in the external environment include the implementation of the water pollution laws and OSHA which affects the strategic objective to cut costs. This is because these laws and legislations actually increase costs. Therefore, Danny’s Color Shop revised objective stated that overhead costs be cut by 5% as compared to 15%. The smaller percentage caters for the increased costs derived from provisions of facilities for employees as well as the cost of disposal since their paint needs to be treated before released. Additionally, there was a reduction in corporation tax by 5%. Although this has impacted on Danny’s Color Shop in terms of lowering the fixed costs of the firm, it has no significant impact on the firm’s objectives because the benefits to be gained from the 5% decrease in corporation tax is overridden by expenses incurred from the water pollution and OSHA. Consequently, the firm passed this cost onto consumers by raising the price of their goods in an attempt to cover their costs. However, in order to maintain sales level, Danny’s Color Shop embarked on promotional strategies and offered free consumer trials. Economic factors include increases in inflation, the price of energy and economic growth. From 2006 to 2008 the percentage change in GDP fell which concludes that the effects of inflation as well as high energy prices exceed the economic growth. Therefore, in an attempt to deal with high inflationary pressures, and the high price of oil, Danny’s Color Shop passed the cost onto consumers by raising prices of their products. Danny’s Color Shop experienced cash flow problems because they struggle to find more money to pay the higher costs of materials and other costs. Since the objective of profit maximization could not realistically be achieved in this period of recession, the firm revised its objectives to satisficing profits, that is, a level of profit just enough to cover the needs of the stakeholders of Danny’s Color Shop. Additionally, consumers’ demand for the firm’s products fell because they were price sensitive and the demand was elastic. So, the firm had to alter its strategic objective to meet the minimum quota of 200 goods a week. Thus, to prevent an unplanned increase in their stocks, Danny’s Color Shop cut back on their aggregate output. Their main objective during this period was essentially survival since the firm could no longer maximize profits with such low profit margins. Social factors impacting upon the objectives of Danny’s Color Shop include increases in the crime level and number of homes and other institutions built. Due to the increased level of crime in San Juan, it was necessary for the firm to establish an objective to provide a safe shopping environment for its customers. This boosted the image of Danny’s Color Shop as a firm that seeks the wellbeing of its customers. The firm intended to do this by installing security cameras, vaults and security guards to promote a safe shopping as well as working environment. The 10% increase in the number of homes and institutions built over the period launched an increase in demand for paint which encouraged Danny’s Color Shop to grow and expand and increase market share. Due to the new inventions and improvements in technology regarding the paint industry, this provided new business opportunities and threats for Danny’s Color Shop. The new business opportunities emerged since the spectrophotometer or color matching creates customized color paints for customers. Therefore, Danny’s Color Shop purchased new equipment which increased the cost of production since technology is not cheap. The firm revised its objective to meet the increased costs by expanding and supplying a large market of their products so as to spread the high fixed costs. Through adopting the technological changes, Danny’s Color Shop was able to achieve its objective to increase market share as their level of competitiveness rose. This is because technology promoted their level of efficiency and innovativeness as compared to the other rival firms. Additionally, Danny’s Color Shop has included the objective to diversify its product range through the use of their modernized equipment. Diversification would better enable the firm to cater to the varying tastes of consumers. Environmental consideration is becoming more prominent with the increase in ‘green’ campaigns worldwide. This has influenced Danny’s Color Shop to adopt the business objective of being environmentally and socially responsible. Consequently, Danny’s Color Shop switched to a more environmentally friendly business strategy such as supplying ‘green paints’ like the Harmony paint by Sherwin Williams as well as using responsible and eco friendly waste disposal methods which reduces their chances of breaking laws. Additionally, they have substituted products with chemical pollutants in them to “green” products which can be used to benefit their customer though diminished exposure to pollutants. This has a real promotional and marketing advantage for the firm as customers are becoming increasingly aware of environmental issues and there is growing evidence that they will support businesses that adopt green policies. . Through observation and analysis of Danny’s Color Shop, the firm uses both SWOT and PEST-G analysis to determine its current position so as plan and develop suitable corporate strategies. Although the firm did not deliberately use both methods of analysis, it was used in a re-active manner as opposed to a proactive one. SWOT analysis involves looking at the internal strengths and weaknesses of a business and the external opportunities and threats. Also, PEST-G analysis examines the external environment and the global factors that may affect a business. The five external influences include: political, economic, social, technological and environmental.

conclusions 1. The firm should adopt a democratic or participative leadership style where participation is encouraged as well as two way communication which would allow feedback from staff. 2. Danny’s Color Shop should take into consideration the environment and their social responsibility and thus invest in research and development to find the most eco friendly business strategies.

3. A formal decision making process should be presented in a structural diagram. It should incorporate quantitative information. This would allow a new manager to understand how decisions are made in the event that something may happen to the owner or manger. This concept is known as succession planning.

APPENDIX 1
QUESTIONNAIRE
1. What type of organizational structure is present within the firm? 2. How many other firms operate in the paint supplies industry in the area of San Juan? 3. What are the short term and long term objectives of the firm? 4. Is there effective communication among employees and the owner? Describe. 5. What changes with respect to government policies and regulations were there during the period 2004 to 2008? 6. What type of support has government provided for the firm? 7. How have the recent changes in economic activity due to the recession impacted on the firm? 8. During the period 2004 to 2008, has advanced technology been introduced to the firm’s operations? 9. How have the changes in the external social factors affected the firm? 10. What procedure does the firm follow when making decisions?

APPENDIX 2

Diagram showing the fluctuations in the price of energy

In December 2004, inflation measured 3.3% but eventually decreased to 3.1% in 2005 and sharply increased to 9.6 % in 2006. Consequently, the cost of paints increased thus reducing the purchasing power of their customers. Additionally, energy prices also fluctuated during the period of 2004 to 2008.

APPENDIX 3

Diagram illustrating the level of GDP for the period 2004 to 2008

The price of oil reached its peak on July 11th of 2008 and this affected the variable costs of Danny’s Color Shop since oil is used as a raw material in the production of paint. The economy also experienced economic growth as a result of a rise in the Gross Domestic Product (GDP).

APPENDIX 4

Graph showing the levels of inflation

With respect to inflation, throughout the five year period of 2004 to 2008, it can be said that it increased significantly.

APPENDIX 5

Organizational Structure of Danny’s Colors Limited

There are sixteen employees and the firm’s owner.

APPENDIX 6

Although it can be said that the decisions implemented in light of the changes in the external environment are very effective as can be seen from the positive outcome in sales and profit levels, the manner of making decisions is demotivating to employees in that they are not involved and may feel a sense of isolation from the firm.

APPENDIX 7

Bar chart showing the number of crimes reported in San Juan during the period of 2004 to 2008

During the period 2004 to 2008, the area of San Juan suffered a sustained increase in the levels of crime committed. These include, theft, kidnappings of businessmen and assault. This escalating crime rate is a continuing concern for both employees of Danny’s Color Shop as well as their customers.

REFERENCES
Certo, S. (1997). Modern Management. Upper Saddle River, NJ: Prentice Hall.
Hall, D; Jones, Rj & Raffo, C; (edited) (2006). Business Studies Third Edition. London: Causeway Press Ltd.
Stimpson, P; & Singh, K; (edited) (2007). Management of Business Unit 1,NY: Cambridge University Press.

References: Certo, S. (1997). Modern Management. Upper Saddle River, NJ: Prentice Hall. Hall, D; Jones, Rj & Raffo, C; (edited) (2006). Business Studies Third Edition. London: Causeway Press Ltd. Stimpson, P; & Singh, K; (edited) (2007). Management of Business Unit 1,NY: Cambridge University Press.