2. Numerous controls could be put in place to increase the likelihood that a company actually engages in environmentally and socially responsible activities such as:
- Establishing financial incentives for achieving targets related to objective measures of environmental performance (e.g., reduction in water consumption or reduction in electricity usage).
- Implementing mandatory health and safety training and regulary conducting compliance reviews.
- Establishing and disclosing non-discriminatory hiring policies and conducting regular reviews for compliance.
- Conducting periodic reviews of labour practices by suppliers operating in developing countries.
- Having environmental and social responsibility reports audited, even though doing so is not mandatory.
- Establishing financial guidelines (e.g., budgets) for financially supporting local charities, schools or municipalities and periodically reviewing actual spending against such guidelines.
- Establishing an independent management team, responsible directly to the board of directors, charged with assessing the organization’s CSR program and performance.
Problem 1-8 (30 minutes)
1. Possible unintended consequences:
- Example 1:
- The manager could improve profits by reducing discretionary spending on value chain activities such as research and development, employee training or marketing. These actions could help improve profits in the short-term but longer-term may have a negative impact on company performance.
- The manager could improve profits by reducing manufacturing costs through the use of lower quality materials or by using less-experienced workers. Either of these actions could reduce product quality, which longer-term could negatively impact the company’s reputation.
- Example 2:
- Sales staff could engage in aggressive sales tactics such as pressuring customers to make a purchase, or providing misleading product information, which could reduce the customers’ willingness to purchase from the company in the future.
- Sales staff could offer price discounts too readily in an effort to secure a sale, which would reduce the profit margin on each sale.
- Example 1:
- Establish non-financial performance measures for key value chain activities such as research and development (e.g., number of new product features), employee training (e.g., number of training hours per employee) and customer service (e.g., customer satisfaction). Hold managers accountable for meeting expected levels of performance on such metrics.
- Establish measures for product quality (e.g., number of defects, number of product returns, etc.) and hold managers accountable for meeting expected levels of performance.
- Establish policies for the use of specific suppliers that meet stringent requirements regarding material quality and periodically conduct compliance reviews.
- Change the extrinsic rewards such that they contain a component of long-term performance. An example would be a bonus based on three-year rolling average of profitability rather than rewarding performance for a single year.
- Example 2:
- Periodically measure customer satisfaction regarding their experience with sales staff. Hold sale staff accountable for unacceptable levels of customer satisfaction.
- Do not allow sales staff any discretion to offer sales discounts.
- Establish a mix of fixed pay (e.g., hourly wages) and commissions that results in less incentive to engage in aggressive sales tactics.
Problem 1-9 (30 minutes)
1. Benefits and challenges of performing value chain analysis:
Benefits:
- Provides a complete picture of product profitability since it incorporates all major functions of the value chain involved in developing, manufacturing and servicing products.