Throughout this report, I will show how these two organizations use key marketing concepts to attract consumers to their products. Also, I will compare and contrast the way that PepsiCo and Coca-Cola use the Internet as a planning tool and as a communication medium for advertising and promotions.

The Websites: www.cocacola.com and www.pepsi.com

On first approach, one is struck with the obvious differences between the two companies’ web pages. Many companies follow the lead of their competitors and model their web pages after their rival’s. Coca-Cola and PepsiCo, however, did not follow this model. Their pages are very different in style, aesthetics, and content. When you arrive at Coca-Cola’s front page, you are greeted by three page links. These links connect to Coca-Cola company information, their worldwide site, and their U.S. site. By clicking the company information link, the user is transported to Coca-Cola’s official company website where one can find information for investors, job information, and a company history. The company information page is set out in an easy to navigate manner with “pull-down” menus for each of the links within the company page. The worldwide and the U.S. sites on www.cocacola.com are very similar in content. The worldwide site provides international users with a link to Coca-Cola’s country-specific sites that provides information on products and Coca-Cola themed games and downloads. The Coca-Cola in the U.S site provides many of the same marketing tools that the international sites provide. There are “pull-down” menus on the site for music downloads, product information, sports, message boards, as well as links to all Coca-Cola television advertisements.

Each of Coca-Cola’s web pages is easy to navigate. However, most of the pages are not aesthetically pleasing. With the exception of a few of the international sites (www.zambia.coca-cola.com), most Coca-Cola sites are mainly done in different shades of red and black. This provides a very dull experience for the user while searching the Coca-Cola website.

Coca-Cola’s website focuses on not only current customers, but it also focuses on building strong relationships with existing customers by providing large amounts of company and product information.

The Pepsi website (www.pepsi.com) offers users a very different experience than Coca-Cola’s website. The Pepsi site greets users with an animation and sounds of a glass being filled by ice and Pepsi, which is then paired with a food item such as onion rings or a fajita. There are four main links in Pepsi’s main page, two of which deal directly with Pepsi marketing campaigns. The first link is entitled “promotions.” By clicking this link, users of PepsiCo’s website are taken to a contest that involves consumers buying Pepsi and having a 1/3 chance of receiving a free music download courtesy of Apple’s iTunes. The second link, called “street motion” allows PepsiCo website users to enter a drawing where the winner will receive a free luxury automobile. The third link is for “Pepsi sports” where the NFL’s Rookie of the Year is named and consumers are reminded time and time again that Pepsi is the official drink sponsor of the NFL. This link also includes streaming video of every Pepsi Super Bowl ad. The final link is entitled “Pepsi music.” This link takes users to Pepsi’s website touting their sponsorship of a summer music tour that involves some of the biggest names in pop-music.

Pepsi’s sites are very easy to navigate if one is looking to find information about PepsiCo’s promotions or marketing campaigns. If a user is looking for company or product information, however, it can be difficult to find. At the bottom of the main page is a small link for company information. By clicking this link, users are taken to a different page called PepsiWorld.com. At PepsiWorld.com, users can find the company’s history, job information, and information on other brands that Pepsi owns such as Quaker Oats and Frito Lay.

Aesthetically, Pepsi’s websites are very nice. They use bright colors and large, animated links. The site can prove to be frustrating for those that are looking for company information, but for everyone else, they are very interactive and fun.

PepsiCo’s sites are geared much more towards customers that are already Pepsi drinkers and have an idea of PepsiCo’s marketing campaigns. The goal of PepsiCo’s sites are not to build new customers, rather they aim to reinforce current customers’ concepts of the organization.

Key Marketing Concepts and the Internet

Both Coca-Cola and PepsiCo use their company’s Internet webpage to promote some of the key marketing concepts that we have learned about in Environments of Business: Marketing.

The first of these key marketing concepts that both websites speak to is the concept of demographic data gathering. The idea of demographic data gathering is a tool that organizations use in order to find which specific consumer groups are using their products. These consumer groups can be divided and sub-divided based on such factors as age, sex, country of residence, ethnicity, and interests. Both Coca-Cola and PepsiCo’s websites offer ways for the two companies to gather demographic data. Both companies have e-mail based newsletters that customers can sign up for. When signing up for these newsletters, the user must enter their age group, sex, world location, interests (sports, music, etc.), type of company-specific product that they use (ex. PepsiCo: Mountain Dew, Diet Pepsi, etc. Coca-Cola: Diet Coke, Cherry Coke, etc.), and users also have the option of giving ethnic data. By filling out this survey before receiving the newsletter, Coca-Cola and PepsiCo are able to find out very important demographic data about their website users. This information will help the companies update their websites with information that is interesting to their consumers.

Another key marketing concept that both Coca-Cola and PepsiCo use with their websites is customer relationship management (CRM). Kotler and Armstrong ( pg. 16) define CRM as, “The overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.” In other words, companies such as Coca-Cola and PepsiCo use the idea of CRM to build and maintain lasing relationships with customers by providing excellent customer service and keeping the customers satisfied with a high quality product. This will not only keep the customer base of the two businesses growing, but it will prove to be quite profitable for the companies. On their websites, both Coca-Cola and PepsiCo work hard to maintain high CRM standards. They both provide e-mail links and telephone numbers so that customers can contact the company with questions or complaints. Furthermore, both www.cocacola.com and www.pepsi.com provide FAQ (Frequently Asked Question) sections in which customers can find questions that are frequently asked about customer service issues. By providing these areas on the websites, both companies are working to create stronger, long-lasting relationships with their customers that will, inevitably, provide larger profits for the company in the future.

A third key concept that Coca-Cola and PepsiCo use on their websites is the idea of demand management. Demand management involves an organization taking steps to raise or lower the demand of its products. For Coca-Cola and PepsiCo, this generally involves creating more of a demand for their products. The two organizations go about this on the website by allowing users to customize the site once they register with the site. While customizing, the user can set which icons are seen on the site and which links are readily available. This process allows Coca-Cola and PepsiCo to market their products to specific groups, therefore increasing demand by those target markets. Also, PepsiCo’s website allows customers to download coupons for Pepsi products. Coca-Cola offers no such service.

A final marketing concept that both www.cocacola.com and www.pepsi.com present is product positioning. Kotler and Armstrong (pg. 259) define product positioning as, “The way the product is defined by consumers on important attributes-the place the product occupies in consumers’ minds relative to competing products.” The key phrase in this definition is defined by consumers. As Kotler and Armstrong point out, “To simplify the buying process, consumer organize products, services, and companies into categories and “position” them in their minds,” (pg. 259.) Coca-Cola and PepsiCo attempt to take advantage of this idea on their websites by working to promote the differences between their product and the other company’s product. By promoting the differences between the two companies’ products, and touting their products as superior, Coca-Cola and PepsiCo are working to position their products in consumers minds as being superior and, therefore, worth purchasing.

The Internet as a Planning Tool and Data Source

Both Coca-Cola and PepsiCo use the Internet in order to plan their marketing strategies and collect secondary data about their marketing campaigns and consumer information.

Coca-Cola and PepsiCo both use the Internet to plan marketing strategies using the information that they receive from web-based surveys, “hits” on certain products websites, and actual sales of their products. As an example, PepsiCo has a counter on the bottom of each product page that tells the user how many other users have been to the same page. By using these counters, PepsiCo can see which of their web-based marketing strategies work the best. Furthermore, by using online polls on the web pages, both companies can update their marketing strategies to suit their website users.

Both organizations are able to use the Internet in order to collect secondary data and use the data to formulate their web-marketing strategies. Kotler and Armstrong (pg. 148) define secondary data as, “Information that already exists somewhere, having been collected for another purpose.” An example of the use of secondary data can be found when the companies use online databases to search for customer and target market information. Furthermore, by using sales numbers, Coca-Cola and PepsiCo are able to feature high-selling products on their websites and in their online marketing campaigns.

Competitors

Because Coca-Cola and PepsiCo is each others main rival, I have chosen to look at the number three soft drink manufacturer in the United States, Cadbury plc (www.cadbury.com), in order to compare the effectiveness of the web pages. The Plano, Texas based Cadbury plc manufactures such drinks as Dr. Pepper, 7-Up, Motts Apple Juice, and Snapple Iced Tea. Cadbury plc web page is not flashy, and is very straight forward. The website is full of company information, as well as brand information. However, unlike Coca-Cola and PepsiCo, Cadbury plc is not using their website as a marketing tool. They offer no downloads, newsletters, or online games to their site users. Rather, they use the site as and information center where users can receive company financial information and view employment opportunities.

Recommendations/Conclusion

There is no doubt that Coca-Cola and PepsiCo have nearly perfected the use of an Internet website as a marketing tool. Both organizations’ sites have been both innovative and have proven to be an example to many companies that want to use the Internet as a marketing tool. After viewing the website for Cadbury plc, there is no doubt that Coca-Cola and PepsiCo will be the number one and two soft-drink companies in the United States for a very long time. The way that the two organizations have used market research, demographic data, secondary data, and customer relationship management has put them far beyond the reach of most organizations. There are very few recommendations that can be given to Coca-Cola and PepsiCo based on their Internet websites. Both do an excellent job of marketing to specific target audiences as well as integrating their products into other forms of entertainment such as sports and music. Furthermore, they are able to do this in an entertaining, sometimes flashy manner.

By completing this project, I have had the opportunity to see the way that a relatively new technology, the Internet, is able to reach new and existing markets in such a way that the Internet can now be used as a major, and sometimes exclusive, marketing tool.

Works Used

1. Kotler, Philip and Armstrong, Gary. Principles of Marketing, 10th edition. Prentice-Hall. United States of America.
2. The Coca-Cola Company. Official Website: www.cocacola.com.
3. The Pepsi Cola Company. Official Website: www.pepsi.com.
4. Cadbury plc. Official Website: www.cadbury.com.

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Moreover, the capacity to fund the increasing number of people became very scarce. Supplies needed to be obtained from outlaying villages. This is a very clear consequence of any expanding organization. A formal structure needed to be enforced and a chain of executive party needed to be established so as to monitor the increased number of people in the organization.

New Strategy

The initial mission of the band, “Rob the rich and give to the poor” was no longer effective to the band. The funds obtained from the outright confiscation of the rich were no longer accommodating the increasing number of the people in the band. The mission statement had to be revised to accommodate the changing ways of the organization. New strategies also need to be introduced to meet the fund requirements of the band. Moreover, there needed to be a revision to the objectives of the band so as to limit the number of people being recruited. This, in my opinion, is a primary concern that needs attention.

Robin Hood’s proposal to run a policy of adopting a fixed transit tax to whomever passed through the Sherwood Forest seems feasible but the Merrymen’s concern of jeopardizing the allies’ support in their fight against the Sheriff is also relevant.

SWOT Analysis

A SWOT analysis to this problem would make the situation easy to manipulate. We can analyze the different compartments of the situation by identifying the internal and external factors. The Strengths and the Weaknesses of the situation are internal factors since they are within the band’s direct influence. Opportunities and Threats are external problems since the band cannot influence their creation. They are induced by other factors beyond the band’s reach. We will analyze each segments of the SWOT to this problem

Strengths

• Numbers in the band are increasing which would give Robin and his men the upper hand when fighting the Sheriff’s administration
• Robin’s close encounters each have specific duties and somewhat organized.

Weaknesses

• Too large…expanding number of recruits but less accommodation available
• Vigilance and discipline lacking between the men…between raids, the men milled about talking and playing games
• Disorganized and still caught up to the ways and methods of the early days

Opportunities

• The plot to restore power to King Richard will solve the problem to the Sheriff administration’s schemes from the top…Cause will be answered and there would be no need to steal from travelers.

Threats

• Sheriff is growing much stronger and becoming better organized
• Sheriff has political connections and powerful friends and he was well regarded by the regent, Prince John

Policy Revisions

The policy suggested by Robin Hood to impose tax on travelers will only be feasible under certain conditions. First, the band’s mission should be clearly stated. Was the band initially created to fight against the sheriff’s administration or to help the poor by stealing from the rich? Or are these two points interconnected? If the former point is the mission statement, then posing tax on the town’s people traveling through the forest will only undermine the band’s purpose which will result in the lack of allies. If the latter point is the mission statement, then posing transit tax will provide a steady provision of funds to the needy.

Band’s Expansion

The expansion of the band into the different geographical areas in all corners of the compass will only allow the creation of a bigger national corporation. This will definitely require a formal structure from the headquarters in Robin Hood’s area. Recruits specializing in management also need to be heavily recruited. If all these requirements are fulfilled, then there will be minimal concern of not generating revenues and cash flows.

Mission to Restore King Richard back to Power

By assisting the barons to restore King Richard back to power has many pros and cons. The mission is very dangerous and King John’s Spies are everywhere. If this plan fails, the consequences are very grave. The retributions that would follow will be swift and very dangerous.

Pros

• King Richard will be able to answer to the peasant’s needs and concerns
• Sheriff will not be in power and hence his threat will be minimal
• There will be no need to steal from the rich

Cons

• Dangerous proposition with very swift retributions
• It would be risking everything that the band stood for but the benefits would sure be grand
• The Barons or King Richard himself might not live up to their words

Recommendations

In my opinion, Robin Hood’s first priority should be to appropriate structure and organization in the band. He needs to allot someone in charge of curbing the number of new recruits and seek other ways of finding provisions for his men. Once all this is done, he needs to take the great risk of assisting the barons in their mission to rescue King Richard and restore back in power. By doing so, Robin will have gotten his revenge and will not have to require the band’s presence any longer.

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Unfortunately, the perception of public relations has not always been positive. In the 1800s, P.T. Barnum became a master publicist by generating article after article for his traveling circus. His “public be damned” philosophy and the use of exploitative publicity methods, however; have contributed to criticism of the profession.

Another significant component to the profession’s development came from the Creel Committee during World War I. A member of the committee, Edward L. Bernays, later considered by many to be the father of public relations, was part of a massive verbal and written communications effort to gain support of the war. According to Bernays, “this was the first time in our history that information was used as a weapon of war.”

There were other key people and events, which were very influential in promoting the growth of the public relations industry such as:

• “Public be informed era”, Ivy Lee – “father of PR”
• WWII – the Office of War Information
• “Counseling era” – Edward Bernays taught the first PR course at NYU in 1923
• Bernays wife, Doris Fleischman, was influential in paving the way for women in the industry. Together, they created Edward L. Bernays, Counsel on Public Relations, which became a top agency.

Some of the top PR practitioners in the 20th Century, according to PRWeek, are Harold Burson, Edward Bernays, Arthur Page, Larry Foster and Ivy Lee.

Major Practices of Public Relations

One thing that is not commonly known about the Public Relations industry is that it is a very complex business that involves many different elements and areas of expertise. Counseling, Research, Media Relations, Publicity, Employee/Member Relations, Community Relations, Public Affairs, Government Affairs, Issues Management, Financial Relations, Industry Relations, Development/Fund Raising, Minority Relations/Multicultural Affairs, Crisis Management, Special Events and Public Participation and Marketing Communications are all elements of Public Relations according to the PRSA Foundation.

Media Relations deals with communicating the organization’s messages to selected reporters and editors and then, following up to see if the message is reported accurately. Evaluation is an important and often overlooked part of this process. Public Affairs has to deal with developing effective involvement in public policy and helping an organization adapt to public expectations. Also, it is also a term used by military services and some governmental agencies to describe their public relations activities. Issues Management is identifying and addressing issues of public concern in which an organization is, or should be, concerned. Industry Relations is dealing with other firms in the industry of an organization, and with the trade associations related with that organization. Marketing Communications is a combination of activities designed to sell a product, service or idea, including advertising, collateral material, publicity, promotion, packaging, point-of-sale display, trade shows and special events.

An organization of today cannot operate in a vacuum. Many audiences are listening and watching. When something negative happens, there are groups that will use it to attack the organization. The best crisis plan is PREVENTIVE, not reactive. Identifying the possible things that could go wrong that would have a negative impact on the organization is a key step in the crisis management process. Prioritize them as to likelihood and degree of negative impact. Then address each by asking “what are we doing now to prevent this from happening?” A Crisis Plan should include responses to the list of possible problems and who’s responsible, what to say and what NOT to say during a crisis.

Maintaining a favorable relationship with the communities in which the organization has an interest is also crucial. Community Relations is continuing, planned and active participation with and within a community. Before beginning a Public Relations plan, the client must be made aware of how they stand in the eyes of their publics. The best way to do this is to run a Communication Audit. Communication Audits are strategic, research-based processes of evaluating an organization’s communications (and sometimes, marketing) program by using interviews of key audiences, focus groups, surveys, evaluations of an organization’s communications vehicles. The end result is a report that includes the research as well as recommendations on how the organization can improve its communications.

On top of the different major practices of Public Relations, there are also different areas of expertise. Corporate PR, Entertainment PR, Government PR, Technology PR, Finance PR, Health PR and Sports PR are all different areas of the business. Each of these areas is self-explanatory, but are not limited to only practicing in one area. For example, if you work for a famous athlete, one would need to exercise Sports PR and Entertainment PR. Consequently, there are many different areas of Public Relations in which to apply all the major practice areas. One of these areas is Media Relations.

Media Relations

Media relations personnel have many responsibilities as public relations practitioners in the various fields that make up the profession. They are the direct link between the media and the organization, whether it is a sports team, a corporation or a non-profit. Media kits, press releases, setting up interviews and releasing their organizations information are all responsibilities of media relations personnel. Journalists and media outlets receive the vast majority of their information about organizations for news stories through the work of media relations personnel. They are the gatekeepers of information about the organization they work for. An example of these responsibilities can be explained by exploring the duties of a sports information director (SID), otherwise known as the media relations person, for a college athletic department.

In the off-season, the sports information director is responsible for updating the team roster, preparing the team media guide, which includes player/coach profiles, player/team statistics, and team history such as titles won, awards, etc. During the season the SID is responsible for updating player and team statistics after every game so they are readily available to be dispersed to the media and to the coaching staff. This information is also prepared in order to be uploaded to the team website so that the information is easily accessible. The SID is also in charge of making sure the media have parking passes and media passes reserved so that they have access to the game events. The sports information director also attends team practices to set up interviews with coaches and players for the media. The SID also does this on game days. Game day activities also include making media guides, statistics, team schedules, lineups, and any other relevant information accessible to the media. During the game, the SID records the statistics and must be sure to give the media updated statistics that change during the coarse of the game. The SID must also issue the final box score to the media at the end of the game. Post game responsibilities include faxing the final box scores and statistics to all the local newspapers and television stations. Because the University of Texas is covered extensively throughout the nation, these statistics and box scores must also be faxed to ESPN, Sportsticker, and the Associated Press. After the game, the SID is also in charge of writing the press release and sending it to the Associated Press. All of this must be done in a timely fashion because of deadlines for journalists.

Meeting deadlines is just one of the guidelines a media relations person must remember to do when assisting reporters. A media relations person must also remember to always be available to the media, to be truthful, to treat every reporter as equal as the next, to be accurate when issuing out information, and to politely correct mistakes made by journalists. These are all important qualities for a media relations professional to uphold.

Media relations is an important part of any organization. An organization that has a strong media relations department has a significant advantage over an organization without productive media relations personnel. Media relations personnel are the link to the media, which decides whether to cover a story on an organization or not. This is why a strong media relations department can be such an asset to an organization; the media relations department can be the determinant as to whether their organization’s news gets coverage. The more positive news coverage an organization receives, the more the public is aware of the organization overall. Keeping an organization in the eye of the public and being viewed in a positive light is what makes media relations such a necessity in an era where news is so easily accessible by the general population.

Ethics in Public Relations

Ethics has various meanings as it is applied to public relations and the individuals working within that field. In the past, terms such as “cover-up” and “spin” have given public relations a negative image because they imply that PR work is somewhat unethical or underhanded. Today, many corporations are covering up their dealings with others, using deception and half-truths that shake the credibility of the institution. However, positive qualities such as honesty and sharing news with the public also have some companies stressing the need for ethical dealings in the marketplace. Ethics and credibility are slowly re-emerging in the field of public relations, pressuring an attitude change.

Despite preconceived and stereotypical notions about the practice of public relations, it is crucial that people in the industry set high ethical standards. In fact, the public relations worker should be the ethical voice within the corporation. This position of responsibility requires public relations professionals to advise their clients in ethical decision making, advising them towards the truth and away from deception.

Leadership is a quality that should resonate in all active public relations professionals, especially when implementing ethical practices. Public Relations Society of America (PRSA) has developed a code of ethics to help its members develop leadership qualities. The six core values of PRSA suggest ideal behavior for public relations practitioners. Advocacy, honesty, expertise, independence, loyalty, and fairness comprise attributes of the Public Relations Society of America’s ethical code.

An organization’s social responsibility also relates to the code of ethics of an organization. The social organization is responsible for establishing norms that control and define the actions and mistakes of its members. Being socially responsible includes every department of an organization. Examples of social responsibility categories are: marketing practices, corporate philanthropy, environmental activities, external relations, employment diversity in retaining and promoting minorities and women. Today, social responsibility is integrated into most departments of an organization.

Corporate codes of conduct are another aspect of corporate social responsibility, ensuring that every person within the company implements ethics. After Enron’s scandal, many codes of conduct have been implemented, but the companies do not all share the same motivation for using the codes. Corporate codes of conduct help improve internal operations, respond to transgressions, increase public confidence, and stem the tide of outside regulation. The most important form of conduct that all corporations should follow is to always tell the truth.

The public relations industry is at a turning point that depends on how public relations practitioners react ethically to situations. Credibility is essential for ensuring continued value of the public relations profession. Most importantly, ethical practices are crucial to demonstrate that corporations can be honest. Such ethical practices will require constant dedication by public relations professionals to project the image of the public relations field as one of credibility and truth.

Public Relations Firms

Ruder Finn

Mission:
To create impactful visual communications for clients through branding, collateral and information design. Our mission is to ensure that both the strategy and messaging are as elegant as the visual execution. Our design staff is as global as our largest clients, so that we can provide solutions that cross borders and audiences with ease and grace.

Practices:
Healthcare, Technology, Corporate, Consumer, Arts/Culture, Public Affairs/Global Issues, and Travel/Tourism.

Porter Novelli

Mission:
Porter Novelli’s agency partners and employees encompass the research, experience, expertise and fresh thinking that demonstrate the agency’s breadth and depth of intellectual capital in a variety of fields. Using white papers, research studies and PN IQ – Insights Quarterly – the agency’s own journal of key learnings and best practices, Porter Novelli has created vehicles for continuous improvement in our key practice areas and in disciplines important to our clients.

Practices:
Consumer, Public Affairs, Corporate Affairs, Healthcare and Technology

Ogilvy Public Relations Worldwide

Mission:
Our clients all live in competitive worlds. To compete successfully, they need access to high quality information, strategic advice and specialist communications skills. With leading practitioners in all key marketing disciplines, WPP companies are happy to work as single suppliers or in partnership with each other.

Practices:
Advertising, Media Investment Management, Information, Consulting, Public Affairs, Branding, Healthcare, and Specialized Communications.

Cohn and Wolfe began in Georgia in 1970. Today the company has several female leaders. Of the 11 managing directors, nine are women. The leader of Cohn and Wolfe worldwide is another woman, Donna Imperato. Cohn and Wolfe is best known for its connection to the Olympics. In 1980, Coke put C&W in charge of all their Olympic public relations activities. C&W has been involved in every Olympics since then, with a variety of products. For example, in the 1996 summer games in hot and stifling Atlanta, C&W worked for York air conditioners to make their contributions of cool air known at the games. Currently C&W is headquartered out of London. IN 1984 they were bought by Y&R. Then when Y&R was bought by WPP in 2000, C&W became part of the WPP family. Locally, they just acquired Springbock Tech. – Texas’s largest PR firm specializing in technology PR.

Manning, Selvage and Lee is an international PR firm based out of London. They have 28 owned offices and 70 affiliates. Their key areas of work are consumer marketing, corporate communications and finance/ investor relations. Some of their exciting clients include GMAC Financial Services, Proctor and Gamble and X-Box. They are also award winners. In 2003 they were voted a Holmes Report Agency of the Year. In 2004 they won a PRSA Silver Anvil award for the Heart of Diabetes Campaign.

Edelman is a large firm. They have 1800 employees in 40 offices. This makes Edelman one of the largest remaining independents. Their mission is to provide public relations counsel and strategic communications services that enable their clients to build strong relationships and to influence attitudes and behaviors in a complex world. Worldwide, they have a broad international network but they struggle with poor leadership in Europe. In Asia, Edelman has watched steady growth, up by 20 percent last year.

Edelman’s main practices include corporate, crisis management, financial relations, entertainment, food, government, marketing, public affairs, sports, travel and design. To accomplish all this, Edelman is made up of four specialty firms. Blue is the advertising firm, First and 42^nd is a management consulting firm, StrategyOne is their research firm and BioScience Communications works with medical education and publishing.

As part of the Interpublic Group, Golin Harris has a wide reach throughout the world. Their reach extends to 27000 employees in 100 countries. They have a variety of key areas of expertise. They work in corporate communications and utilize CrossMedia which works to produce broadcast PR. They also work with investors and have a capable Investor Relations department. They also work in the areas of marketing and branding. As the world of technology expands Golin Harris continues to be a leader in technology related public relations.

Corporate Public Relations

In the wake of corporate scandals and rocky economic pitfalls large corporations have taken into special consideration the importance of their organization’s image. Thus, the growth and development of the PR department has begun to play a pivotal role in the corporate world. By examining the structure of PR departments and its role, we hope to grasp a basic knowledge PR in the corporate world.

The majority of PR professionals are employed by the corporate world rather than in agencies. It’s also helpful to note that many corporations are now referring their PR departments as Corporate Communications or Public Affairs. Yet, just because a corporation has its own PR department does not rule out the option of using an agency, or multiple agencies for that matter, to gain specialization or outside help for the corporation. It is common for corporations to seek the expertise of an agency to aid them in crisis management, host a special event or for a fresh perspective. Another outside However, the PR department within the corporation has the unique advantage of knowing the inner atmosphere of the company.

Each corporation will vary in the structure of its PR department depending on the industry and needs of the company. The department can range from one person to many hundreds within the corporation. For example, Exxon Mobil has a substantially sized department with international offices and countless staff members. While there is no one set way to organize a PR department, the most successful ones are those who have direct access to top-level executives. Direct interaction with the CEO is important to know exactly what to communicate, what publics need attention, and any important issues that may affect the company.

One of the primary functions of the PR department include ensuring that relations with stakeholders such as employees, investors, and the public are in check by keeping open communication. To ensure good employee relations departments must ensure that the staff are readily informed with what is happening within the company. Internal publications, memos, pamphlets or intranet access are often used as a clear channel to communicate with employees. Often times for investors and stockholders, the PR department will inform them with company updates via newsletters or special events.

When it’s time for a new product or service rollout, it’s the PR department that organizes the press conference, which may include writing speeches for the CEO and putting together press kits. A press kit is a foundation for what the press needs to know about why there is a press conference in the first place. It will include bios of the CEO or other main people involved with the event, pictures, background information, contact information, a press release, and maybe even a CD-ROM. One of the most important communications the PR department provides is organizing the company’s annual report, which includes a financial overview, a letter from the CEO, salary changes, etc. It basically touches on the ins and outs of the company. A company, for instance McDonald’s, will often put its annual report on the internet which is a great tool the PR department uses to give up-to-date information on the company.

The Public Relations department is also responsible for ensuring the company’s image by promoting good relations with the community in which the company and its subsidiaries are located. Philanthropy is important to that image and by organizing or sponsoring events that provide services to the community, or nationally, to support things such as education and diversity. In addition, the opinions of the various publics a company has is very important to know how best to communicate and formulate the company’s image. Research is vital to doing so and can be done by the PR department by gathering the information themselves or going through a research company.

Overall, Corporate Public Relations does everything an agency does, except with a few more “in-housecleaning” demands. The department has more knowledge of the internal organization of the company. The only difference may be bias due to the fact that the PR department is a part of the internal politics of the company. Nevertheless, Corporate Public Relations is a strong arm in the PR Industry and will continue to be so.

Non-Profit Organizations

The structure of a non-profit organization is easily simplified. The organization will base its communication efforts on their mission, objective, and goals. The mission is the basic purpose of the organization including what it is trying to accomplish. For example, “The mission of Mothers Against Drunk Driving is to stop drunk driving, support the victims of this violent crime, and prevent underage drinking.”-MADD

Objectives simply communicate the general direction the organization is taking, and goals form the specific actions—such as time, budget,etc.—needed to accomplish the mission. Goals are specific and measurable so the organization has the opportunity to evaluate its progress. After determining its goals, publics, competition, and so forth, the organization can form a marketing strategy. The organization can then implement and eventually evaluate its communication efforts.

Three examples of organizations using very different marketing techniques are MADD, the Lance Armstrong Foundation, and Austin Lyric Opera (ALO). MADD is an organization benefiting society. It is one of the most successful grass roots campaigns in history.

MADD utilizes its members by sending them as speakers to schools, and legislation. Hearing a mother’s first hand account at the slow death of her daughter has an enormous impact of her audience. The Lance Armstrong Foundation does well with media coverage. Their news coverage and article placements have made their name well known. They began the rubber wristband craze and use Lance Armstrong as a celebrity spokesperson.

Austin Lyric Opera deals with several different types of public relations. There is a community relation with the company’s patrons and for the children and parents attending the ALO music school. There are also investor relations with season ticket holders and people who regularly give large donations. This usually includes large special events and fundraisers throughout the year. ALO also combines several techniques including PSAs, commercials, brochures, direct mail, fundraising, and special events. Despite all the different missions of non-profit organizations, they are all similar in their structures and limited resources. By using small public relations departments to do several functions, they have been able to experience a wide range of communication tools.

Public Relations Organizations

Professional PR Organizations

The Public Relations Society of America (PRSA), chartered in 1947 is the world’s largest organization for public relations professionals. PRSA’s vision is to unify, strengthen, and advance the profession of public relations. It has established itself as the organization, which builds value, demand, and global understanding for public relations.

PRSA has nearly 20,000 members, in 114 chapters, the world’s largest organization for public relations professionals. These members represent a variety of categories such as technology, government, associations, and nonprofit organizations, to name a few.

According to the PRSA website, “their primary objectives are to advance the standards of the public relations profession and to provide members with professional development opportunities through continuing education programs, information exchange forums, and research projects conducted on the national and local levels.”

The three core areas of focus are 1) advancing the profession, 2) strengthening the society, and 3) establishing global leadership.

Membership in PRSA is on an individual, not organizational basis. There are two categories of membership: member and Associate member. Each category has specific eligibility requirements. One specific requirement for all members however is adherence to the PRSA Code of Ethics.

The PRSA Code of Ethics is an important document to the Public Relations Industry and focuses on 6 specific areas, advocacy, honesty, fairness, expertise, independence, and loyalty. This code was last updated in October 2000. Two quotes from the preamble illustrate how strongly the PRSA Board of Directors feels about the ethical conduct of its members. It begins with “The Code of Ethics is designed to be a guide for members as they carry our their ethical responsibilities” and concludes with the following statement “Ethical practice is the most important obligation of a PRSA member.”

As a member of PRSA, a person has access to many resources for personal and professional development. The Professional Resource Center provides access to award-winning public relations campaign profiles, timely information on industry trends, and helpful campaign development resources. A member is eligible to secure low group cost insurance for members and their employees. PRSA members are also eligible for online product discounts with Office Depot, free subscriptions to Public Relations Tactics and The Strategist, as well as discounts on other publications through the PRSA store.

One other very important resource for members and non-members is the PRSA website, which is user friendly and provides a great amount of information. Here you can find job opportunities, access a calendar for PRSA events, and find out information about the various awards, including The Silver Anvil Award. There are also directories and publications listed. These are useful resources to locate other PRSA members or use as reference materials to keep up with current trends in the industry.

The Texas Public Relations Association (TPRA) began in 1953 in San Antonio and has since expanded into a statewide organization that serves PR practitioners all over Texas. It established a “Code of Ethics” that sets the standard for the Texas PR industry. The Code focuses on high expectations of honesty, integrity, fairness, respect, accuracy, truth and many other characteristics. Members are encouraged to abide by these Codes for the betterment of the public and the PR industry.

There are many benefits in having a membership in TPRA. TPRA holds conferences and seminars throughout the year to further the education of PR practitioners. Practitioners gather to discuss emerging trends and issues, successes and problems, and the new skills needed to survive in this rapidly evolving industry. Guest speakers are brought in to offer help and advice on how to respond to the ever changing demands of the typical PR job.

TPRA members also have a chance at winning statewide recognition at the only Texas PR awards program. The Best of Texas Awards honor the best in specific public relations activities, and the Silver Spur Awards recognize outstanding public relations programs. Individuals who contribute to TPRA and the profession can also receive the Golden Spur, Outstanding PR Practitioner, Rising Star, and New Member Achievement awards.

TPRA members are given valuable networking tools, such as being listed in the “Who’s Who in Texas Public Relations” directory and building relationships with peers across the state. The directory is also a source of information to public relations agencies and executive research and media firms.

The TPRA website also posts job and internship opportunities for those PR professionals looking for new experiences or work. The website also features reference sources, news sources, and professional sites involving the PR industry.

TPRA and its foundation, the Public Relations Foundation of Texas (PRFT), sponsor student awards programs and provide multiple resources to help further the education of future PR practitioners.

TPRA has recently been promoting their group membership fees. Now, the Group Membership Plan allows for registration fees and dues to be reduced when four or more people from the same employer join. This allows companies to sponsor more memberships for their employees and for TPRA to continue its growth.

Though once dominated by white men, the field of Public Relations is becoming more diverse.

PR Publications and Job Opportunities

Public Relations Publications

In the Public Relations arena, there are many different but important publications that serve to inform professionals, individual clients and businesses. Most of these are of the “trade publication” genre, containing industry information for differing publics. For the purposes of this report, the publications will be differentiated by whether they are produced and sponsored by PRSA or individually.

PRSA distributes two major publications, Public Relations Tactics, the monthly tabloid, and The Strategist, the quarterly magazine for the leaders in the industry. There catch phrase is that they continue to provide members with timely sources of what’s new and what’s news in public relations, and by way of trade publications they are two of the most successful for the public relations industry. Public Relations Tactics and The Strategist are generally included in a PRSA membership for some small additional fee and according to PRSA’s Website; they have the highest value rankings for all benefits offered to the PRSA membership. Tactics is an easier-to-read tabloid full of practical how-to articles with information and practices for professionals to put into action immediately. The Strategist addresses executive-level public relations practitioners with debates and commentary concerning PR issues of today and is mailed quarterly.

Independent publications include PRWeek, O’Dwyer’s, PR Watch, Buzz Magazine, PR Newswire and an online magazine called PR & Marketing. All of these publications have Websites which offer fairly extensive information regarding their services freely to the public. With the exception of Buzz Magazine, which is specifically a career-based magazine for PR professionals looking for job advances in the field, these magazines all consider themselves a resource for individuals at all stages of their PR careers and serve the public with supplemental education on the industry to help increase knowledge and love for the field.

PR Job Opportunities

A simple bachelor’s degree in public relations is no longer enough to acquire a job. To enter the world of public relations, one must have hands on experience in the field. To get this experience, the first step in a public relations career is an internship. An internship is essential for someone wanting to enter the field through an agency. After an internship, an entry-level position within an agency is account coordinator. A non-agency entry-level public relations position may be public relations coordinator or communications coordinator. These positions often require one to two years of work experience and a bachelor’s degree. The average pay for such positions is $30K a year. After about two to three years of experience, one can become an account executive or a public relations specialist. This position on average pays $38K a year. After this stage in a typical public relations career path, the next position up is an account manager, a public relations manager, or a public relations director. These jobs usually require an advanced degree and at least five years of work experience. The median salary for this stage is $54.5K a year. Beyond this level, a public relations professional might grow to be an executive of the corporation (VP Public Relations), or start his or her own public relations firm. At this point, the salary can be well into the six figures.

According to the Bureau of Labor Statistics, between 2000 and 2010, wage and salary jobs in the management and public relations services industry are expected to grow by 42 percent. This figure is nearly triple the 16 percent growth anticipated for all other industries together, making public relations amid the most rapidly growing industries. Due to the growth of the public relations field, public relations practitioners tend to be well paid, although the range of compensation tends to be broad. Wages depend on such aspects as the individuals’ qualifications and experience, responsibilities of the position, financial strength of the organization, and the general state of the economy. Recent college graduates who are members of the Public Relations Student Society of America and have had some experience can expect a higher than average salary.

Public relations professionals do not have typical days at work. Every day is different and filled with a work schedule that is irregular and often interrupted. Thus, the nine-to-five schedules of other professions do not apply here. A public relations office is normally under high pressure conditions because everyone is working hard to meet the tight deadlines. With their busy days, a public relations practitioner is not tied down to his or her own desk. They are busy doing things like searching for details for a press release, community functions, briefing their management, among many other tasks.

To find such a job, a recent college graduate has many choices when it comes to beginning their job hunt. The Communication Career Services is a good place to start. Also, if he or she is a member of PRSA, their job bank has excellent resources. Other notable places to search for a job are the Council of Public Relations Firms (prfirms.org) and AboutPublicRelations.net. These job services provide a good way to find a job in the public relations field. But just remember, when it comes to landing that first real job, experience is everything.

Future of Public Relations

The practice of public relations is continually evolving and re-formatting itself to include a broad array of functions. Though once viewed with a traditionally print-oriented emphasis, PR has now shifted to that of a multi-faceted marketing discipline. The future of PR proves itself to be limitless. As technology advances, so do the requirements of the public relations practitioner.

The emergence of the Internet and the World Wide Web has created a new and valuable resource for PR professionals. As the nation’s most used resource for information, the Internet connects and provides communication to millions of American consumers every day. This provides for a simple and low cost medium for PR practitioners to convey their desired message to the public. By creating and implementing a comprehensive online campaign, companies can save time and money on distribution costs and materials such as paper, yet still successfully get their message out to their desired publics via the Internet. Advances in technology have also allowed for specially designed software to be created for the use of PR departments and agencies. Software like Bacon’s Media Map can be purchased by PR professionals to provide immediate and updated contact information for reporters and editorial contacts worldwide. Information about each publication, such as distribution size and preferred ways of contact, are included.

Along with advanced software, the Internet has also supplied practitioners with a new insight into public opinion. The emergence of blogs, or online web journals, enable PR departments to immediately retrieve information on public opinion that may have otherwise been unknown or inaccessible to them. Many political websites in particular use online blogs to communicate to and receive immediate comments from their constituents.

Another topic to consider when examining the future of public relations is professional billing. Instead of the traditional hourly billing used among most public relations firms to date, many UK public relations firms are now beginning to implement a one-time pay scale, due to the recent inflated need for PR. Instead of billing a client per hour, the client is now presented with a price upfront, and can separate payments to pay for various functions. For example, a client may be billed $200 dollars for a press release, $500 for a press conference, or $1,000 for an hour-long consultation. This system is slowly beginning to emerge in many newly formed US PR firms, and may soon replace the traditional form of billing.

Along with implementing financial changes, many are now also fighting for the practice of licensing PR professionals. One famous PR practitioner in particular, who felt strongly on the issue, was Edward Bernays. His definition of a Public Relations council was that it is “an applied social scientist who advises a client on the social attitudes and actions he or she must take in order to appeal to the public on which it is dependent. The practitioner ascertains, through research, the adjustment or maladjustment of the client with the public, then advises what changes in attitude and action are demanded to reach the highest point of adjustment to meet social goals.” Bernays understood that anyone one could call themselves a PR professional regardless of the amount of education they had on the subject. Before he died, Bernays wrote bills to address this issue. Although none were passed, the controversy over licensing PR professionals still exists.

The realization by many corporations that PR is a necessity in the business world has created a new role for PR – in the global marketplace. More than ever, PR professionals will be called upon to support world wide relations and campaigns, on issues such as prescription drugs, healthcare, and US military initiatives. An example of this is found in the rapid financial expansion of China and India. Within a few years, both could possibly be leaders in global health care. China’s economy for example is growing at an annual rate of 9 percent (the US economy growth is currently 3 percent). India’s economy is also high with an annual growth of 6 percent. In these fast growing countries, PR campaigns can be used “to map out ways to reach audiences with segmented health messages, develop strategies to communicate with patients and caregivers about disease conditions and benefits of therapies, and enhance or protect companies’ reputations.” With the rapid speed of communications, PR departments worldwide will be put in charge of maintaining both national and global communications in the years to come.

Public relations will continue to evolve as technology and the world at large continues to evolve. Corporations are currently realizing the importance of public relations within their business practices, and that importance will only increase as the field itself continues to incorporate itself into the business arena as a necessary management tool.

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The 1920′s were a time when the level of discrimination against women was at a minimum. Many automobile companies, such as Cadillac and Chevrolet even mentioned women’s autonomy in their advertisements. According to Chevrolet, their product “has that elusive something that women of discrimination have been demanding for years.” In addition, the ad in general is aimed at women, as its main theme is “The most beautiful Chevrolet in history” and depicts a peacock with blue, green, white, and orange feathers. The words “beautiful Chevrolet in history” also happen to be overlapping the colorful feathers. Moreover, there are no men depicted in the ad. Instead, there are two women in the car. The secondary theme in the ad is “Quality at low cost”, as “Chevrolet discloses that individuality and perfection of silhouette that you would expect to find in the costliest of custom-built creations.” The automobile in the ad happens to look like a silhouette when compared to the bright white background, as the car is dark gray in color.

Compositionally, the advertisement is balanced, as most of the words are placed in two columns in the center with one image above and another one below. Though the car, on the bottom, is dark and fairly large, there is a sense of balance between the two images due to the texture in the peacock’s feathers. In addition, the heading of the ad is in large serif letters overlapping the feathers, some of which are italicized. There are four separate fonts of various sizes used in the heading alone, and two others are used throughout the ad.

After the depression of the 1930′s, the main focus of the 1940′s became appearance and also asked the question, “What car company has the best quality and gives it to you for the smallest price?” This is also when competition among carmakers began heating up and manufacturers began targeting different audiences. For example, Chevrolet would publish an ad that read, “You’ll look a long, long time without finding any real equal to this car at any price”, while De Soto would counter by saying, “Success proves De Soto the smartest buy” and “…De Soto’s the car for anybody’s money.” Most automobile manufacturers aimed their advertisements toward the average American family, who had managed to survive through the depression during the previous years. De Soto depicted a family of three sitting in a car as they drove to a fair. Moreover, the family is buying cotton candy, while an onlooker tells the driver, “You must be mighty proud of that De Soto.” These are strong visuals, as it shows that the average family can have an attractive car and still have enough money to go out together and have fun. The font is fairly plain, as the header is sans serif, and the rest of the ad is serif. The only script in the ad is the slogan, “America’s smartest low-priced car.”

On the other hand, Chevrolet depicts its cars as classy and elegant, yet extremely affordable. Their black and white ad shows that colors are not what make a car elegant; rather, it is the overall design. Moreover, an elegant young lady stands in the foreground, which tells the viewer that if the average female were to buy the car depicted, they too would feel elegant and a part of upper-class society. After all, the ad’s header reads, “Meet the beauty leader – Bar none” in script. All of the other “advantages” and features are written in two columns below the picture using serif font.

With the 1960′s came giant Cadillacs and Buicks. Cars seemed to be getting bigger with each one built. This presented a problem, however. Their large size contributed to low fuel mileage, and thus, people had to pay more for gas and general maintenance than they should have. This sparked an interest in small, affordable economy cars. Volkswagen led the way with its Beetle. Many thought it was strange and a “novelty” when it first came out, but in 1962, the company published a simple advertisement encouraging people to “think small.” The ad incorporates the corner view of a small, black off-centered VW Beetle with a white background. There is nothing more, except for three columns of small text using sans serif font at the bottom. This basic ad is aimed at those of any age who have previously poked fun at the car and for those who are used to driving large cars and paying more for gas and service. The car is depicted as being virtually worry-free, as those who buy it don’t have to think about it’s excellent gas mileage or using “5 pints of oil instead of 5 quarts.” The only time its owner has to think about the car is when they “want to trade in their old VW for a new one.” Another company that has followed suit is Ford and its 1969 Cortina. The ad sparks similar emotions to the Volkswagen ad in that it reminds the viewer to “think over” buying an economy car over a larger car. In addition, it is another fairly simple ad that shows a window sticker with a list of options, including a parcel shelf and front disc brakes, all of which have “no charge” written next to them. Unlike the Volkswagen ad, which was aimed at a wide audience, this ad is aimed at females who know enough not to pay for extra features that are included at no charge by the Ford Motor Company, as the woman slightly smiling on the right seems to allude. The main visual is not that bold, as it is just sans serif font on a window sticker.

The use of modern technology in building cars had become popular by the 1980′s. Carmakers such as General Motors and Nissan promoted their products by attempting to offer more “electronics packages” than other companies. Since manufacturers saw the success of economy cars during the 1960s and 1970s, they implemented the technology in most makes and models, not just expensive luxury cars.

In 1981, General Motors proclaimed that technology had arrived and that they were the future of the automobile industry by depicting their product going through a wind tunnel not once, but twice in order to achieve perfection. Moreover, the car appears to be a computer-generated image that is fresh off of the drawing board. The black and white visual, itself, is fairly weak, but for its time period, it delivers a strong message, in that aerodynamics and technology within the automobile industry were rather new. The message is also repeated in the description of the ad below the image. The left and right margins of the text are also on an angle, adding some interest to the ad. Because the technology was new, General Motors marketed this ad toward younger people who had a better understanding of aerodynamics and power features than those who were older did.

A 1984 advertisement for Nissan depicted their car as “a world class sedan that doesn’t cost the world,” meaning that people didn’t have to pay extra for the power options and the implementation of modern technology, such as a keyless entry system. Like General Motors, Nissan is aiming its ad toward a younger audience and states that the Maxima’s engine “generates more horsepower than BMW, Audi, or a Porche 944.” In addition, the “standard power windows, cruise control, and stereo with cassette” appeal to younger audiences. But most importantly though, they “add up to one of the world’s most sophisticated sedans at any price.”

The pictured sedan toward the top of the page is on a gridded plane, making the car appear to be fresh off the drawing board. The italicized sans serif text is the only element that depicts motion, and the image between the two columns of text on the bottom of the ad shows the inside of the car and how plush and roomy it is. Overall, the advertisement works in that the viewers get an idea of what they are missing if they don’t already own “the most sophisticated sedan” with the best “technology”, “quality”, and “service plan”.

In conclusion, since the automobile has increasingly become such a part of our everyday lives over the years, the depictions in the industry’s advertisements show more than a campaign or a message, they depict the society and the style of art of their respective time periods. The 1920s were a time when advertisements were starting to target women, since only men had previously owned vehicles. Advertisers also stressed the car’s beauty, which was also apparent in the 1940s, after the depression. Those who couldn’t afford to own vehicles in the 1930s now could, and many families began buying them for road trips or drives down to the local fairgrounds. However, in the 1960s, quality and cost became a bigger factor than the car’s appearance, and economy cars became popular. The advertisements became more simplistic, as did the cars they were depicting. Viewers were also encouraged to “think small,” and this appealed to younger audiences, since drivers became younger. But as the 1980s rolled around, technology began being implemented in the construction and mechanisms of the automobiles. Like the 1960s, manufacturers depicted their cars as having better quality and reliability, but at a lower cost than most luxury cars. Some were even depicted as having smarter technology than luxury cars.

Today, people know about the quality and reliability, as well as the technology of automobiles. Most ads depict people having fun with their vehicles, such as a SUV driving over the Rocky Mountains or a person getting everything they want, including a fun Toyota sports car. The campaigns, audiences, and messages behind the advertisements may have changed over time, but the ultimate message has not. And that is generally great value and reliability for a low cost.  However, it is apparent now more than ever, with corporations marketing to younger audiences who generally wouldn’t have as much money as a middle-aged family man in the 1940s or 1960s.

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The Arts bring wonders to the community and the city of Philadelphia. Firstly it provides a tourist attraction which gives the city impressive revenue. For example, “The Salvador Dali exhibit generated a total economic impact of $54.9 million within the Philadelphia region, with a total direct economic impact of $30.7 million and a total indirect economic impact of $24.2 million” (GPTMC, pg 5, 2005). The Arts provide a service to those who reside in the region, with education and multi-cultural organizations that topic all interests and branch out to all demographics from the Asian- American Alliance to the India Music and Dance Society. The city is still growing but the fact remains that though the Arts are such a large part of Philadelphia society, it is still fragile and could be eliminated at any given time if organizations do not remain competitive, active in the community, and contributive to the city’s revenue. The purpose of researching this topic is to define and assess cultural organizations’ contributions to the city’s economy, example; jobs, spending and tax revenues. For Non-profit arts to remain competitive, researchers must look beyond obvious inputting and outputting costs. “Understanding how this region’s nonprofit cultural community contributes to our economy and its economic is a vital tool in building our economic future.” (PEL, pg. 3, 1998). In order to understand the purpose of this research, one must recognize the challenge.

The challenge is to capitalize on emerging opportunity, remaining competitive and increase revenue base. Nonprofit arts societies have a disadvantage of fragility as was mentioned earlier, in comparison to say, a local brewery or a bookstore that works independently, generating revenue for their own use. Nonprofit arts must focus on, tourism, restaurant sales, economic spending, jobs, creativity, political leanings, attracting talented people, to name just a few bullets on the agenda. All of those factors make it difficult for a mere handful of people to coordinate and facilitate these efforts. Many local nonprofit organizations must be involved.

Several organizations are involved to conduct research on economy – nonprofit arts and culture in Philadelphia. Three prominent organizations that stand out in this research are Pennsylvania council on the arts (PCA), Pennsylvania Economy League (PEL) and the National Endowment for the Arts. Pennsylvania Council on the arts or the PCA is “governed by a Council of 19 members – 15 private citizens and four members of the General Assembly. Citizen members are appointed by the Governor and confirmed by the Senate. The Council sets the mission and goals for the agency, evaluates the PCA’s progress toward these goals, formulates policy, and makes final decisions on the use of funds” (PACouncilontheArts.org). The PCA has funded hundreds of art and community projects which makes them a key role in this research project and their role in this project is to provide data that includes – income trends, spending comparisons and non-profit cultural revenues. The Pennsylvania Economy League’s role in this research project is similar to that of the PCA in that their research reflects financial aspects of nonprofit arts. PEL is a research organization who’s mission is to provide information for all nonprofits in Southeastern Pennsylvania. PEL works directly with government officials to execute programs. PEL’s role in this research project is generally to collect massive amounts of information, conduct surveys to inevitably find solutions. In order to expand research to areas throughout the country, the National Endowment for the Arts or the NEA is crucial to this project in relationship to national art and culture. The NEA, based in Washington DC is by far the most important contribution to this research. Two advantages, being a national organization and sharing close ties with the US government and also has accessibility to global artistic relations. With these prominent organizations backing research on Philadelphia non-profit arts and the economy, several methods were used to calculate economic impact.

Three methods that stand out are: the IMPLAN model, surveying, and data mining. Pennsylvania Economic League chose to use IMPLAN to conduct research. IMPLAN stands for Impact analysis for Planning. With the use of this model, PEL was able to “build a customized model of the arts and culture sector within the Philadelphia region”. (PEL, pg 49, 1998) Using results from surveys conducted, the IMPLAN team collaborates to create charts and bar graphs that indicate everything from – Sources of contributed nonprofit cultural income to total spending impact, which includes tourist spending, audience spending and organization spending. PEL mails out detailed surveys to cultural centers, museums, galleries and theaters that ask questions relating to facilities, souvenir sales, and money spent on marketing and promotion, maintenance etc. PEL’s surveys ask about number of attendees for performances, lectures, and workshops. Once this information is sent back PEL, PCA collaborates to come up with defined theories. Pennsylvania Council on the Arts collects the data – figures, expense reports, government documents and works with PEL for the IMPLAN model to go into effect.

In summary these methods produced powerful results. It has shown that, “Greater Philadelphia’s nonprofit cultural industry is a $300 million industry with more than 5,500 direct full and part time employees” (PEL, pg 39, 1998) This study has also proven that the so called “new- dollars” or external funds are continuing to increase the city’s revenue. Tourism is definitely at large today, and will continue to thrive as well as branch off into different dimensions. This research was conducted by the Regional Arts and the Cultural Economy task force. The author defined the business research and the purpose, she then explained the business problem under investigation, identified all parties involved in conducting this research and described the methods used to conduct this project.

Cited

GPTMC Dali Hotel Package – Report on Survey Findings pg 5

Pennsylvania Economy League – Regional Arts and Culture Economic Initiative Greater Philadelphia’s Competitive Edge pg 3, 39, 49

About PCA Council Members

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Providian Financial is a credit card company that sells credit to subprime customers. A subprime customer is a consumer who is considered risky. The chances of a subprime customer paying their bill are less likely than that of a prime customer. Due to the increased risk of lending to subprime customers, many credit card companies hesitate to approve them as customers. Providian saw this hesitation as an ideal target market. Providian’s instant success proved other skeptics wrong. In the short run, lending to subprime customers can be profitable. Yet, in the end, it will not be as successful as lending to prime customers. There are a limited number of subprime borrowers, who the credit company can allot credit and still make money.

Providian wanted to attract the ideal subprime customer. In their opinion, the perfect subprime customer cared more about low minimum monthly payments than high interest rates. These were consumers who would pile up debt but would rarely default. In the words of a former executive, “We found the best of the bad.”

Providian first attracted their customers by sending them checks. If the customer cashed the check, they automatically signed up for Providian’s services. Customers were charged an application fee, an annual fee, and an interest rate up to 24%. This was done for a credit limit starting at $300 and going up to $500. These are only a few of the unethical behaviors practiced by Providian. When Providian tried to run promotions, such as ‘No Annual Fee’, they still received money from their customers (i.e. charging a $156 protection fee). Simply, Providian was the only credit card company willing to sell credit to subprime customers, and were able to take advantage of their clients. In the eyes of Providian’s CEO, Shailesh Mehta, Providian was providing a valuable service in offering credit to customers whom other banks refused to serve.

When Providian began to serve subprime customers, there was very little competition. Between 1997 and 2001, the number of active subprime credit card accounts surged 215%, to 26.8 million. Wall Street quickly noticed the growth of this one-time small credit lender. Providian continued to grow for the next couple of years. Stock price paralleled growth of the company. Within two years, between 1997 and 1999, Providian reported an increase of earning by 187%. Wall Street and Providian forgot to question the subprime market. Rather than asking how long subprime customers will keep paying, Providian and Wall Street simply searched for increased growth.

Until mid-1999, Providian grew and experienced an increase in profit. In 1999, the Office of the Comptroller of the Currency opened an investigation on Providian. They accused Providian of using misleading, unfair, and deceptive practices to increase profits. It seems as if most other companies have developed a style of deceptive accounting; why shouldn’t Providian? In June of the following year, the O.C.C. ordered Providian to cease a portion of their marketing campaigns such as the ‘No Annual Fee’ promotion.

Since the annual fee was a large portion of Providian’s income, Mehta had to either confess to the critics on Wall Street that the growth would be slowing or find an alternative road of making money. Being a wise and greedy CEO, Mehta claimed that Providian could keep the earnings growing. To bring in more revenue, and compensate for recently lost income, Providian signed up any risky borrower who desired credit. This plan would have worked if all customers paid their balances. Due to the fact that not all subprime customers pay along with falling economy, Providian started to experience loses. Due to the falling economy, the subprime consumers were the first to feel its effects. At this time, the number of personal bankruptcies rose as quickly as Providian was falling.

Mehta insisted that growth was possible. Providian was on target to hit their long-term earnings-per-share goal of 25%. The reality as to how Providian accomplished this was reported to the public later. Providian made a change to its credit-loss accounting practices that effectively deferred about $30 million in credit losses into another quarter. This was great strategic planning, until it was the next quarter and there was $30 million dollars worth of debt. While doing this, Providian failed to inform their supports on Wall Street. Once again, as in most corporate downfall stories, the top executives of Providian started to sell their stock shares. Mehta himself netted nearly $3.7 million.

One day Wall Street finally caught on to Providian. Stocks in the company began to sell, and prices began to drop. Still on the verge of corporate bankruptcy, Mehta denied any problems. On the day of October 18^th, Providian Financial announced that the third quarter earnings had fallen 72% over the years. This happened because Providian lost revenue from fees, as well as a higher-than-expected loan loss. On this day, Mehta also made public his decision to step-down as CEO and chairman of Providian. One week later, the stock price plummeted to $5 a share. Shortly after, the stock hit an all time low, lawsuits were filed against Providian, and its executives. These suits accused Providian and its executives of fraudulently misleading investors and using inside information for personal gain.

Joseph Saunders recently took over as CEO for Providian. His main goal is set on the survival of the company, and not growth. Providian has since moved out of the subprime market into the middle-market. Most credit card companies followed Providian’s lead out of this market, very similar to how they followed Providian into the market. Personally, I feel this is another example of human greed. The top executives of this company were capable of pulling off unethical moves to gain personal wealth and exercised their capabilities. I would get more satisfaction out of running a smooth, profitable company than I would by stealing money from people. These executives not only tarnished the names of their families, but the name Providian Financial as well. Providian is not the only culprit in this story. Wall Street is the greediest player in this game. The government should step in and try to take control from the money-loving players on Wall Street. It’s easy to say what should have been done, considering we are sitting in Annville, Pennsylvania. I would question my own judgment if I were in the same position as Mehta. Hearing how so many business executives get filthy-rich these days almost makes it seem more ethical to be unethical.

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His focus began as he offered full service to clients, from the creation of ads to the publication. He is considered the father of magazine advertising in America. He later opened offices in Chicago, Boston, Cincinnati and London. Among the inventive stuff he created are giveaway items such as inkpots and pin boxes emblazoned with his company. He also created a promotionnal method known as, “house advertisements.”

Thompson’s successor was Stanley Resor, he built the largest and most dominant agency in the industry. Of his earliest clients who are still with him one can name brands such as Ford and Kraft. He remained President of the agency until 1955 when he retired. In 1987, WPP Group purchased JWT.

Timeline of the advertising world

In 1841- Volney B. Palmer opens the first American Advertising Agency in Philadelphia.

1856 – Robert Bonner is the first to run a full-page ad in a paper, advertising his own literary paper, the New York Ledger.

1861 – There are twenty advertising agencies in New York City.

1864 – William James Carlton begins selling advertising space in newspapers, founding the agency that later became the J. Walter Thompson Company, the oldest American advertising agency in continuous existence.

1860s – Advertising begins to appear in nationally distributed monthly magazines.

1870s – In response to the high volume of outdoor advertising (including posters and signs painted on rocks, buildings and barns) in cities and rural areas, several states begin to impose limitations to protect natural scenery from sign painters.

1880 – John Wanamaker hires John E. Powers, who brings a fresh style to advertising – an honest, direct and fresh appeal emphasizing the style, elegance, comfort and luxury of products. Powers is later called “the father of honest advertising.”

1888 – Eastman begins advertising the first hand-held Kodak camera.

1890 – J. Walter Thompson Company’s billings total over one million dollars.

1891 – Nathan Fowler, in Advertising Age, recommends that because women make most of the purchasing decisions of their household, manufacturers would do well to direct their advertising messages to them.

1893 – The Royal Baking Powder Co. is estimated be the biggest newspaper advertiser in the world.

1894 – The R. C. Maxwell Company, the oldest existing outdoor advertising company in America, is created. The company concentrates primarily in the Middle Atlantic states.

1899 – J. Walter Thompson Company opens a London office, possibly the first international office of an American advertising agency.

1890s – Advertisements for alcohol – wines, liqueurs, and whiskeys – are placed in popular national magazines, such as Harper’s Weekly.

1890s – Women are depicted outside the home in a non-domestic setting for the first time in bicycle ads.

1901 – Coca-Cola advertising budget is $100,000.

1902 – Unilever hires the J. Walter Thompson Company for advertising Lifebuoy Soap and later Lux and other products in America. Unilever is still with J. Walter Thompson and represents the oldest client relationship in the advertising industry.

1904 – Sapolio soap becomes a popular name brand and an early example of the growing influence of advertising campaigns on public consumption.

1906 – The First Annual Advertising Show opens in New York City, initiating the “age of advertising.”

1907 – Bull Durham tobacco ads on New York City Fifth Avenue buses and trolleys cause a commotion due to the “male-obvious” depiction of the bull in the ads; the drivers are arrested and the pictures confiscated due to the offensive nature of the illustrations. The legal case eventually goes all the way to the Supreme Court.

1907 – The Justice Department files anti-trust charges against the American Tobacco Company.

1910 – $600 million is spent on advertising by big business; this represents 4% of the national income.

1916 – James Walter Thompson retires at 69 and sells his agency to Stanley B. Resor and partners.

1917 – The American Association of Advertising Agencies is formed.

1918 – The first test kitchen in an ad agency is created in the Chicago office of the J. Walter Thompson Company.

Past Advertising Photos

Headline:
The Breakfast Bell

Company:
Cream of Wheat

This 1906 ad depicts Black Americans joyously serving food.

kjJ0040 (picture soon…)

Headline:

Packages that speak out

This indicates the beginning of advertising, when the product with a clear and big name got all attention

Headline:
How John Davey became “The Father of Tree Surgery”

Company:
Davey Tree Expert Company

This is a promotional ad where only good things are said about the protagonist, this, more than advertising is PR.

J0130

Headline:
A line with two names and five distinct markets

Company:
Savage-Stevens Arms Corporation

Ironically, there used to be a great market promoting fire arms.

J0139

Headline:
The Edge of the Circle

This 1923 ad proves that the message is not clear nor accurate. The agency faults in showing that they can reach a mass audience by placing as an example the divesting reality Native Americans went through. They see it as a peace treaty when really it was pure genocide.

The role/ impact of the media in the creation/ history event. How did the particular medium play role.

Is clear that media has impact in the creation and evolution of the history events, by this time for a product to have success has to be promoted by the media otherwise it not known so the chances to have luck in the market is very little. The company that created the product only concentrate in making the product they don’t worry in how is going to be known or sale, they live this to publicities companies that work directly with the media.

We are getting to a point that the media causes so much influence in getting to know a product, and making sales happens, that it is almost a requirement if you want to sale a product to be in television, commercials, etc, everything that has to do with public advertising, of course this is getting to a limit that it is almost unaffordable presenting the product to the media, is so expensive that they count second by second when they talk about presenting their product on air, and once again we are talking about having money and not about if it’s a good or a bad product. It doesn’t matter if is a bad product if the company that promotes it have the money to pay advertising the media is going to show it, so is the media really doing their job?…

The exigency at the nation at the time of the event. Other things that were happening

First no one really knew what the benefits off the media were, people dint’ really believe in it, after a few years it was the MOST IMPORTANT way of advertising and the competition of brands in the nation started. So it was an exigency that people were involved with the media if they wanted to be part of society, and that’s how it works right now, if you want to be actual and informed people have to be in constant contact with the press, television radio etc…

In the other hand the media during the time is causing a lot of hate between companies and products specially in the US were publicity against other products is allowed, we are living in times that is essential to the first ones informed and to be the first ones in the market so everything is about winning a race and not about being informed.

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As the story begins, Percy is reflecting on “the way things used to be” and the corporate culture and environment of NFC when he first began working there. He thought about specific people and events that used to occur in the past such as the annual Christmas party and Sammy, the elderly black man who used to shine the shoes of the executives. Percy was stuck in the mindset that things should stay the way they have always been. But as time progressed Percy had begun to notice changes in the company practices and culture, and he found these changes disturbing. In addition to Percy, a close friend of his Austin Butler also often voiced his dissatisfaction at the changes taking place. Percy and Austin were both very ignorant to the idea of accepting people who were different from them, and this was so apparent that they even had a game called “NTO”, which meant “Now There’s One.” The idea of the game was to pick out people in the organization who were different in terms of physical differences such as race, gender, disability, and sex. These “different” people were referred to as “DKO” or different kind of people. They also would look for people who were “like them” and they referred to them as “RKO” or right kind of people. Percy and Austin found themselves playing this game whenever they had free time.

Percy did not see a problem with his views and he definitely did not see himself as biased. But when an event occurs with his friend Austin, the CEO of the company soon puts Percy in touch with reality. The CEO makes it apparent to Percy that he does have a passive bias, but initially Percy seems to be in denial of this fact. Percy continues to meet with the CEO and he soon starts to see his biases and also the biases that exist with certain other employees, such as Austin. The CEO reinforces the idea to Percy that he must become a Progressive manager in order to continue to be successful with the company, and he provides Percy with four steps to attaining this goal. Percy faces many obstacles, and must recognize the changes that need to take place before he can ultimately become a progressive manager. But in the end, Percy took the final step to becoming a progressive manager and overlooked his previous biases to attain true proversity in his organization.

The purpose of this book is to introduce the idea of proversity into the workplace. The story depicted in the book takes us through an example of a common person, who is ignorant of his biases and is adamant about accepting the true integration of different cultures in the workplace. But as the story continues, Percy begins to consider the idea of proversity and the effectiveness that it has in the workplace. This book exemplifies the fact that by accepting people for their true selves and not just their face value then the workplace can be a much more efficient and enjoyable place to be. But this idea is not only applicable to the workplace, it can be implemented virtually anywhere. Proversity teaches us to see the things that we have in common with people, rather than accepting their differences.

Proversity is the combination of the words progressive diversity. The book provides four definitions for proversity, “1. Progressive diversity: the product of bringing together individuals whom appear different, but who have many common characteristics. 2. A more advanced and progressive form of diversity planning. 3. A description of individuals who look different on the exterior, but are actually quite similar. 4. The condition of having similar characteristics on a deep level in spite of existing surface characteristics that look different” (p. Xi). Proversity is essentially the idea of looking beyond someone’s appearance and exterior traits and finding the similarities that you share with that person. Percy and his friend Austin often stereotyped the individuals in the organization labeling them by their appearance, religion, national origin, sex or gender. But they never bothered to get to know them for who they really were. As the CEO taught Percy about the idea of proversity and the steps to becoming a progressive manager, Percy began to see who his colleagues really were and what their common interests were. This was exemplified when Percy had decided to implement a game where all of the members of the 100^th Anniversary Committee had to sit with their backs facing each other. They were then instructed to respond to statements or questions. The idea of this game was to allow the staff members to get to know each other without seeing their faces, it allowed them to learn about the similarities that they shared even though they thought that they had a totally different lifestyle from the other person just because they looked different than the other person.

Proversity is different from diversity in the fact that diversity looks at the characteristics that make each of us different. But proversity is the idea of accepting the similarities that people have rather than setting someone apart because they are different; proversity brings different people together because they share many similar characteristics.

Graham suggests using a four-step process to becoming a progressive manager. The first step is to recognize and eliminate your passive bias. Passive bias is the idea that people have no idea that they hold biases until it is pointed out to them. It is also the idea of only wanting to be around people that make them feel comfortable, which essentially equates to people of their own stature. In order to begin to accept proversity and become a progressive manager, one must overcome these biases and begin to look at people on a personal level beyond their external characteristics.

The second step is to discover and use the power of proversity. Once a person has overcome their biases, they are now ready to begin to look at people by looking at their internal self and the similar characteristics that they share. Percy was able to implement this idea both with the 100^th Anniversary staff members and the lunch time lottery table assignments. The lunchroom idea was a very progressive project, at first the employees were skeptical about being put at different tables with people that they didn’t know. And following the first two sessions, most of the employees went back to their normal tables with the people that they routinely sat with. But as the program continued, some of the employees began to sit with different people that they met during the lunch lottery. The fact that the employees began to accept each other and the similarities and common bonds that they shared was a very good move to proversity.

The third step is to apply the progressive manager’s 12 commandments. The 12 commandments lay the moral foundation for establishing and advancing proversity in the workplace and establishing general rules for the company. Examples of the commandments include “I will show equal respect to coworkers regardless of their position or tenure in my organization; and I will stand up to those coworkers who seek to divide or discriminate against customers, clients, and others in my organization” (p.151). The general idea of the 12 commandments is to foster respect for others, both inside and outside the organization. They also help to build a sense of group pride for the greater good of the organization.

The final step is to expand your universe of organizational contacts. The contacts include both those who are inside of the organization such as coworkers, board members, vendors, and close personal relationships; and those who are in the external audience. The external members include consumers, governmental bodies, the community, special interest groups, and the media. Through reaching out to the various groups, both the organizations and the individuals are presenting an image that they readily look to find the similarities with others and are willing to build a positive relationship with a group or individual regardless of their physical differences. Percy found that before he was able to achieve the final step he had to face the reality and eliminate the one person who held him back from achieving proversity and becoming a progressive manager and that was Austin Butler. It was not possible for Percy to continue in a bias free environment if Austin was still present with his active biases.

Proversity offers some general lessons to be learned by managers. The first idea is that fostering diversity in the workplace is actually a way of setting each other apart from the others because they are different. The idea of proversity helps to foster a close knit, unified environment where workers find similarities they share with the others rather than looking at their differences. If someone has biases against others in the organization it often leads to a less productive environment because workers go out of their way to avoid others who are different even if it causes an inconvenience. With biases, workers also look for the negative characteristics of the employees because this will give them a reason to reject them. Biases may lead to harassment charges and expensive legal fees; and in general it fosters an undesirable-working environment. This was exemplified in the book, when Austin repeatedly made comments about Ann, Percy’s secretary. Ann felt that no one would take her seriously in her position and that she could no longer work for Percy because he did not try and prevent Austin from making these comments, which insulted her and led her to request a transfer.

When a company promotes the idea of proversity it helps to foster goodwill with both the internal organization and its employees, managers, and upper management; and the external organizations such as the community, government bodies, and the media. Goodwill helps to create a positive image of the company, and this can have a tremendous impact on the profitability of the organization. It is important for a manager to set an example in executing the idea of proversity, this creates respect for the manager from the employees and it also sets the standards for the rules and moral values of the office.

A manager can become a “Progressive Manager” by first ridding himself of his passive biases; but until he does that he can not begin to become a progressive manager. As Graham offered in the book, there are four steps that one must achieve to becoming a progressive manager. The second step is to discover and use the power of proversity. Through adopting the idea of proversity and implementing it into the corporate culture and establishing it in the ground rules of the organization employees will learn to accept the ideas and use them in the future. The third step is to apply the progressive manager’s 12 commandments. These ideas help to lay the ground work for the corporate culture and establish company policies. The final step in the process to becoming a progressive manager is to expand your Universe of Organizational Contacts. It is important that the manager and the organization separate themselves from factors which may hold them back, such as employees who hold biases and are unwilling to change. The process of becoming a “Progressive Manager” is a constantly evolving process that never stops. It is important that the organization and its culture stays current and does not let itself slip into the mindset of “this is how it was, and this is how it should be.”

Percy McGee learned many lessons on his way to Proversity. One of his initial lessons he learned was that keeping things the same and “the way they were” is not always the best choice. He learned that it is important to continue to be a progressive company and continue to evolve and adjust to the times. Percy was always jealous of his friends at White Light, who had a very discriminatory and biased company. But as Percy learned more about proversity he began to see these biases that existed with his friends, and in the end they ultimately were the losers. They faced bankruptcy and discrimination lawsuits because they were unwilling to change their views.

Percy also learned that being a bigot is not always obvious. In his case, he was considered to have passive biases, which only become known when the CEO pointed it out to him. Percy did not understand the extent of his bias, or the harm his comments and actions may cause. Ann’s situation was a prime example. Percy and Austin often joked around about Ann, which often insulted her. But Percy did not ever stop to realize that Ann may hear their conversations, or not know that he was joking. And this was ultimately the case in the story, Ann felt that they had taken it too far and she was then faced with an undesirable-working environment.

The idea of proversity and the fact that it helps people to accept the similar characteristics that they share with each other was an important lesson. Percy had no idea that he could possibly have something in common with another man, who he had labeled as an urban black man. But in the end they found that they both had many common interests, such as Boy Scout. And finding these common interests is an important step in creating a sense of unity in the working environment. Proverstiy helps to establish a general positive image of the company and it fosters respect for each other and also the managers of the company. I believe that Percy ultimately learned that proversity is a dynamic way to stay with the current culture and create a positive work environment, where everyone seeks to find the similarities in each other.

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Henri Nestlé founded Nestlé in 1866. The company is based in Switzerland. Henri Nestlé founded the company to produce baby formula for mothers who could not breast feed their children. Nestlé later ventured into chocolate, condensed and powdered milk products, and eventually coffee and tea products. By the onset of World War II, both Nestea and Nescafé were on the market. The war lead to a sharp decline in profits for the company since Switzerland was a neutral country. By 1943, Nescafé was the staple beverage of American soldiers that were serving in Europe and Asia.

From the 1950′s to the 1970′s Nestlé acquired a lot of companies in order to diversify its portfolio of food products and eliminate competition. They bought many companies including Stouffer’s frozen foods, Libby’s juices, and a British company that specialized in canned foods and preserves. During this time, they saw their profits soar and the introduction of many new products that were almost immediate successes. In the late 1970′s the company had to venture outside of food products in order to offset the slowing economy and currency exchange rate problems. They ventured into cosmetics and into pharmaceutical products.

As of 2002, Nestlé employs 254,199 people. It is currently headquartered in Vevey, Switzerland. Their markets essentially cover the entire world. Anyone can go to almost any country (with the exception of most third world countries) and find at least one Nestlé product. In 2002, Nestlé had a net profit of $5,862,100,000 USD with $69,099,000,000 USD1 in revenues. Nestlé is the perfect example of a global enterprise. They have operations spanning many countries in order to meet the huge demand for all of the products they offer worldwide. Nestlé’s closest competitors are Unilever and ConAgra Foods. Neither of these companies is as big as Nestlé, but still considered competition. The trends for the food industry have tapered off but are still positive, according to Nestlé.

B. Nestlé in the Global Environment

From coffee and candy to hotdogs and pasta, it seems like Nestlé U.K. has a stake in every category of the food industry. Some of Nestlé U.K.’s more popular brands include Nescafé coffee, Kit-Kat and Aero candies, Herta Frankfurters, and Perrier and Nesquik drinks.

Nestlé United Kingdom has been involved in some important as well as sticky situations when it comes to the aspect of the social, ethical, and legal environment and Nestlé has taken it upon themselves to address these situations instead of avoiding them.

Nestlé is concerned about the extremely low coffee prices that are in the market currently and the effect that it is having on the coffee farmers. They have made a brochure available online that establishes its position on the situation. They believe that consumers have a right to the low coffee prices; however something should be done in order to improve the coffee farmers living conditions.

Currently, Nestlé is the victim of a boycott of its products by people who are against the company because they believe Nestlé’s aggressive campaigns for artificial infant feeding as opposed to breastfeeding in developing countries as well as developed countries. There are many sites on the internet targeting Nestlé and encouraging consumers to boycott Nestlé products because of research that says bottle-fed babies are immune to more serious problems when compared to breastfed infants. Nestlé has a section on its own website devoted to their policy regarding infant feeding. According to the site, “there are a lot of misunderstandings about how Nestlé sells infant formula products in the developing world.” Nestlé claims that they follow laws and regulations concerning the World Health Organization Code (WHO) in developed countries, and they voluntarily adopt the W.H.O. Code in developing countries. The infant feeding controversy is only becoming hotter as time goes on.

Another situation that Nestlé was involved in was the U.K. livestock crisis of 2001, where there was an outbreak of foot and mouth disease. The role of businesses, including Nestlé, was questioned by the Cumbria City Council.

Nestlé has also been active in the acquisition and investment market. In 2002, Nestlé made a bid for candy maker Hershey Foods. In May of 2002 Nestlé was on the selling side when Hicks, Muse, Tate, and Furst Inc. acquired a broad range of products from Nestlé U.K. and Nestlé Ireland including pickles, vinegars, sauces, non-dehydrated foods, and more through its portfolio company Premier International Foods.

When it comes to differences between consumers and Nestlé the company is being tested right now. Consumers are resistant towards some of the genetically engineered ingredients that Nestlé is using. According to a study done by scientists on bioengineered foods, rats that consumed these ingredients suffered from shrinking internal organs and suppressed immune systems. This study and the resistance of customers have forced Nestlé to phase out sales in the U.K. Other major food retailers, including Nestlé’s competition, have pledged to remove these ingredients from their products.

Obviously some risk factors do surround Nestlé. The most important situation that could determine what happens in the future deals with the infant feeding formula they produce and distribute in many countries. The path that Nestlé’s competitors have taken with transgenic foods could also challenge Nestlé. If Nestlé does not address this situation in a similar manner that their competitors did then they could face more resistance from consumers.

Although these situations have challenged Nestlé U.K. and the entire company, they seem determined to keep an important stake in the food and drink industry. Their ability to develop items for the local and global market has proved that their existence is important. This is why Nestlé U.K. is a great division to expand their business. They already have many successful products which have graced this country and it seems as though Nestlé has not even reached its peak in the U.K. They could achieve even greater success after all the negative situations surrounding the company are resolved.

Before establishing factories in Australia, this continent was served by a network of sales agents. By 1906, Australia had become the second largest export market for Nestlé, so they decided to set up business in Australia by 1908 and begin local production. The invention of MILO (a beverage) in 1934 stands out as a great Australian achievement. The headquarters of Nestlé in Oceania region is located in Australia, which includes the operations in Australia, New Zealand and the Pacific Islands. Products in Australia range from infant nourishment and milk products to confectionary and ice cream products.

Nestlé is one of the largest investors in food technology research and development. To understand the needs for superior performance, Nestlé is working in collaboration with the Australian Institute of Sport’s (AIS) nutrition department. As a producer of packaged goods, Nestlé became a signatory to the National Packaging Covenant in September 2000 and took specific actions to reduce the impact of its products and packages upon its environment. According to ‘RepuTex,’ a social responsibility rating company in 2003, Nestlé Australia has been rated an overall ‘Satisfactory A’ in its environmental impact, corporate governance, social impact, and work place practices. Nestlé has also taken a long-term approach to building a credible social responsibility profile. The RepuTex Rating Committee notes Nestlé’s constructive programs to promote health and nutrition. Nestlé is the leader when it comes to social impact compared to its peers in food, beverage and tobacco sector.

Nestlé backs many worthwhile community projects through Nestlé’s Community Fund, including the Child flight emergency helicopter service, the Australian Theatre for Young People, the New Children’s Hospital in Sydney and the Starlight Foundation’s Fun Trolley scheme for young children in hospital. Nestlé has a community program in Australia called Nestlé Good Life Program covering a wide diversity of interest and activity, in areas of sport, health, the environment, education, arts and recreation for many people in every part of the country and encouraging them to be the best they can be. Nestlé works with Australian Meals on Wheels Program and Food Bank Australia to deliver and feed thousands of poor and hungry people.

Nestlé’s Oceania division is also involved in exporting to different countries. Their exports from Oceania region were worth more than 425 million Australian dollars in the year 2001. Of the products that were exported, 61 percent were milk-based products and 17 percent were infant nutrition products and 12 percent were all other products.

One of the main problems Nestlé is facing in Australia as in any other country is the problem with genetically engineered foods. Nestlé said that the world’s farms will have to begin growing genetically engineered foods if mankind is to have enough food to sustain its survival. In Australia Nestlé is the chief promoter of genetically engineered foods. This is one of the reasons why groups like RAGE (Revolt Against Genetic Engineering) is calling for a boycott against Nestlé products. Despite these problems Nestlé says that it supports the use of modern biotechnology, including gene technology, as it allows improvements to be made rapidly, precisely, and safely. Another reason for the boycott in Australian headquarters was that Nestlé has declared its products genetically engineered-free in Austria, Germany, and Britain so there was no conceivable reason why Nestlé could not do the same in Australia.

C. Nestlé’s Technology

Since Nestlé’s beginning over 130 years ago, they have always been on top of technological innovations and scientific breakthroughs within the food industry. Food, being one of the more complex areas of research, calls for a multidisciplinary but integrated approach across the biological, physical, chemical, medical, and social sciences. Nestlé is unique in the food industry in that they have an integrated research and development program that engages in practical and basic research in the fields of human physiology, health, raw materials, and nutrition to support their technology innovations. Being a technological leader in the food industry, Nestlé realizes that science and technology are vital for future growth and success of the company. With technology thriving in recent years, Nestlé has had a large amount of technology available to them in the food industry and has utilized their research and development department to capitalize on these opportunities.

Research and Development plays a crucial role in assuring the sustainability of Nestlé’s position of the world’s leading food producer. The fundamental role of research and development at Nestlé is to create new products and manufacturing processes in addition to improving the already existing products and processes. At Nestlé, this is accomplished by focusing on product development, packaging processes, making products, and designs that deliver enhanced marginal contribution and growth, and most importantly, aligning research and development to Nestlé’s overall business strategies. The “innovation and renovation” in the Research and Development that takes place at Nestlé is based on three major components:

• The Nestlé Research Center
• Product Technology Centers / Research and Design Centers
• Application Groups

Nestlé employs over 3,800 people in their R&D network that spreads across nine countries on 4 continents. The main component of the research and development that takes place at Nestlé is the Nestlé Research Center, located in Lausanne, Switzerland. The Nestlé Research Center is the “heart and soul” of research and development at Nestlé and is acknowledged by scientific experts as a leading institution in research on food and nutritional science. The primary responsibility of the Nestlé Research Center is providing the fundamental research in nutrition, food science and safety. The research center is a very important part of Nestlé’s research and development as it plays a central role as a producer of the scientific knowledge for the science and technology that ultimately feeds into every one of Nestlé products. The second component of the “innovation and renovation” that takes place at Nestlé is the 9 Product Technology Centers and the seven Research and Design Centers. The nine Product Technology Centers each work in a specific food and beverage sector and the main job of these centers is to translate technology and scientific ideas into industrial applications for the company to utilize. This provides Nestlé with the “technological know-how” for new products and processes. The heart of the Product Technology Centers is the pilot plant which is comparable to a miniature factory that simulates manufacturing processes on a smaller scale. Nearly all of the Product Technology Centers also contain a packaging development section given that any new product must have a package specifically designed for it when it is manufactured. When designing packaging for any product, one of Nestlé’s main goals is to utilize technologies related to reducing packaging material consumption as a part of Nestlé’s commitment to environmentally sound business practices. Another part of the Product Technology Centers are the laboratories which make available an array of integrated scientific support, including tests on ingredients, raw materials, packaging and products to ensure that all quality norms are met and that the product corresponds to regional and local needs and demands. The Nestlé Research and Design Centers function very similar to the Product Technology Centers with the exception that they do not have the same extent of technical support. The Research and Design Centers are therefore focused on product development either by teamwork with a Product Technology Center or from a particular geographic point of view.

The third and final component of innovation and renovation that takes place at Nestlé is their Application Groups. There are approximately 270 Application Groups and their primary responsibility is focusing on product renovation as well as new product launches. They focus on improving sales and marketing strategies in order to generate revenues and profits for Nestlé. Every one of these components is vital for the success of Nestlé’s research and development as well as the overall success of the company’s products.

Behind every product that Nestlé produces is years of research and development. One of the examples of this research and development is Nestlé improving cardiovascular health through balanced fats. Nestlé has adjusted the fatty profiles of food products to create a balance between saturated, monosaturated and polyunsaturated fatty acids and omega 3 and omega 6 polyunsaturated fatty acids. The omega 3 and 6 fatty acids help to control blood cholesterol levels in the body and maintain cardiovascular health. So by balancing the fatty acids out it creates a healthier product.

Another example of Nestlé’s research and development is the creation of baby formula that helps to reduce allergies in infants. According to Nestlé about 30% of children are affected by allergies. Approximately 10 years ago Nestlé created and launched its hypoallergenic formula for infants. The process Nestlé uses in the formula involves splitting protein molecules to reduce the allergenicity of the formula. The formula has been tested in many clinical trials and has been proven to be effective in reducing allergies. Recent improvements in the formula have improved the nutritional quality and the taste. Specifically the new improvements include a higher quality of the protein and specially developed and selected whey that helps the formula to closely approach that of breast milk. Nestlé has also improved the taste to make it comparable to standard formulas by improving the processing technologies of the formula.

There are many other areas that Nestlé has research and development in. The following are just a few of Nestlé’s success stories resulting from key innovations through research and development:

• Healthier and well-being through probiotic foods
• Prebiotic fibers
• Milk calcium for healthy bone growth
• Cardiovascular health through balanced fats in food

These are just a few examples of the many successful implementations of the research and development by the Nestlé Corporation.

D. Country Analysis and Growth Opportunities: Nestlé

Nestlé is a worldwide power in the food and consumer products industry with millions of dollars in sales worldwide, but even with their mammoth size they still face some serious challenges. One challenge facing Nestlé in Australia, the UK, and in eighteen other countries around the world is a growing movement to boycott their products related to bottle feeding babies. The people organizing these boycotts say Nestlé is deliberately trying to get women not to breastfeed, but to start their new babies out on their brand of infant formula as early as possible to gain customers. The boycotters also say that Nestlé discourages breastfeeding by citing research done by Nestlé showing that states that bottle feeding is better than breastfeeding for an infant. The boycotters also say that Nestlé gives free samples to maternity wards of hospitals and informs the nurses there that bottle feeding the new babies is more beneficial than the mother’s milk. The boycotters also claim that Nestlé is targeting impoverished women in developing nations by getting the babies to start taking the formulas while in the hospital and then when the babies go home they wont suckle so that these women who can barely afford to feed themselves have to buy this formula to feed their babies while the breast-milk that they produce naturally is allegedly better for them.

Nestlé, however, does dispute these charges quoting their own founder saying that breast milk is preferable in the first few months of a child’s life and that artificial feeding should only be used as a secondary method if the mother cannot breastfeed or the baby cannot suckle.

I would suggest to Nestlé that maybe they should pull back some on their aggressive promotion of their infant formulas and follow suit with their peers in the tobacco industry by starting an ad campaign showing some of the dangers of giving a baby artificial formula too early and showing the benefits of breastfeeding.

Another main challenge facing Nestlé today is a steady decline in the hot drink markets, especially in the U.K. For years Nestlé has enjoyed a flourishing business in the hot coffee and tea markets in the U.K., but over the past twenty years they have begun to notice a steady drop in demand for these traditional hot drinks. Nestlé has had to cut back on its production of products like Nescafé and lay off some of the employees who worked in that division. This is a major challenge facing the company because this particular sector was a profit center for so many years, but as a consultant to the company I would recommend that they continue with the changes that they are making since these markets have peaked then they will only continue to decline. It would hurt the company in the long run to keep making the products at the same level as before.

A huge opportunity for Nestlé in both Australia and in the U.K., despite the drop in the traditional hot coffee and tea markets, is the advent of the markets in the premium, fresh coffee, a iced coffee, and iced tea markets. Thanks in part to the current rise in popularity of premium coffee shops, like Starbucks, the demand for these same premium coffees at home are a continuously growing market. Also due to coffee pots that can grind beans and then brew in one device creates a growing demand for fresh coffee beans for home consumption. For the iced coffee and tea markets these products should be targeted toward young people, namely teenagers and college students that consume these products for image and style. As a consultant I would advise Nestlé to put more time and money into developing these products because they could replace their Nescafé customers and get into a market that is still wide open for large growth.

SWOT Analysis: Nestlé Australia

Nestlé Australia Ltd is a foreign owned Public Company that is ranked number 83 out of the top 2000 companies in Australia. The company generates the majority of its income from the Food, Beverage and Tobacco Manufacturing in Australia industry

Strengths

• Quality products
  • Nestlé Confectionery
  • Nestlé Cereals
  • Nestlé Yogurts
  • Nestlé chilled meats
  • Nestlé Coffee, water, and other drinks
  • Nestlé Milks & Creams
  • Nestlé Nutrition
  • Nestlé Pasta
• Growing Market
  • During last two years, the sales in Australia increase at an average of about 17.06%.
• Worldwide Company
• Technology
  • Gene Technology
  • To improve the quality, availability and nutritional value of food
  • Has the potential to increase food production and to support sustainable agricultural practices.
• Skilled and committed team
  • Project Management Skills
  • Manufacturing Improvement Techniques
  • Category Management
  • Management and Leadership
  • Supply Chain Diploma
  • Analysis and Decision Making
  • Selection Interviewing
  • Coaching Skills
  • Behaving Assertively
  • Influencing Skills
  • STEP (Systematic Training for Effective Parenting)
• Good name in community
  • Nestlé’s Good Life Program
    • The Nestlé Good Life Program is a group of community programs covering a wide diversity of interest and activity, in areas of sport, health, the environment, education, arts and recreation for many people, in every part of the country and enabling them to be the best they can be.

Weaknesses & Threats

• High number of competitors
  • Arnotts Limited
  • Australian Co-operative Foods Limited
  • Berri Limited
  • Bonlac Foods Limited
  • Burns Philp & Company Limited
  • Cadbury Schweppes Australia Limited
• Adverse reaction to baby milk
  • Damage control – Nestlé opened up a website to provide information to people about the baby milk issue. http://www.babymilk.nestle.com/.

Opportunities

• Expanding further in the Food Industry.
  • Tobacco manufacturing in recent years has been very successful. Nestlé can put more money in Research and Design to promote new products in the industry.
• Scope for innovation in existing market
  • Over 700 Nestlé products have undergone recent renovation to enhance nutrition profile.
• Support Research & Development
  • 1,205 million CHF ($933.875 million USD) spent on R & D in 2003, which is 1.4% of total sales.

SWOT Analysis: Nestlé U.K.

Strengths

• Quality products
• Technology
• Gene Technology
• To improve the quality, availability, and nutritional value of food
• Has the potential to increase food production and to support sustainable agricultural practices.
• Skilled and committed team
• Move towards Nutrition & Wellness
• Joint Ventures
  • Nestlé & Coca cola
  • Nestlé & General Mills
• Good name in community
  • Nestlé has a strong commitment toward education. Nestlé offers scholarships to students and offers internships at their plants.
• Favorable consumer perception
  • Kit-Kat Chunky: customer insight, produced in United Kingdom in order to meet customer demands.

Weaknesses & Threats

• Competitors
  • Kraft Foods UK Ltd.
  • Wrigley Co. Ltd (The)
  • Britannia Superfine Ltd
  • Cadbury Schweppes PLC
• Imitation products
• Window of opportunity may be limited

Opportunities

• Expanding further in the Food Industry.
  • Meeting Consumer’s demands. Nestlé started making Buitoni Pasta to meet consumer’s demand. The brand became famous and is now marketed in many countries including United States.
• Scope for innovation in existing market
  • Over 700 Nestlé products have undergone recent renovation to enhance nutrition profile.
• Support Research & Development

Final Conclusion

Nestlé is a very strong company that has many successful products and an outstanding research and development division. The company has good growth potential and many opportunities in its existing markets. They have run into many barriers along the way that had to be overcome. Nestlé now has to deal with a changing world and the demand for more natural, unaltered food products. They will have to dispose of the boycott situation quickly.

We chose the U.K. and Australia since they seem to be the best markets where Nestlé could achieve high growth. We examined other countries and found that they were already well established. Nestlé will eventually reach a point where they will have to venture into new areas in order to grow. At this point in time, they almost have covered the entire world with their food products. Overall, Nestlé has made good decisions and should continue to prosper for decades to come. We see Nestlé as a good investment for strong, sustainable growth in the long-term.

References

http://www.nestle.com

http://www.nestle.co.uk

http://www.bloomberg.com

http://www.iht.com

http://www.drudgereportarchives.com

http://sdnp.delhi.nic.in

http://www.nestle.com.au

http://www.reputationmeasurement.com.au

http://www.greenleft.org.au

http://www.greens.org.nz

http://www.acfonline.org.au/asp/pages/home.asp

http://www.cia.gov/cia/publications/factbook/

http://www.geocities.com/Heartland/8148/nestle.html

http://danny.oz.au/BFAG/

http://www.babymilk.nestle.com

http://www.nestle.co.uk/about/default.asp?page=policies/coffee.asp

http://www.babymilkaction.org/pages/boycott.html

http://forests.org/archive/general/poutbio.htm

http://www.nutrition.nestle.com/content.asp?THE_ID=329

http://www.nestleusa.com/pressRoom/FactSheets/fact_sheet.asp?fact_id=2001521113623165131552

http://www.ir.nestle.com/Includes/Asp/PopUp/Presentation/presentation_edit.asp?pptid=77&pptnum=1

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The opening of any new frontier is always followed by a stampede of people wanting to be the first to stake out the most promising territory. Some people are lured by promises of riches, others by the chance of a new start in life. This new frontier, that is E-commerce, likewise, had qualities that attracted many people. There was the opportunity for wealth, for adventure, as E-commerce was seen as the start of a brand new world; a shift in the economic paradigm. Thus, together, with youth, promises of wealth, and the opportunity to remake ones career, E-commerce went about to make its mark on the world. Having missed the sixties, and being too young to have participated in the seventies, this era of the Internet seems like an opportune moment for me to brand myself to a specific generation. Years from now, I, too, will be able to sit back in my rocker, lost in nostalgia and remembrance of things past. Will youth, money, and adventure be enough to bring about a chang!
e in society? Will E-commerce be the new economic model?

The champions of E-commerce was being led by the young, with all that youth implies; freshness and new. Youth was a natural selling point for E-commerce. The exploitation of youth is also a long-standing method of selling in America. Movies, television, and clothing are all made and market with the young in mind. Youthfulness and all its corresponding attributes; freshness, a certain potency are qualities to which Americans respond. Thus, the Internet and E-commerce were seen as the province of the young. This was to be a New World, where old economy conventions were disdained and rule books rejected, old verities – about management techniques as well as office protocol no longer applied. E-commerce was to revolutionize the business world. In most cases this was literary so, as E-commerce existed on the Internet, in virtual reality, free from the physical structure of a building, the so-called bricks and mortar business To paraphrase a popular commercial, ‘this was no!
t your father’s commerce.

Another factor that fueled the youth movement in E-commerce is the technology that is the Internet. Justified or not, older people thought that youth and the Internet and therefore E-commerce go together. The thought is that the younger a person, the more comfortable he or she is with technology, that is the computer, the medium through which E-commerce is conducted. Maybe, it’s the familiarity of video games; that vast (wasted) time spent in front of video monitors. But, in all, this proximity of youth to E-commerce is in itself self-fulfilling, making E-commerce attractive.

Nothing can beat youth and money as a selling point. For the past couple years, stories of the young striking it rich in E-commerce have been dominating the covers at the newsstands. They were reports of countless young men (it was usually young men) just out of college or dropping out off college to make their fortunes. There was the college dropout who developed Napster, the music sharing software. There was Jeff Bezos, the founder of Amazon.com, who was Time Magazine’s 1999 Man of the Year. And lets not forget the individual most recognizable with the computer, although not necessarily with E-commerce, but whose software is the engine that runs E-commerce; Bill Gates, the richest man in the world. His fortune is all derived from the computer and its accompanying innovations.

A new lifestyle formed around E-commerce, somewhat blurring the lines between work and pleasure, workplace and living space. Young entrepreneurs worked long hours, played hard, earned obscenely huge salaries and spent wantonly. (Ironically, their spending went towards traditionally old economy business such as real estate, bars and restaurants) The age of the dot-comers was upon us.

The avatars of E-commerce, these dot-commers, were E-commerce’s best advertisement. They ditched their suits for the so-called Causal Friday look – everyday – khaki and polo shirt. Some even wore T-shirts, shorts and sandals. Their attire was not their only informal outlook on business. The hierarchy of the old economy was also abandoned. Both executives and workers mixed, during work and after work hours. The dot-comers were also noted for the perks they provided to their employees. The mother of all perks, that which created the dot-commer, was the stock option. Tens of thousands made fortunes, albeit on paper, overnight.

Other perks that added to the notoriety of the dot-commer, were the expensive ergonomically correct chairs in lush offices. There were free snacks and not to mention the generous expense accounts. It’s no wonder everyone wanted to be an E-ntrepreneurs.

Those were the glory days. By now, everyone has come to see E-commerce as a flash in the pan. E-commerce has lost its allure. There has been an economic downturn, with the technology sector been hit hard. Many E-commerce companies have laid off workers. The sin qua non of E-commerce, the stock price has fallen. This has been followed by the closing of many an E-commerce company.

Why such reversal of fortunes? The history of E-commerce has not yet been written, but historians may want to look at the hype surrounding E-commerce. The emergence of E-commerce seemed like a marketing campaign to create a demand for a product for which no one had any use. We were drawn to E-commerce’s association with youth, the appeal for the opportunity for great wealth. Then there was the lifestyle of E-commerce. Americans seem to like era defining trends, something that defines a certain moment in time. Remember the sixties with its civil rights and youth movements? The dot-comers will likewise define the ending of twentieth century America.

Thus, we have an attractive package covering E-commerce: youth, money and the lifestyle. But, the question must be asked, what’s under the covering? More to the point, where’s the beef? The most important aspect of business, nay, the only reason, for the existence of business, is the profit motive. E-commerce as a business model has yet to show a return of profit. Amazon.com for all its exposure has not made any profit. Virtual reality is littered with the corpses of E-commerce companies: Pets.com, DrKoop.com. The list goes on and on.

In the end, E-commerce will not be a revolutionary force as envisioned by some, but more evolutionary, just another component to the old economic model, taking its place alongside that of the humble catalogue.

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Enron leaves many people to ask two questions, can we trust big business and who should watch over and regulate big business? As investors and employees, we are sitting back and not asking any questions. We look at increased revenue, rise on stock returns, as well as expansion of the company and assume everything is on the “up and up.” In the case of Enron, if anyone questioned finances, Skilling simply told them that it was unethical to inquire and Enron was a very simple, explicit company. Statements like these made smart, self-prided businesspersons uneasy about questioning any of Enron’s finances.

Perhaps what Skilling said was true, maybe Enron was run on the “up and up.” Did their arrogance lead to their demise? It is without argument that this company was conceited, as seen by a sign hanging in their lobby stating: The Worlds Leading Company. One statement, that is contradictory by Skilling, was that Enron’s financial statements were not clear and simplistic. Enron’s financial reports have been given the description as being superbly complex. So complex that it would do a superb job in covering up illegal actions.

Once questions were asked of Enron, murky business actions were revealed. The fact that the company restated its earnings for the past 4 ¾ years, because of unconsolidated entries, leaves one to be suspicious of Enron’s ethics or their ability to keep records correctly. In our culture, it is looked down upon when someone says one thing but does another. Skilling was aggressively selling his stock in Enron when there was a 7% return. He has also been credited as to saying that Enron stock should be worth $126, instead of $80. Why would any investor sell their stock when you are this confident in it and are seeing such a great return?

The most interesting actions of Enron lie in its partnership with a “related party.” This partnership seemed legal and ethical until questioned. At that time, it was revealed that this “related party” was run by Enron’s CFO, Fastow. The mere fact that Fastow ran this party makes the partnership question conflict-of-interests. Why would Fastow be the CFO of one company and run the other company involved in a partnership unless something illegal was taking place? Also, if nothing illegal was taking place, then why not admit that Fastow was the one who ran the other half of the partnership?

Throughout this article, the reader is asked the same question, why do we trust big businesses? To the best of my ability, I can answer this with one word: greed. Our society, in general, is a very greedy society. We are always looking for the easiest way to make money or to succeed. Many people might have speculated that Enron was not being run correctly before last February. The fact that the company foresaw its earnings every quarter, right down to the penny, would make investors even more willing to dump money into Enron. As long as the company was “showing” profits, everyone swept Enron under the carpet, until it had to be dealt with. One thing we can learn from the Enron story is the lack of business ethics in the business world. I personally feel that Enron should be made an example of. Doing this will prevent other people/companies in the future from being so unethical. We already proved, as a society, that we will not question the integrity of something as long as we are profiting from it. Someone needs to watch big businesses and keep them in check, because we wont. In the words of Edmund Burke, “The only thing necessary for the triumph of evil is for good men to do nothing.”

The Wall Street Journal. Lublin, Joann S. Tuesday, February 26, 2002. B1-B4 Column 2

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1. Additional law suits.
2. Drop in stock value or stock price.
3. Loss of investors.
4. Damage to the company’s reputation, resulting in loss of customers and ability to attract quality personnel.
5. Exposure of proprietary product, R&D or marketing information to competitors.

For example, trade secrets may be involved or the parties want the arbitration to be conducted on an entirely confidential basis, so that neither the existence of the arbitration nor any of the disclosures therein are to be made public. Where trade secrets, patent information and other sensitive subjects are in dispute, such discretion may be essential not only to preserve the proprietary character of the rights in question, but also to avoid lawsuits by other parties. Confidentiality also serves to prevent damages to the reputation of the product or manufacturer involved, thus saving «commercial face.

Although confidentiality has long been considered one of the advantages of arbitration many of the institutional rules, until recently, did not expressly provide for confidentiality. Therefore, parties involved in ADR should include provisions in their arbitration clause to ensure confidentiality. According to the World Intellectual Property Organization, the rules should:

1. Address the range of information that may be subject to a requirement of confidentiality
2. Provide provisions dealing with the maintenance of confidentiality in relation to the existence of the arbitration, the disclosures made within the arbitration and the award itself.
3. Specify confidentiality obligations on the part of the parties (and their witnesses), the arbitrators and the mediation center
4. Indicate limitations on the confidentiality requirements, such as when disclosure is required by law or by a competent regulatory body.

A party may wish to invoke the confidentiality of a special class of information it wishes to submit. For example, they may make protective orders in respect of trade secrets and other confidential information that one party wishes to have specially protected. To assist its determination whether the information may be disclosed, sometimes a confidentiality advisor is assigned. The advisor may also be appointed as an expert briefing the mediator, on specific relevant issues, without disclosing the confidential information to the other party.

While confidentiality in ADR can be a benefit to organizations, it can also be a detriment. For example, in an EEO or sexual harassment dispute, it may be to the company’s advantage to use ADR to continually “hide” repeated violations. This is using ADR to contain rather than to expose and remedy widespread conflict. This will ultimately hurt employee morale and allow the company to continue unethical practices rather than face the laws concerning these issues and be forced to comply.

References

Barrier, Michael. The Mediation Disconnect. HR Magazine, May 2003.

Costantino, Cathy A. and Merchant, Christina Sickles. 1996.

Designing Conflict Management Systems, Jossey-Bass Publishers, San Francisco, CA. Internet: http://www.wipo.int/

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As organizations plan for the future, Human Resources (HR) professionals must take on the strategic role of anticipating where the company is going to be down the road and understanding the changing demographics and expectation of the workforce. Essentially, HR is the guardian of information as to who the best people in the organization are and what their talents are.  HR must track the skills of the workforce and match them up with the organization’s needs.  In addition to being knowledgeable about the organization’s workforce, the strategic role of HR involves being knowledgeable about the labor force outside the organization.

In order to effectively be a part of the strategic planning process, HR must perform environmental scanning.   Environmental scanning is the monitoring of the major external forces influencing the organization. (Bohlander1998)  Some environmental factors may include: economic factors, competitive trends, technological changes, political issues, socia! l issues, and demographic trends.  A vital element of HR’s strategic role is determining if people are available, internally or externally, to carry out the organization’s goals.

Ultimately, successful HR planning helps to increase the organization’s ability to act and change and gain competitive advantage.  There must, however, be a reciprocal and interdependent relationship between top management and HR.   This is best achieved when a HR manager is part of the organization’s management steering committee or strategic-planning team.  HR’s role is to essentially conduct a skills analysis which involves the evaluation of employees’ and applicants’ knowledge, skills and abilities in relation to the future needs of the organization.  First, HR must have a clear picture of what the organization will be doing by the end of the planning period and then predict the needs and create a list of job modifications, descriptions and specifications that can meet those needs.

HR must then evaluate knowledge, skills and abilities of employees. Based on this analysis, training and development programs may need to be developed within the organization to ready staff for future business plans.  In addition, outside recruitment may be needed to fill the upcoming staffing needs. Outside recruitment is part of the strategic planning process that requires HR to be aware of external factors influencing the labor force. Evaluating and planning for demographic changes are one of the greatest challenges HR managers face. Changes in age, gender, ethnicity, and education are expected to have a significant impact on the labor force in the next 10 years, creating a more diverse and aging workforce.  HR managers must consider the shrinking pool of workers and the individual differences of a diverse workforce in order to strategically plan and align the HR goals with the future objectives of the organization.  According to the Bureau of Labor Statistics 1996 – 2006 employment projections, the Asian-and-other and Hispanic labor force is projected to increase by 41 percent and 365 percent, respectively.  The black work force is expected to grow by 14 percent.  Due to the aging of the baby boomer, the labor force age 45-64 will be the largest. These demographic trends indicate a need for HR to be particularly sensitive to the needs of a diverse workforce.  The age distribution may indicate a lack of workers in occupations that may require a younger demographic, such as a physically demanding job.

These trends are indicative of workforce issues that may arise in the future.  As the labor force ages, the country will undoubtedly experience a labor shortage when baby boomers retire.  HR planners need to be aware of this potential problem and strategize to address it.   Effectively managing cultural diversity is of even greater significance, as companies become more global.  Today’s economy is global and HR must be willing to take on the roles and challenges that a global marketplace brings.

In addition to evaluating external forces effecting the organization, HR is key in examining the attitudes and activities of the organization’s workforce. HR can play a strategic role in enhancing management’s effectiveness. For example, by monitoring the organization’s culture, HR can advise managers on what leadership style works best and how to motivate and reward employees.  In working with line managers, HR plays a key role in helping managers measure employee performance and providing learning and development where necessary.  By working together, HR specialists and line managers can develop and utilize the talents of employees to their greatest potential benefit to the organization.  HR is also instrumental in communicating and implementing cultural change efforts throughout the organization.  In order to effectively do this, HR must be aware of the current culture and be involved in the strategic planning of the change efforts.

The strategic role of HR managers requires them to work with line managers and executives to create a vision for the organization’s futures, establish a strategy that enables the strategic plan to be executed, and communicate with employees about the change process in order to achieve the organization’s goals.  In order to “compete through people” organizations have to integrate HR into the strategic planning process in order to mange human capital effectively and develop strategies for identifying, recruiting, and hiring the best talent available.

References

Bohlander, George W., Sherman, Arthur, Snell, Scott. 1998. Managing Human Resources, South-Western College Publishing, Cincinnati, Ohio.

Internet: http://stats.bls.gov/
Lake, Gerry, Losey, Michael R., Ulrich, Dave.  1997. Tomorrow’s HR Management, John Wiley & Sons, Inc., New York, New York.

Leonard, Bill, What do CEOs want from HR?, HR Magazine, Nov 1998 v43 n12 p80(7).
University of Phoenix online library,
Internet – http://web7.searchbank.com/itw/session/142

Sullivan, John.  Clarifying the Strategic Role of HR, Workinfo.com Newsletter. 2006
Internet – www.workinfo.com

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The effective organization must create an environment that fosters fulfillment of both sets of expectations.  Human Resources, along with management, must utilize the staffing function to ensure that human resources are used wisely.

The Role of Human Resources

The role of Human Resources is growing in importance, as organizations become more knowledge-based.  In knowledge-based industries, an organization’s success depends on the knowledge, skills and abilities of employees.  In the industrial age, work was more production-based and required people with manual skills. If that employee left the organization, new people could be taught or trained to replace them.

This type of organization could view workers as a direct expense.   The value of an employee could be calculated based on his/her time and how efficiently he/she produced a certain product.  In today’s information age, employees whose talents are contained within them, such as knowledge, interpersonal skills, communication skills and ability to learn, are valued.  Global marketization and advanced technology contributed to this shift from a touch labor force to knowledge work. (Bohlander, 1998)   Organizations now realize that they can gain competitive advantage through people, not just processes. That is why successful knowledge-based organizations view employees as an asset and an investment.  A successful organization must maintain an organizational design that allows HR to manage human capital and be a strategic part of the planning process.To meet the HR needs, an organization should be structured to allow HR to fulfill its many roles and responsibilities. The role of HR falls under four main areas, according to Managing Human Resources. (Bohlander, 1998)  The responsibilities of the HR manager include:

1.Advise and counsel.
To do this, HR managers must have knowledge of internal employment issues such as polices, labor agreements and employee needs, as well as awareness of external trends such as economic, demographic and legal issues.  This is perhaps the most important role HR plays in a knowledge-based organization.  Through this role, HR is an important component in the strategic planning process. HR must anticipate where the company is going and be expected to understand changing demographics and expectations of the workforce.  It defines one of the major differences in HRM and Personnel management – contribution to long-term strategy, not just short-term business plans.

2.Service.
This includes the responsibilities of recruiting, training, and hearing employee concerns and complaints. It also involves communicating with senior management in a strategic role which involves tracking the skills of the workforce to the long-term needs of the organization.  In addition, HR encourages personal mastery and development of individuals, not just job-specific training.

3.Policy formulation and implementation.
This concerns drafting policies concerning work procedures and practice.

4.Employee advocacy.
This involves listening to the employees’ concerns and representing their needs to managers.  Increasing attention is being given to the personal needs of employees due to the growing diversity of the workforce and society’s demands that organizations be socially responsibility in their treatment of employees.  HR management includes being aware of racial, gender, cultural and social issues and trends and being responsive to employee needs.

Organizational Design

The organizing function of management involves making assignments for the accomplishment of tasks to individuals and groups by delegating authority, assigning responsibility and requiring accountability.  (Drucker 1954) The role of HR, as described above, cannot be fulfilled unless HR has the ear and the support of management. Whether it be a traditional or non-traditional work design, the organization must be structured so that HR plays a significant role in top management planning and working with senior management to create a vision for the future of the company. In addition, the design must encourage the development of the line manager’s competency in motivating and developing employees.

The business organization of the 21st century is expected to depart considerably from the traditional top-down design of the past.  The organizational design of the future will reflect the realization of companies that they belong to a network or a web that includes many other players. This model has been given a number of descriptions, including employee-empowered, flat, flexible and shared services. It has also been called ‘molecular,’ in reference to the shift from the rigid, hierarchical organization to a more free-formed and fluid structure. (Greco, 1998)   The term also suggests that the organization is made up of interrelated components that are essential to the effective functioning of the whole. In such a setup, employees come together whenever and wherever needed and disband to join other work groups when the need arises.

In a non-traditional flat organization, people need to be trained at early career levels to be managers, which also means they need to take initiative and be more self-directed . The challenge for these organizations is to create a cascading of leadership, so that there’s leadership at the top, but also leadership down at the bottom, all sharing a common goal. The challenge of HR is to build that kind of leadership throughout the organization, through selection and recruitment, training, executive development, staff development, and strategic planning. HR will also play a role in helping managers set objectives that give employees greater accountability. In order to create leaders, people must be empowered.  HR can further these efforts by developing a plan for measuring and rewarding behavior that encourages empowerment and self-management.

Strategic Planning

As organizations plan for the future, Human Resources (HR) professionals must take on the strategic role of anticipating where the company is going to be down the road and understanding the changing demographics and expectation of the workforce. Essentially, HR is the guardian of information as to who the best people in the organization are and what their talents are.  HR must track the skills of the workforce and match them up with the organization’s needs.  In addition to being knowledgeable about the organization’s workforce, the strategic role of HR involves being knowledgeable about the labor force outside the organization. In order to effectively be a part of the strategic planning process, HR must perform environmental scanning.   Environmental scanning is the monitoring of the major external forces influencing the organization. (Bohlander1998)  Some environmental factors may include: economic factors, competitive trends, technological changes, political issues, social issues, and demographic trends.

Organizational Staffing

HR has traditionally played a role in ensuring the right number and type of employees is available to implement a business plan.  In addition, HR can proactively identify and initiate programs needed to develop future strategies.  A key part of HR’s strategic planning role is the staffing function.  Staffing involves forecasting demand for labor, performing supply analysis and matching the demand for the labor with the supply. Forecasting demand requires knowledge of the business plan and the quantity and quality of labor needed to meet the objectives.  Supply analysis involves determining if there are sufficient employees within the organization to meet demand and determining the potential employees available on the job market.  In order to balance this supply and demand of labor, HR must incorporate the following elements into a staffing plan: recruiting, selecting, training and developing.

Conclusion

According to “The Living Company” by Arie de Geus, the average corporation does not live up to its full potential due to its inability to adjust to changing conditions in an uncontrollable world.  Often, managers have failed to look at the organization as a community of human beings, and focused too heavily on policies and practices and producing goods and services.  Human Resources is the key to creating the “community of human beings” that make up a successful living organization.

A living organization is defined by its capacity to learn and change.  Successful companies are constantly looking for better ways to organize themselves, their work processes and support systems, workforce composition, competencies and culture.   In order to do this; organizations must become learning entities to better adapt to a rapidly changing global market. Employees of a learning organization must embrace learning as a way of life. A successful organizational design combines the experience of management and the expertise of HR specialists to plan for the future and develop the talents of employees to their greatest potential.

References

Bohlander, George W., Sherman, Arthur, Snell, Scott. 1998. Managing Human Resources, South-Western College Publishing, Cincinnati, Ohio.

DeGues, Arie. The Living Company, Harvard Business Review, Mar-Apr 1997.

Drucker, Peter. The Practice of Management. New York: Harper Collins, 1954

Greco, JoAnn. Designing for the 21st Century, Journal of Business Strategy, Nov-Dec1998.  University of Phoenix online library,
Internet – http://web7.searchbank.com/itw/session/142

Kline, Peter & Saunders, Bernard. 1998. Ten Steps To A Learning Organization, Great Ocean Publishers, Arlington, Virginia.

Leonard, Bill, What do CEOs want from HR?, HR Magazine, Nov 1998 v43 n12 p80(7).
University of Phoenix online library,
Internet – http://web7.searchbank.com/itw/session/142

Related:

• Evaluation of the Strategic Role of HR
• Retaining Employee Trust
• Domestic Partner Benefits
• Confidentiality in Mediation

In addition, there was a predictable career path. If employees worked hard they would receive raises and promotions and move up through the ranks of an organization. Today, layoffs are more common and retirement packages and pension plans are virtually non-existent. Management is still expecting the old-fashioned loyalty and commitment without holding up its end of the deal. In order to build trust, organizations must invest in good people and reward them accordingly.

Employees want security. Only when a company communicates its intentions and follows through can it achieve that employee love and commitment to the organization that cannot be created with motivational slogans and empty promises. Human Resources is the key to planning, communicating, and monitoring these efforts to give employees the security and fulfilled promises they need and give the organization employees who are loyal and committed to improved performance.

This analysis will identify challenges faced by organizations in developing trust through the following human resources systems:

1. Empowerment
2. Recruitment and selection
3. Employee communications and involvement
4. Organizational design
5. Relationships between employee groups

Empowerment

A common contributor to the mistrust in the employee/employer relationship is the recent avalanche of Total Quality Management programs. Buzz words for campaigns of this nature include “winning attitude”; “positive thinking” and “we’re #1″. Positive affirmation and pep talks are used to create a sense love for the company and to persuade people to believe in the new vision.

This approach rarely works anymore because employees have become desensitized to this tactic, due to overuse or past disappointment. Most people have been through dozens of change programs that start out with a boom and end up on the cutting room floor. These employees have been made promises by top management with no follow through, so they are hesitant to put themselves on the line and commit to a new way of thinking. (Duck 1998) Empowering the lower level staff to be decision-makers can solve this problem. Taking into consideration the level of responsibility the staff is able to handle, management can let staff tell them the best way to improve a process then let them head up the project.

The key to making this approach successful is management that constantly communicates with staff and provides support and direction when needed. Trust will only be regained when employees buy into a new corporate vision, change their attitudes and then their behavior will change consequently. Employees will then strengthen their commitment to the organization after seeing the success of the improvements and the changed behavior will continue.

Recruitment and Selection

In recruitment, the trust of the employees may be damaged by not filling key leadership positions promptly or effectively. When employees must take on extra work or are not provided with the proper leadership they might become resentful. In addition, not promoting internally or providing the resources for employees to develop into leadership positions will cause dissatisfied employees. Under-staffing is also a burden on current employees causing mistrust and poor work performance.
Recruitment involves both internal and external selection of people to fill positions. Many employers use internal promotion and transferring to fill openings above entry level. By recruiting from within, an organization can capitalize on previous investments made in recruiting, selecting, training and developing its current employees. Internal promotions also reward employees for past performance and send a positive message to other employees that their efforts will be rewarded. (Bohlander 1998)

Employee Communications and Involvement

Organizations must first have information systems in place to effectively communicate to its employees. Many employers make the mistake of funneling information from the top-down only. This contributes to a lack of buy-in and feelings of isolation on t the part of the employees. Employees need avenues to share knowledge with each other or provide management with feedback on their departmental issues. In addition, when corporate strategy is communicated, there is needs to be direction on how to implement that strategy or a system for holding people accountable for doing so. HR needs to be involved in the strategic planning so that corporate goals are linked to the work processes. (Lake 1997) If there is constant communication from the top-down and bottom-up there will be no surprises when it comes time to reward employees for expectations met.
A communications vehicle that emphasizes input from the employees will involve employees in the process of planning and their participation will contribute to employee satisfaction and high performance. A database system that contains a “Sharing of Knowledge” site would be helpful. Through this employees can share mistakes and successes with each other and communicate their needs and frustrations to management. One suggestion to improve this process would be to institute an open-door policy that allows employees to speak to anyone within the chain of command about his grievance. The appointment of an ombudsman would filter the frivolous complaints while serving as a counselor for employees. This would create a work environment that embraces open honest communication throughout the entire organization from the bottom up. Another suggestion is a “rate the boss survey”, an appraisal system which allows for bottom to top input. This will help departments identify workflow issues and problems in relationships between employee groups. Other helpful communications vehicles are newsletters, internal websites, bulletin boards, and meetings. Organizational Design Another factor contributing to employee mistrust and impacting the overall effectiveness of organizations today is lack of systems thinking. Many traditional organizations are organized functionally so that each department can establish standards and objectives based on its area of expertise. The focus is on developing skills and abilities within each function. As a result, some departments can evolve into independent entities focusing only on their own performance. While there are many advantages to the functional organization, this structure can result in problems that impacted the overall effectiveness of the operation and contribute to trust problems. The creation of separate empires is the likely cause of the other two problems – lack of communication and workflow issues. As separate empires develop, the shared vision is lost, people become frustrated, and the attrition rate increases. (Drucker 1954)
Organizations need to have a clear communication plan that links functional groups according to work flow. HR’s role in this is to work closely with management to help with the strategic planning processes. Measurement of turnover and rewards for systems thinking need to be put in place. Using traditional standards of measure may actually hurt systems thinking. Rewarding departmental performance can detract people from focusing on the strategic goal of the organization.
Top-down thinking contributes to problems with the workflow processes. If there is a lack of teamwork at the top, and no consultation on decision making, that behavior will trickle down to all staff levels. HR needs to play a strategic role by helping managers plan and set objectives that rewards staff for team behavior. HR also needs to work with the CEO in implementing a measurement and rewards program, perhaps one tied to bonuses, that rewards systems thinking in management.

Relationships between Employee Groups

To strengthen the trust between employees and management, team building activities that foster communication between the groups should be in place. An example is to honor employee birthdays by having a birthday cake once a month. Another example would be to get employees to volunteer to join an Enrichment Committee, which would be responsible for organizing employee activities such as the birthday cake, a summer a chili-cook off, or a company picnic. Also, all levels of management should attend all of these functions. Another way to improve labor relations and employee involvement would be to hold quarterly skip-level meetings where the employees can discuss their issues and ideas with senior management without the presence of supervisors. All staff meetings that occur quarterly would also assist in the improvement of communication. These activities will facilitate improved interactions between employees and senior management and it will create an environment that is open to new ideas and concerns. It will also give the employees a sense of empowerment because they will feel as if they had a voice in the operations and decisions that effect their organization. Conclusion The process of building employee trust and loyalty is essential to the success of an organization. The dominant factor that is crucial to this process is open communication and systems thinking. If employees feel they can not express themselves in a comfortable manner, then the entire organization will suffer. This will create an environment that is not conducive to learning and growth because no one will feel free to share new ideas for fear of reprisal. It is HR’s role and management’s responsibility to seek improved employee relations and communications because these factors directly effect the bottomline of the business. In order to achieve this, HR must take a systems thinking approach to management and develop a plan to achieve a high commitment work culture.

References

Bohlander, George W., Sherman, Arthur, Snell, Scott. 1998. Managing Human Resources, South-Western College Publishing, Cincinnati, Ohio.

Brache, Alan P., Rummler, Geary A. 1997. Managing an Organization as a System, University of Phoenix online library,
Internet – http://web5.searchbank.com/infotrac/sesion/20/108

Concilman, Jim. How Can Organizations Engender Employee Trust? Workforce Newsletter. 2006.
Internet – www.workforce.com

Drucker, Peter. The Practice of Management. New York: Harper Collins, 1954.

Duck, Jeanie Daniel. “Managing Change: The Art of Balancing”, 1998.
University of Phoenix online library,
Internet – http://web5.searchbank.com/infotrac/

Glanz, Barbara. Rebuilding Trust in Turbulent Times. Newsletter 2006.
Internet – www.barbaraglanz.com

Kline, Peter & Saunders, Bernard. 1998. Ten Steps To A Learning Organization, Great Ocean Publishers, Arlington, Virginia.

Lake, Gerry, Losey, Michael R., Ulrich, Dave. 1997. Tomorrow’s HR Management, John Wiley & Sons, Inc., New York, New York.

Related:

• Designing the Modern Organization
• Evaluation of the Strategic Role of HR
• Domestic Partner Benefits
• Confidentiality in Mediation

Background

September 11, 2001 challenged the airline industry. As a result of the terrorist attacks, revenue experienced drastic losses. Companies, with strong financial standings before September 11, survived the devastating blow (14). Other airlines experiencing financial difficulty before the attacks, such as US Airways, are still having difficulty recovering.

US Airways tried different ways to recover from its financial difficulties. The company ordered new modern aircrafts and expanded into international markets to try to increase revenue. In August 2002, to assist with the financial troubles, the company filed for Chapter 11 bankruptcy. This allows US Airways to restructure its operation through debt forgiveness, loans, and corporate reorganization. Currently, US Airways is reorganizing in hopes of financial recovery.

Critical Issues

The critical issues addressed in this case are international expansion, industry margin, and Chapter 11 bankruptcy.

US Airways seeks an avenue to generate new revenues. The company examines international expansion as this avenue. However, in a post September 11 world, the economy and public interest do not support travel. There is no room for trial and error in the airline industry. The industry runs on a one to two percent margin and must strategically plan for international expansion. In addition, the company filed for Chapter 11 bankruptcy in August 2002. US Airways hopes to reorganize and recover from bankruptcy by March 31, 2003.

Recommended Courses of Action

US Airways needs to create a plan to solve its current financial troubles. The company is researching how to increase capital to recover from recent declines. A fast, efficient solution would be to sell planes that are leased and to replace the current hub-and-spoke system with point-to-point traveling. Money would be freed through selling leased planes and could be used to pay off debts. A point-to-point system, instead of a hub-and-spoke system, could increase profits and increase customer service because fuel expenses would drop and customers would have the convenience of no layovers.

The Organizational Mission

Research completed through the case and the Internet has revealed that US Airways has no formal mission statement available to the public. Without a mission statement, US Airways will find it hard to form objectives and to answer the question “What is our business?”. An effective mission statement can lead a company, encourage investors, and motivate employees (Mission Statements, BUS 130, 230). To design a mission statement that will be effective, the majority of nine characteristics must be included. Customers, products, markets, technology, profitability, philosophy, self, public image, and employees are all components that should be incorporated into a mission statement (Vision and Mission Statements, BUS 485).

An effective mission statement that US Airways could use follows:

“Our mission is to offer competitive prices to our customers, while using the latest advances in technology to create a quality air travel experience. We strive to be the best in our workplace, our industry, and our community.”

The above statement contains elements, which will help establish future objectives and offer focus to US Airways’ stakeholders.

Strengths

Variety of Planes

US Airways owns a variety of planes: 767s, 737s, and 727s, A330s, and A320s (22). The variety of aircrafts allow for more flexibility, versatility, mobility in passenger load options, and operating costs. A wide variety of planes provide the flexibility of matching the load capacity with the area of demand. The company attempts to match the aircraft to seat supply and route demand to increase the load factor. “This type of aircraft offers great flexibility since it has smaller capacity, is significantly more efficient to operate, and has a shorter turnaround time than larger aircraft” (22). If a route has less demand, a smaller aircraft can be used to increase capacity in order to meet the breakeven point of the aircraft. This helps US Airways reach their primary goal: “…to move load factor above the breakeven point into the profit range” (21).

The wide variety also allows for expansion and exploration into other routes because different size planes are readily available. The agreement between US Airways and Airbus allows modernization of their old aircraft to the new A320s (22). The new A320s are more fuel-efficient and replace the older aircraft with younger assets. The average age of US Airways’ planes as of 2001 are 9.1 years to 9.6 years (16). The younger assets require less expenditure for repair and maintenance (Assets, ACT 161).

Another benefit of having a variety of planes and excessive assets is to use the excess as leverage to free up money. The planes can be sold along with their lease in order to free up cash to pay debts and relieve some of the current expenses and costs (Leases, Debt, Expenses, ACT 161).

East Coast Dominance

US Airways uses the hub system which “…ideally allows any airline to fly passengers to any destination on the globe…The hub system also allows airlines to feed passengers from small markets into the carrier’s transcontinental and international routes, thus allowing competition in these markets as well” (20-21). The hubs are bunched together geographically on the East Coast allowing for market domination. The close market can promote lower expenses because ticket sales can be lowered with less interference from outside competition (Product Pricing, BUS 340). “By offering the lowest priced fares to a destination, an airline hopes to lure customers from competitors and even increase the amount of overall passenger traffic by attracting passengers who would not have considered air travel under a higher pricing structure” (21). Once market domination of the East Coast is prosperous, then the financial advantage can be used to integrate, expand and dominate westward.

US Airways’ short international express flights are making the most profit for the company. The flights from Washington, D.C. to New York and Baltimore to Boston are convenient routes for East Coast businesses. “…Revenue may be generated…by increasing profitability on the core routes to cover underperformance on other routes” (21).

Brand Loyalty

Businesses and US Airways’ consumers have strong brand loyalty to the air carrier. Although there has been a decline in air travel demand due to a slow economy and low consumer confidence, US Airways’ consumers reveal their loyalty through website comments (See Appendix A, pp.40-42). Customer satisfaction is high even though US Airways’ financial position is declining.

Airbus also opened an avenue of revenue and lowered operational costs by: lowering training costs, providing better fuel efficiency, lowering maintenance costs and providing longer operational ranges. The A320 Airbus aircraft offers more flexibility and reduced employee training costs and crew expenses (22). One way to improve their financial position is to decrease losses in operational expenses.

Financial

US Airways is aware of their current market decline and financial instability. This is deemed a strength because the company is using their position to implement changes and new organizational plans to correct the situation. The government passed legislation that freed US Airways of some of its expenses by “federalizing security.” The September 11 terrorist attacks pushed Congress to pass legislation and provide $14 billion to the airline industry (26).

Other actions that freed up cash are: consolidation of flights, a 23% cut in service, and decrease in routes. The postponement of shipping, and deferment of new A320s and A330s freed up cash. Also, the failed merger between United and US Airways provided $50 million to US Airways.

Competitive Advantage

US Airways provides strong competition to its competitors: Southwest, Delta Airlines, Jet Blue, Spirit Airlines, and Air Tran Airway to name a few. US Airways uses marketing to beat competition with fare reduction. “Fare wars” allow airlines to compete for market share and market dominance (Product Pricing, BUS 340). Offering low prices can draw in customers and increase load capacity (21). Fare reduction is the most common form of competitive strategy used by most airlines.

CEO/ Management

The current CEO David Siegel is a strong asset to US Airways. He is a strong negotiator and a good salesman. Siegel is known in the industry as a “master dealer.” Siegel will be a strong force as a leader for US Airways. The reorganization plan includes recruitment of new management and board members (Appendix B, pp.43-45). Change and leadership can be a strong force in the success of a company. A good CEO can make or break a company. Sam Walton is an example of a CEO that made a company what it is today. Leadership and management have a direct impact on the success of a company (HR communication, BUS 420).

Weaknesses

Excessive Assets

US Airways acquired approximately 400 Airbus planes since 1999. Some of these planes were purchased and others leased. Although excessive assets can be considered a strength for most airlines, for US Airways, it is a weakness. US Airways is paying a large amount of money for its leased planes, most of which are not being used. This directly affects the load factor, the percentage of filled seats on any given flight (21). However, US Airways’ main goal “…is to move “load factor” above the breakeven point into profit range” (21). US Airways’ inability to fill the seats is unprofitable for the company. The company is unable to produce at the breakeven point and, as a result, supply will not equal demand on the flights that they are trying to use (Supply and Demand, ECN 101). This causes the company to have a high overhead. The high overhead was a result of the growth of the company. The company grew too big in a short amount of time, which caused its supply to exceed its demand.

US Airways has an excessive number of planes to use for the few passengers that are boarding its planes. The load factor below breakeven causes most of the flights to be unprofitable. US Airways merged and acquired too much property within a short amount of time. However, the cancelled merger with United Airlines in 2000 caused the airline to put a stop to its growth. However this turned out to be a good idea for the airline, which was already experiencing problems in the financial area.

Location and size of Hubs

Most airline companies use a hub system that allows them to carry passengers around the globe (20). However, the hub system has changed and now causes passengers to make stops at various hubs and board transfer flights. US Airways follows this type of system, but its hubs are smaller than other airline hubs. Not as many planes can fit into them, which creates a bottleneck for the transfer of passengers (21).

Another weakness of US Airways’ hub system, is its East Coast locations, some of these include: Baltimore, Washington, D.C., Philadelphia, and Pittsburgh. These hubs are located too geographically close to one another on the East Coast. By using this type of hub system, US Airways cannot defend itself and its route system from competitors (21). If US Airways relocated some or most of its hubs, it would be able to create a more efficient hub system. This allows the company to possibly move off the East Coast and expand into the West, which would allow US Airways to compete more efficiently with its major competitors. If they decided on this course of action, it would require the company to create a different strategy of both management and marketing.

Resignation of CEO

Rakesh Gangwal’s unexpected resignation in 2001 is a weakness of US Airways. Gangwal’s chief strengths under the current conditions were his attention to detail, airline industry, economics, and critical requirements (26). Stephen Wolf, a master dealmaker, replaced Gangwal. Gangwal was unable to make the company more successful and financially stable. Looking at the daily operations of the company was not one of Wolf’s strengths (26). This could be the main reason why US Airways does not have a contingency or vision plan. If the company is unable to look into the future or see the outlook of how its decisions will directly affect the company, it will be unable to choose any course of action that will create a stronger company.

Poor Employee Morale

Not only did US Airways have to deal with the unexpected resignation of CEO Gangwal, but with poor employee morale as well. After the September 11 incidents, and with business already declining, US Airways laid off 25 percent (11,000) of its employees (23). After the layoff, most of the employees still working lost many of their benefits and other incentives for working hard. In the end, this created a team of employees that had lost their desire to work hard for a company that they knew was having problems surviving.

Loss of Customers

There are various reasons why US Airways has been losing customers for a couple years. One major reason is that, after September 11, it stopped flights to numerous locations. Without a variety of locations that a customer can fly to and depart from, the customer base began to decrease because other competitors had the locations and flights customers wanted. Also, without these locations, US Airways is unable to compete with the airlines that were flying to more locations. US Airways is failing to use an aggressive approach to compete with other airlines. Without a stronger approach, many customers choose to take other airlines because their names are more recognizable, and they have more locations to which they can fly. An example of this is with Southwest Airlines, US Airways’ major competitor. Since US Airways has locations only on the East Coast, Southwest took over most of the West Coast. Southwest has non-stop flights, which most customers enjoy more. “…Southwest forced US Airways to essentially abandon its service to north-south California routes” (24). They also entered the market in Baltimore, one of US Airways’ hubs. This caused US Airways to eliminate 51 of its 75 mainland routes. If US Airways had been more aggressive against its main competitor, these routes would never have been abandoned.

Plane Crashes

Although plane crashes do not occur very often, there is still a chance one will happen. With all the problems that US Airways has been experiencing over the last few years, an unexpected plane crash of any sort would put the company out of business. While there is no way of ensuring that US Airways will never experience a plane crash, it is in its best interest that they should not. Not only would US Airways lose an asset, but they would also lose many of their repeat customers and many new ones as well. Since September 11, many people are still anxious about flying and watching another plane crash would push most people over the edge. This would cause many people to drive to their destinations, or cause them to just stay at home. If this happened, it would cause US Airways to lose more money, pushing them further into bankruptcy or out of business all together.

Bankruptcy

Each of the weaknesses explained above has been a direct influence on US Airways’ filing for Chapter 11 bankruptcy (Bankruptcy, BUS 371). Since 2000, after the failed merger with United Airlines, they have lost a total of $7.81 billion in assets and $7.83 billion in liabilities, most of which occurred in 2001 after the September 11 incident; a total of 2.11 billion in 2001(Appendix C, pp. 46-47).

Opportunities

The airline industry is one that is affected by many external factors. A change in fuel prices, by mere pennies, can force companies into bankruptcy. Even with the amount of debt that US Airways has acquired, it has many opportunities available. With strategic planning, help from the government, and a little luck, US Airways could once again see profits, market dominance, and growth internationally.

Point-to-Point

One opportunity that is available to US Airways is the use of point-to-point flying instead of their already established hub-and-spoke flight patterns. There are many positive outcomes from this change. Customers prefer to get on one plane and arrive at their destination, rather than have a layover. There would be more profit from this type of system because less fuel would be needed, fewer employees, and fewer airplanes. Costs would be lowered, therefore; ticket prices could be lowered. Fewer layovers and the lowered ticket prices could increase the number of customers flying with US Airways. The hub-and-spoke system worked for US Airways when it was seeing profits and there was more people flying. Today, it is costly, inefficient, and more of a burden on time-conscious travelers. This change will not happen overnight. It will take up to a year to change the type of system used. Changing one flight at a time can do this.

Changing from a hub-and-spoke system to a point-to-point system is an internal opportunity. However, it’s highly dependant on many external factors. Some of these factors include money from the government and investors, the views and attitudes of the customers, the cost of fuel, and the economy. One downside to this change is the transition of the employees. Many employees are trained and prefer the already established system. “Resistance to change can be considered the single greatest threat to successful strategic implementation” (D 254).

Partnerships

Another opportunity that would improve US Airways’ current condition is a partnership with a financially stable company (Partnerships, BUS 130). There are many companies that could become a partner with US Airways, one such company is FedEx. There are many obvious benefits from this action. The greatest advantage would be financially. With some solid financial backing, US Airways will be able to get back on its feet quicker. The idea of a partnership would prove beneficial for US Airways. If the government wants to keep perfect competition and avoid monopolies, then they would grant more funding and loans to US Airways.

Government

Without governmental funding, US Airways would have been another business that failed. When US Airways was in the middle of hard times in July 2002, the government granted them a federal loan of $900 million (See Appendix D, pp. 48-50). One downside to governmental funding is company image (Consumer Perception, BUS 340). If they keep receiving outrageous amounts of money, consumers will start to see US Airways as a money pit. After the September 11 tragedies, the government aided the airline industry monetarily. Following the aftermath of September 11, people were upset that their tax dollars went to independent companies. Without airline companies, our country would simply shut down.

Another governmental opportunity is the fact that John McCain is proposing a change to the Railway Labor Act. This new proposal would make it hard for unions to get wage increases (See Appendix E, p.51). The proposal would lock union members in at a certain wage. The wage freeze would help to keep US Airways’ labor costs down.

Consumer Confidence

An opportunity for every business today is the increase in consumer confidence (Consumer Confidence and Buying Power, BUS 341). Without consumers’ spending money, no company would survive. With the poor economy and September 11 tragedies, consumers are watching where they spend their money. As we move further and further away from September 11, people are starting to forget about terrorism and some risks that are involved with flying.

Another opportunity that US Airways can take advantage of is the fact that bond rates are high and interest rates are low right now. This would allow US Airways to refinance some of its debt to lock-in lower rates. US Airways could take advantage of high bond rates by selling bonds to investors. This would be a great opportunity because bonds are safer than stocks; in that they are secured and have a maturity date some years down the road (Corporate Bonds and Stocks, BUS 361).

Technology

Another industry wide opportunity is technology. US Airways can take advantage of outside technology. Simple advances, such as making reservations by the Internet, will help boost sales. New accessories are becoming available as well; these accessories would make flying more convenient. An example of a newly added accessory would be the complete workstation. More personal televisions, along with satellite radio, would be a welcomed attraction for flyers. This is extremely important to US Airways right now because with the addition of new accessories and technology, business travelers will insist on traveling with US Airways.

Not long ago, US Airways filed for Chapter 11 bankruptcy. To fulfill this, US Airways had to file a report on its debt and its expected courses of action. The continuation of this filing is a huge opportunity for US Airways to get its feet back on the ground. While filing for bankruptcy, US Airways will be protected from creditors. Along with the completion of this filing, US Airways will have some of their debt forgiven (Chapter 11 Bankruptcy, BUS 371 / ACT 162). This gives US Airways an upper hand when negotiating with the union. US Airways’ employees are among the highest paid in the industry (See Appendix D, pp. 48-50). With the approval of their Chapter 11 filing, the pilots union will be forced to work with lower salaries because of the condition that the company is in currently.

Outside Capital

A final opportunity for US Airways is the promise of money after bankruptcy. The Texas Pacific Group has promised to provide US Airways with a $200 million investment in the new equity of the airline on its emergence from bankruptcy (See Appendix C, pp.46-47). This is money that US Airways does not have right now. However, if everything goes smoothly, it will have this money to further its investing. This allows leverage when finalizing finances. US Airways can take money away from investing and use it to pay off some debt because that money will be replaced upon the end of its bankruptcy.

A strategic plan is one thing that US Airways does not have, and because of that, US Airways is suffering. Opportunities in the airline industry are very uncertain. No one really knows if gasoline prices or consumer confidence will increase. Looking at US Airways’ past actions, it seems as if US Airways is going with a hit or miss theory. The company cut benefits and laid people off, that did not free up enough funds. So, now, US Airways is starting to cut some unprofitable flights. With all of its opportunities, even if it takes advantage of them, US Airways needs to be aggressive and regain market share. With spring and summer approaching, competition in the airline industry is only going to get tighter. The companies who take advantage of their opportunities and plan strategically will prove most profitable.

Threats

Economy

One of US Airways’ most important external threats is the current state of the world economy. The U.S. economy, which is believed to be in a recession, is one of the primary external forces that a company needs to focus on, especially if the business is one that has difficulty producing revenues in a downturn (External Forces, BUS 130, 230, 380).

Demand for Air Travel

As a subset of economy, the demand for air travel is a large threat currently facing US Airways. With the economy slowed, consumers with low disposable income or fixed income are unable to afford ticket prices, which drives the number of people willing to fly (demand) down (Discretionary Income, ECN 101). Demand becomes a threat because when demand is low US Airways will still incur high fixed costs with little revenue to cover the cost.

The demand for business related travel has also fallen as businesses try to save cash during the downturn. “Business traffic comprises 50 percent of airline traffic but generates 65 percent of ticket revenue” (25). Employers are sending employees to fewer seminars, or sending one delegate to attend and teach the material upon returning instead of sending multiple employees. “An economy in recession requires less business travel,” and businesses are using cheaper methods in response to cash crunches (25). Web conferencing allows businesses to conduct meetings across the nation without having to fly employees to the site.

Possible War with Iraq

War with Iraq is an important threat because customers will be less likely to travel to international destinations for fear of being civilian targets. War with Iraq, a member of OPEC, will cause Iraqi oil exports to decline and supply to drop. In addition, the military will be using more oil to fight a war, affecting supply. The result of both a decline in exports and an increase in usage will be a rise in oil prices, and fuel expenses for US Airways (Supply and Demand, ECN 102).

Any company that competes internationally must focus on the current political issues abroad that may hinder business in the future. Businesses should develop contingency plans on how to operate internationally when political instability occurs in other areas of the world (Contingency Planning, BUS 230).

Oil and Oil Producing Exporting Countries

Oil and OPEC can be a threat to US Airways whether or not the United States goes to war with Iraq. OPEC has the ability to control production of 13 oil-exporting countries. This allows OPEC to move oil and, subsequently, fuel prices as it chooses. As stated before, because OPEC can control supply, they can cause the price of fuel to increase, costing US Airways more in fuel expenses (Supply and Demand, ECN 102).

Possible Acts of Terrorism

Possible terrorist activity will greatly affect the number of people willing to travel domestically and internationally. The airline industry is still being affected by the September 11 terrorist attacks, which resulted in a large drop in air travel demand. If terrorist activity, across the globe, starts to become a problem again, US Airways will likely see a drop in ticket sales, which will cause revenues to decline.

Union Strikes

US Airways’ most costly expense is the amount of money it pays for personnel. Unions have strong negotiating positions inside companies because of their ability to stop production or services with walkouts and strikes (Organized Labor’s Rights, BUS 372, 420, DSP 326).

A potential strike by union workers at US Airways is a critical threat to the company’s success. Strikes by the pilots union, flight attendants union, and mechanics union can cause stoppages on many of US Airways’ flight routes. These unions will strike if they feel they are not receiving fair pay, benefits, safe working conditions, and other possible rewards (Compensation Packages, Union Grievances, BUS 420, DSP 326).

Air Line Pilots Association Region Flight Cap

The Air Line Pilots Association currently has a cap on the number of flights their pilots can fly on long region routes. The ALPA has limited the flights to address the pay equality of pilots who run these routes, which are on US Airways Express. The ALPA poses a threat if they continue to put pressure on US Airways Express, US Airways’ only current profitable division, because the higher labor costs will only add to US Airways’ cash problems.

Government Assistance and Stoppage of Federal Aid

The United States government, if they choose not to assist the airline industry any further, may be a threat to US Airways’ ability to turn the company around. Federal aid has been given to the industry in relief from the outcome from the September 11 terrorist attacks, which grounded all aircraft for a number of days causing the industry to lose billions in revenues. A stoppage in government aid may prevent US Airways from being able to emerge from Chapter 11 bankruptcy.

Cut Throat Competition

The current state of the economy has had similar effects on all major United States air carriers. All carriers have been using fare reduction pricing strategies to lure customers from rival airlines. This poses a threat because some carriers may have lower breakeven points allowing them to use a price leading strategy when pricing tickets (Price Leading Strategy, Breakeven, BUS 340, ACT 161). US Airways may not be able to cut fares as low as its competition because of its high breakeven point, caused by its large amount of overhead. Therefore, competitive forces could force US Airways out of business.

US Airways can try to affect only a few of these external threats. Any action taken by the company will not have any impact on the economy, but US Airways does have the ability to affect demand for air travel in some instances through fare reduction activities. US Airways also has the ability to negotiate with their unions, which they have minimal control over. The only other threat that US Airways can have a chance at eliminating is how the competition affects the company. The other threats are largely out of US Airways’ control, but still need to be watched to help US Airways with contingency planning.

TOWS Diagram

IFE Matrix

This Internal Factor Evaluation Matrix (IFE) is used to summarize and evaluate the major strengths and weaknesses of US Airways by assigning numerical importance (D 149). Each factor has been given a weight to indicate the relative importance to US Airways’ success in the airline industry, ranging from 0.0 (not important) to 1.0 (all important) (D 149-150). Each factor has also been assigned a rating of one to four, which represents a major weakness, 1, minor weakness, 2, minor strength, 3, or major strength, 4 (D 150). The weighted score is the product of each factor’s weight and rating. The total weighted score can range from 1.0 to 4.0, with an average of 2.5 (D150). Weighted scores below 2.5 indicate that an organization is internally weak (D 150).

The IFE of US Airways results in a total weighted score of 1.96. This represents internal weakness, which is accurate based on the current internal struggles US Airways faces. According to the IFE matrix, the greatest internal weaknesses US Airways must resolve are high overhead and excessive assets.

EFE Matrix

“An EFE Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information” (D 110). To create this matrix, the first step is to list the key external factors, or opportunities and threats. Each of which must be specific. After these are listed, they must be given “…a weight that ranges from 0.0 (not important) to 1.0 (very important)” (D 110). This weight is used to determine its importance to the company. When comparing opportunities and threats, opportunities are usually given a higher weight, except when threats can be devastating to the company. The sum of the weights must equal 1.0.

After assigning the weights, the factors then must be given a rating between 1 and 4. “4 = the response is superior, 3 = the response is above average, 2 = the response is average and 1 = the response is poor” (D 110-111). These are based on the company and how effective it is at dealing with the factors. To determine the weighted score, multiply the weight by the rating. The weighted scores tell how effective the company is working. “The average total weighted score is 2.5” (D 111).

The EFE matrix is a valuable way to look at how effective the company is working with its external factors. A matrix for US Airways, listed above, includes each of the threats and opportunities from both the SWOT analysis and the TOWS diagram. The most heavily weighted factors were: point-to-point flight patterns, governmental aid, and selling assets. Each of these is vital for to company.

There were very few that were given a 4. The three that did receive a four were, partnership, governmental aid, and the economy. After giving the weight and the rating of the factors, the weighted score displayed that US Airways evaluation of its key external factors was an average of 2.34.

SPACE Matrix

The Strategic Position and Action Evaluation (SPACE) Matrix is used to provide a company with the type of plan it should take in its business actions. The matrix indicates whether a company should be aggressive, conservative, defensive or competitive. Financial strength and competitive advantage are two internal dimensions of the matrix. The two external dimensions are industry strength and environmental stability.

The matrix on US Airways, which can be found in (See Appendix F p. 52), demonstrates that it should take a defensive approach in handling its business. This is important because it sets the framework for US Airways’ strategic plan. It also helps by giving the company a vision of how to continue doing business in the present and the future. US Airways is in the defensive quadrant, which means that it should focus on its internal weaknesses and try to avoid external threats. One way that US Airways could accomplish this is by selling planes that are currently leased, which frees up assets. US Airways needs to stop expanding and look at downsizing. US Airways needs to become a size that can be managed and be financially supported. Once this is achieved and the company is financially stable, it can consider expansion.

Critical Issues

International Expansion

US Airways expanded into the international market to take advantage of an increase in foreign travel to and from the United States. To provide for this expansion, US Airways purchased new wide-bodied aircrafts, upgraded the Philadelphia international terminal, and expanded international destinations (23). However, after September 11 international travel statistics changed. There was “a 23 percent decline in service” and “a 1.3 percent decline in the first half of 2001” (23). US Airways continued its growth of the international market despite these statistics. Furthermore, US Airways reported that its current strategy is “aimed at reducing operating expenses and increasing expansion of its international operation” (22).

International expansion is a challenging task for US Airways. The weak global and United States economies are the main challenge in successful expansion. The weak economy prevents individuals and businessmen from traveling because they do not have the disposable income to afford it. The reduced number of travelers leaves the new wide-bodied aircrafts with empty seats. These empty seats create financial strain for US Airways because it costs the same to fly a full plane as it does to fly one half empty.

Fuel prices also continue to increase (16). Flying the new bigger planes will become more expensive. Farther destinations require more fuel. To cover fuel expenses, passengers must purchase tickets. Demand, however, is on a decline due to the economy.

In addition to terrorist fears and the weak economy, a pending war with Iraq decreases demand. Consumers already hesitate to fly because of September 11. If a war is being fought, consumers will be less likely to travel abroad. The war will also influence fuel prices and the economy. Fuel prices will increase because the United States purchases fuel from the Middle East. Increased fuel prices will force airlines to raise ticket prices to cover the added expense. If consumers are not flying at current war-free prices, they will not purchase more expensive tickets during wartime.

War with Iraq will change the economy and, therefore, demand. During wartime, disposable income decreases because the prices for everyday items increase. There will be no extra money for business or vacation travel.

The support provided by US Airways to facilitate international expansion given current international travel statistics are ineffective. The purchase of new aircraft, an improved international hub, and more destinations in a time of declined travel are risky ventures. US Airways is unclear of the potential payoff from international expansion (23). The corporation is investing a great deal of money to expand internationally while not knowing if any possible benefits will result.

US Airways strategically analyzed the expansion before implementing the plan. The expansion, however, does not have clear benefits to US Airways and, in a time of financial struggle, uncertain ventures create uncertain outcomes. US Airways does not have the flexibility to get involved in a failing venture. International expansion involves many unknown variables. The company should have closely analyzed external factors, such as the economy and the supply and demand of travelers. US Airways should also have planned for possible surprises in the world, such as a war. International expansion with possible external threats should have been strategically examined more closely before investing in it.

The airline industry traditionally runs on a one percent to two percent margin (21). This low margin creates a challenge for airline companies because there is little room for error, and any small financial effect could be critical to an airline’s success.

The one to two percent margin impacts US Airways through its load factor. With each flight, US Airways should sell enough seats to achieve a breakeven point. The goal of the company is to fill the plane to an above breakeven point so that a profit will result (Profits, ACT 162). This is done through raising the number of paying passengers per flight, by lowering operating costs, or by lowering a portion of fixed costs (21). US Airways is trying to increase the number of paying passengers by increasing international flights and adjusting ticket prices to compete with other airlines. External factors, such as the economy, terrorism, and war, negatively impact the number of tickets purchased and make it difficult for the airline industry to attract passengers.

US Airways does not address the one to two percent industry margin effectively. When operating on a tight margin, airlines need to be prepared for any emergencies that could hurt or improve profits. US Airways did not have a clear plan on what to do if an emergency occurred. For example, when September 11 brought a decline in travelers, US Airways expanded flights. US Airways should have adjusted to the decline by concentrating on domestic flights instead of trying to expand. This assisted in the company’s current financial troubles.

Chapter 11 Bankruptcy

US Airways filed for Chapter 11 bankruptcy in August 2002 (26). The corporation was awarded $75 million to continue flying through September 2002 and submitted a reorganization plan on December 31, 2002 (26). In recent court hearings, US Airways submitted a reorganization plan and developed a timeline that included an emergence from bankruptcy target date for March 31, 2003 (See Appendix B, pp. 43-45).

Corporate reorganization under Chapter 11 bankruptcy code is a way for the debtor and creditors to create a plan. Under this reorganization plan, the debtor, US Airways, promises to pay a portion of their debts and is discharged from the balance of the debt (Bankruptcy, BUS 371). Important points of the reorganization plan include details of a $1 billion loan from the Air Transportation Stabilization Board, discussions with the pilots union, retirement plans, and reconstruction of the Board of Directors (See Appendix B, pp. 43-45).

US Airways filing for Chapter 11 bankruptcy is an effective way to reorganize. Chapter 11 bankruptcy allows US Airways to reduce the amount of money owed to creditors and allows them to continue to operate. US Airways should create a long-term financial plan to ensure emergence success.

Alternative Courses of Action

Plane Efficiency

US Airways has seen many recurrences of its planes not being used to their fullest capacity. For example, US Airways has Boeing 767-200ERs that hold, on average, 203 passengers and it also has Boeing 737-300s that hold an average of 126 passengers (16). If US Airways is planning on sending out a 767 to take 100 passengers to a destination, it should reconsider its choice of plane to use. In this instance, a 737 should be used because it will be more fuel-efficient and will get the load factor to the breakeven point or over the breakeven point than if it was to use the 767 aircraft.

US Airways needs to implement a strategy to figure out which planes are needed at what times. The text states that “…strategy implementation is managing forces during the action” (D 236). If the strategy of switching planes, in order to help create growth and reduce fuel and maintenance costs, is implemented and continually followed through, the company will help to raise the load factor and decrease costs. The result of raising the load factor and decreasing costs will lead to long run growth and freeing up of cash.

There are two options that US Airways can choose from when deciding which plane should be used on which fight. It can put a cap on the flights or make a last minute decision about which plane would be flying for each flight. If US Airways puts a cap on each flight, it will know exactly how many people can be transported from one destination to another; therefore, the company will know which plane will be used for each flight. If US Airways waits until the last minute before the flight is due to take off, the company will have to have different planes available to be used, such as having both a 737 and 767.

Pros – If US Airways used this course of action; the company would be more efficient in the use of its planes and its money.

Cons – Ticket sales have decreased for US Airways; therefore, the bigger planes may not be needed and may be sitting, waiting to be used. This result will end with the company paying unneeded hanger, maintenance, and depreciation costs.

Build More Hubs and Expand Westward

There are many hubs in the eastern region. The major eastern cities that US Airways hubs are located in are Boston, New York-La Guardia, Pittsburgh, Philadelphia, Baltimore, Washington, D.C., and Charlotte (21). US Airways should try to build more hubs westward to expand its business to travelers in other parts of the country.

US Airways could conduct a feasibility study, which is a test to see if a company will have success at a new property and its main concentration is on location, guest demographics, the competition and financial analysis. If the study proves that US Airways will be profitable, it should open hubs in the West (Feasibility Studies, HTM 111). US Airways should also conduct a customer analysis, as well. Customer analysis is “…the examination and evaluation of customer needs, desires, and wants…” (D 133). The customer analysis “…involves administering customer surveys, analyzing consumer information, evaluating market positioning strategies, developing customer profiles, and determining optimal market segmentation strategies” (D 133). If the company concludes that customers will use its services, it should proceed with opening the new hubs in the West.

US Airways can get new routes and hubs in the West. For example, US Airways could buyout smaller airlines that are dominant in the West in order to expand and gain more business in the West. US Airways will have to spend money in order to acquire the new hubs and flights, but if the feasibility study and customer analysis were completed accurately, the company should be able to get on its feet quickly.

Pros – Because US Airways has so many hubs on the East Coast, it may be able to dominate it and move westward to make the company stronger and grow faster.

Cons – Adding more hubs will cost money; US Airways will have to struggle with its finances, but to make money the company will have to spend money. The money that will be spent will be the cost of opening and operating new hubs in new areas of the country.

Possible Mergers

US Airways is not doing well by itself; therefore, a possible merger and cooperative arrangements with a financially secure company, such as Southwest or Delta, may be an option that the company can explore before taking on additional debt and possibly losing the company. “A merger occurs when two organizations of about equal size unite to form one enterprise” (D 180). After the merger occurs, the two companies that have now become one should take part in cooperative agreements, which are “…research and development partnerships, cross-distribution agreements, cross-licensing agreements, cross-manufacturing agreements, and joint-bidding consortia” (D 177).

If these two companies can come to an agreement on all the important business decisions, they will be on a good starting ground for the newly merged company to begin. The two companies will have to agree on financial decisions, flight patterns, and employee retention and termination. When the two companies are on disagreeing terms about those decisions, problems can occur.

Pros – There are many reasons that companies merge, mainly to create advantages for both sides. The main reason that US Airways should merge with another company would be to improve capacity utilization (D 181). This way the right plane is used at the right time in order to conserve cash and gain profit. Other reasons that companies merge are “…to make better use of the existing sales force, to reduce the managerial staff, to gain economies of scale, to smooth out seasonal trends in sales…”(D 181). US Airways can also take advantage of those benefits of the merger.

Cons – The companies may not agree on terms, which may cause some problems. The two companies may not be able to help each other in ways that they thought they could.

Eliminating the Hub System

Southwest has a system of transportation that does not include hubs and they are very profitable. If US Airways partakes in benchmarking Southwest and how it maintains a profitable business without hubs, then perhaps US Airways could also try to work without a hub system. “Benchmarking simply involves comparing a firm against the best firms in the industry on a wide variety of performance-related criteria” (D 250). US Airways could compare how Southwest does without the hub systems and how other companies do with the hub systems. Although markets are different, in various parts of the country, US Airways can make decisions on whether it should do business in those parts of the country. If US Airways follows the way that Southwest runs its hub-free systems in various parts of the country, US Airways can adjust to the different markets depending on where in the country it is providing its services.

If US Airways discovers that Southwest’s system works the best, US Airways could eliminate the hub system and initiate point-to-point travel. If the point-to-point system will not be in the best interest for US Airways, it should create ways to improve its hub systems and flight patterns to possibly increase profitability.

Pros – If US Airways decides to take the point-to-point option, profitability can possibly occur. Also, US Airways will have to sell its hub locations; therefore, it will receive money, which will help to relieve some debt and free up cash.

Cons – The loss of the hubs, if the point-to-point system does not work, will destroy the company. The company will be without a hub system and flights that travel point-to-point; therefore, the company will not have many options in running its business without one of those two ways of providing customers with its business and service.

The Sale of Bonds

Because the stock share value decreased so much for US Airways, a possible solution for them would be to offer bonds from its company. The economy is in a lull right now; therefore, it would be a good option for the company to bring more cash flow into to the company (Bonds and Interest Rates, ECN 101). The bonds at this time in our economy would have an increased bond rate because of higher levels of risk. Although US Airways’ credit would likely be junk status, investors seeking large returns maybe interested in bonds because investors would be making more money. The result is that it would provide some cash for US Airways.

Pros – US Airways could have more cash on hand to relieve itself from debt, and buyers of the bonds would be gaining higher interest off the bonds because the interest rates, presently, are higher for bonds than they were in the past.

Cons – US Airways will have to pay back the buyers of the bonds eventually.

Partnerships with a Freight Company

US Airways could work in partnership with a company such as UPS or FedEx. US Airways could sell its planes to one of those companies so that they can use them for cargo and freight flights. If US Airways can create a deal with a freight company to sell the planes that are not used often enough to make a profit or not being used at all, then the company will decrease some of its major assets but gain more cash, which in turn can help to decrease the amount of debt that has been incurred (Assets and Cash On Hand, ACT 161).

Pros – US Airways will decrease the size of its fleet and get rid of the planes that are not contributing to making profits by selling them to a freight company. The company will free up cash from the sales of the planes, which can be used to pay off its existing debt.

Cons – US Airways will decrease in size.

Recruit Top Management from Another Company

US Airways could recruit top management from another airline company. If US Airways was able to recruit someone from another company that has good deal making and business skills, that individual could help US Airways recover from its financial problems. If US Airways recruits a top management person from the industry, the person may know information that US Airways does not about the industry and that information could contribute to US Airways becoming profitable (Recruiting, BUS 420). US Airways could hire a top management person from a financially successful company in the industry, such as Southwest. Their knowledge from previous experience in the industry can positively impact US Airways.

Pros – If US Airways has a top management person helping to fix its big financial problem, he or she can try to turn the company around and help it become profitable.

Cons – The person US Airways chooses may not be the best person for the job. The manager may try to sabotage US Airways in some way to help the other companies gain more business and profits.

Recommended Courses of Action

With as much debt as US Airways has, it is hard to make one recommendation to solve its problems. The first thing that needs to be done is to raise capital. The fastest and easiest way to do this is to sell planes that are leased. US Airways leases 193 planes total. US Airways only owns 149 planes (16). Since express flying is efficient and profitable to US Airways, they should consider selling some of the larger and more costly planes. This will give US Airways more money to reinvest or pay back some debt.

If US Airways sells some of its leased planes, it will also be cutting its expenses. The downside to this, however, is the fact that some flights will need to be cut. With enough planning, US Airways can cut the least profitable flights and sell the planes that are used to make those flights. There is insufficient information available to say what exact flights should be cut. However, top management of US Airways should have this information at its fingertips. From the financial information presented to us, we strongly recommend cutting some of the unprofitable international flights. With employees, US Airways can ask them to relocate and keep them on the staff or make layoffs.

Since US Airways is dominant on the East Coast (due to the number of hubs), it should use this to its advantage. US Airways should have cut throat advertising starting in the East. Once it regains dominance in the eastern region, it can start to re-grow westward, at a rate that is controllable and not as costly. The number one recommendation that US Airways needs to follow, if it wants to survive, is the dismantling of their hub-and-spoke system. This system is outdated and proves too costly for longer flights. This system is no longer working because it is inefficient. With a point-to-point system, only one plane would be used for the trip. Fuel would also be saved with the point-to-point system. Along with fuel and the number of planes used, the number of employees needed would also be cut down. Customers would also welcome this new system because of convenience. Without a layover, consumers will experience quicker flights, less loss of luggage, and cheaper tickets. The hub system is sufficient for the shorter express flights, but for the longer flights, it is proving too costly. Delta just added a division, called Song, which uses the point-to-point flying. Their reason for doing this was to lower costs by relying more on their planes (See Appendix G, p.54).

One negative outcome of changing the system is time and money. It will cost money to move to the point-to-point system, but in the near future the profits would outweigh the costs. Even though US Airways would save money with the point-to-point system, it should switch over just to stay competitive. With other airlines (Southwestern and Delta) flying point-to-point, US Airways needs to keep competitive. As a consumer, I would fly with the company that flew me straight to my destination without layovers. Time is a problem because it is difficult to convert every hub, plane, and flight pattern into the point-to-point system overnight. The conversion needs to be done slowly and strategically to be most efficient and effective.

Financial Analysis

Working Capital Analysis

US Airways:

Working Capital: (Year: 2001) Current Ratio: (Year 2001)
(Dollars in millions)

Current Assets $ 1,775 Current Assets $1,775 = 0.58

Less current Liabilities -3,026 Current Liabilities $3,026

Working Capital $1,231

Working Capital: (Year 2000) Current Ratio (Year 2000)

Current Assets $ 2,592 Current Assets $2,592 = 0.88

Less current Liabilities -2918 Current Liabilities $2,918

Working Capital $ 326

Compare to Southwest:

(Dollars in millions)

Working Capital: (Year: 2001) Current Ratio: (Year: 2001)

Current Assets $2,520,219 Current Assets $2,520,219 = 1.12

Less current Liabilities -2,239,815 Current Liabilities $2,239,185

Working Capital $281,034

Working Capital: (Year: 2000) Current Ratio: (Year: 2000)

Current Assets $831,536 Current Assets $831,536 = 0.64

Less current Liabilities -1,298,403 Current Liabilities $1,298,403

Working Capital $466,867

In 2000, US Airways had more working capital and a higher current ratio then in 2001. In 2001, the current ratio was 0.58 compared to 0.88 in 2000, and its working capital in 2001 was $1,231 compared to $326 in 2000. Since current liabilities are paid out of current assets, US Airways could not cover its debts with its working capital from 2000 or 2001. The excess of current liabilities to current assets is the working capital that can be used to continue business, buy inventory, obtain credit, or expand sales (Financial Reports, ACT 161).

The current ratio is a good indicator of a company’s ability to pay its bills and repay loans (Ratio, ACT 161). Comparison of current ratios from 2001 to 2000 reveals a decrease of current assets for each $1.00 of current liabilities. US Airways’ current ratio was 0.58 in 2001 and 0.88 in 2000. An average current ratio of the airline industry is 0.9 (See Appendix H, pp.55-56). US Airways is under the average by a significant amount. Southwest followed close US Airways in 2000 with a current ratio of 0.64, but exceeded US Airways’ ratio in 2001 by 0.54. US Airways’ current position is unfavorable in the industry.

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