Coca Cola Situational Analysis

Coca Cola Situational Analysis We can all proudly say for a beverage brand like Coca-Cola that nobody is unaware of it in the entire globe as it has surely become a household name for all of us. It would be interesting for us to know about its origin prior to know its critical marketing strategies and companys belief to make it up to this stage. Coca-Cola was discovered, we would rather say invented in 1886, just out of curiosity to know what the mixture of certain ingredients does. It was John Pemberton, an Atlanta based pharmacist, who created this amazing mixture of fragrant and caramel coloured liquid. He then took that mixture to the nearest pharmacy to get it carbonated and the thing that came up is now has become a greatest known brand in this world. In the initial stage, Coca-Cola had sold just 9 glasses a day for an entire year. But, a century later it has produced nearly 10 billion gallons of syrup. After just three years of this invention, an Atlanta based businessman Asa Griggs Candler acquired rights of the business and brand in just  £1500. He then became the first official president of Coca-Cola enterprise. As a natural salesperson Asa Candler started marketing the brand in 1893. He found out various brilliant and innovative ideas of promoting the brand. He started distributing promotional coupons for complimentary taste of the beverage, and outfitted distributing pharmacists with clocks, urns, calendars and apothecary scales bearing the Coca-Cola brand. People saw Coca-Cola everywhere, and the aggressive promotion worked. That was the start it needed and successfully achieved. Further the company grown after its expansion to the other parts of US territories and of the world. During its journey from 9 glasses a day to over 9 billion servings a day around the world, Coca-Cola Company has struggled hard over time to safeguard the company and the brand. It has mainly focussed on advertising as their main strategy for expansion. Many brand tags have changed from time to time like Demand the genuine and Accept no Substitute. It was to make customers aware of brands value and keep them away from buying substitute products of Coca-Cola. Market Share Being the biggest company in the soft drink industry, Coca Cola enjoys the largest market share. This company controls about 59% of the world market. Global Market Share The market of the company is geographically vast and it is controlling it with great success. In 2002, the company grew their carbonated soft-drink business by nearly 250 million unit cases and generated record volumes. Because carbonated soft drinks are the largest growth segment within the non-alcoholic ready-to-drink beverage category measured by volume, that is why they are focusing more on this and they are continually increasing the pace because they know that accelerating this pace is crucial to their future success. Thus they are increasing their market day by day. The operation income earned by Coca Cola Company can be illustrated by the following pie chart. This strategy has worked a lot and it has helped them to become the Worlds leading Soft Drink Company. The global unit sale of the Coca Cola Company is increasing from the last ten years. The data of the global unit sale of the Coca Cola Company can be represented by following chart. So there is positive growth in the market of the Coca Cola Company. There is a worldwide volume increase by 4% with strong international growth of 5%. This is only due to the innovative marketing programmers, which has deepened the relationship of the customers and Coca Cola. The financial health and success of their bottling partners is a critical component of The Coca-Cola Companys ability to build and deliver leading brands.In 2002, the company had worked with their bottlers to turn good intentions into reality by improving the system economics. The results in 2002 reflect this steadily improving and mutually constructive relationship between the Company and their bottling partners. The main reason behind this relationship is to continue realizing shared opportunities for growth, with closer coordination of operations including customer relationships, logistics and production. Market Share by Area: Coca Cola is the world-renowned soft drink and the company is currently operating throughout the world. The worldwide total is about 17.8 billion. The operation review according to the segments is as follows. Operation Review The volume is least in the Africa and most in the North America. The data about the market share of this company area wise is given in the following table. The above table shows the geographical earning of the Coca Cola Company and from this data; we can find out that the customers of Coca Cola are increasing which is shown by the companys per capita income. Unit case equals 24 eight-ounce servings.  The column, which shows the non-alcoholic beverages consist of commercially, sold beverages, as estimated by the Company based on available industry sources. The country column is derived from The Companys unit case volume while the industry column includes non-alcoholic ready-to-drink beverages only, as estimated by the Company based on available industry sources. In Asian population, which is the satisfied customer of Coca Cola, is approximately 3.2 billion and the average consumer enjoys close to two servings of our products each month. Through an intense focus on Coca-Cola, innovation and new beverages, the company has achieved volume growth of 10 per cent in 2002. With developing economies and populations, this region has strong long-term potential, and the company is building an exciting family of beverage brands in addition to expanding the popularity of our core brands, led by Coca-Cola. In China, for example, sales of Coca-Cola increased 6 per cent. The total unit case sale of Coca Cola in Asia can be shown by the following pie chart. So the company is emphasizing more in this area and is trying to develop a strategy, which can increase the growth of the consumption of Coca Cola by the people of Asia. Among the countries of Asia, Japan has the highest percentage, which is about 29%. Among others, Pakistan, India and Bangladesh are those countries where the average consumption is increasing day by day. PRODUCTS: There are different brands of the Coca Cola Company, which are currently in use through out the world. This company not only deals in the carbonated drinks but also other drinks. While launching its product, the marketing team considers the culture of the country. Major brands of coca cola Coke Sprite Fanta Diet coke Coke classic The overall volume of this company is as follows. The commitment of the company is to devote resources to water only in markets where it expects profitable growth. This strategy has paid dividends. The company has successfully applied its approach to brands in several key markets, including Ciel in Mexico, Mori No Mizudayori in Japan, Bonaqua in Russia and Kinley in India. Backed by a strong network of bottling partners through out the United States, Dasani became the nations fastest-growing water brand. In Eurasia, the entire Turkuaz brand team worked together to launch Turkeys first purified water brand. This year, Coca-Cola Company also successfully energized a major piece of its beverage strategy-water. By the end of 2001, its bottled water volume exceeded 570 million unit cases, making it the second biggest contributor to the growth of the company after carbonated soft drinks. Three of the water brands, Dasani, Ciel and Bonaqua each achieved sales of over 100 million unit cases for the year. In 2001and 2002, the company has also made good progress in coffees and teas. Beverage Partners Worldwide, the renewed and strengthened marketing partnership with Nestlà © S.A., began operations in 2001. This partnership combines Nestlà ©s knowledge in life science, research and development with the expertise of Coca Cola Company in brand building and distribution. At the same time, the company grew Georgia coffee in Japan by 3 percent through award-winning marketing in a category that was flat for the year. Also in Japan-where The Coca-Cola Company is the leader in the total tea category, the second-largest category in the non-alcoholic ready-to-drink segment-it launched Marocha Green Tea. With sales of 46 million unit cases for the year, Marocha Green Tea is the fastest-growing product in the fastest-growing category: green tea. The popularity of Marocha is also recognized by the industry with a leading trade journal naming Marocha the most popular new food and beverage product of the year. STRATEGIC PLANNING In the year 2002, the company had a great success, as the strategy worked which resulted in making Coca Cola Company the worlds leading company. In 2001, company accomplished the crust of its strategy as Worldwide volume increased by 4 percent with strong international growth of 5 percent and clear signs that our North American business is growing solidly and predictable. Earnings per share grew by 82 percent, as we delivered on our commitment to create volume growth while aggressively Return on common equity grew from 23 percent in 2000 to 38 percent this year. Return on capital increased from 16 percent in 2000 to 27 percent in 2001. The company has generated free cash flow of $3.1 billion, up from $2.8 billion in 2000, a clear indication of its underlying financial strength. The strategy for the future of the company is very straightforward. The marketing strategy for the year 2002 is as follows, Accelerate carbonated soft-drink growth, led by Coca-Cola. Selectively broaden the family of beverage brands to drive profitable growth. Grow system profitability and capability together with our bottling partners. Serve customers with creativity and consistency to generate growth across all channels. Direct investments to highest potential areas across markets. Drive efficiency and cost-effectiveness everywhere. MAJOR COMPETITOR PEPSI INTERNATIONAL HISTORY PepsiCo is a world leader in convenient foods and beverages, with revenues of about $27 billion and over 143,000 employees. The company consists of the snack businesses of Frito-Lay North America and Frito-Lay International; the beverage businesses of Pepsi-Cola North America, Gatorade/Tropicana North America and PepsiCo Beverages International; and Quaker Foods North America, manufacturer and marketer of ready-to-eat cereals and other food products. PepsiCo brands are available in nearly 200 countries and territories. Many of PepsiCos brand names are over 100-years-old, but the corporation is relatively young. PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with The Quaker Oats Company, including Gatorade, in 2001.would entertain the listener with the latest musical selections rendered by violin or piano or both. The new name, Pepsi Cola, is derived from the two of the principle ingredients, Pepsin and Kola Nuts. It was first used on the August 28. At that time, Bradhams advertising praises his drink as Exhilarating, invigorating, aids digestion. 1990-2002 The advertisement of the Pepsi changes to, You got the right choice baby, Uh-Huh! .With the extensive usage of the stars in the ads, the popularity of Pepsi increase. In 1992 Pepsi-Cola formed a partnership with Thomas J. Lipton Co. Today Lipton is the biggest selling ready-to-drink tea brand in the United States. Outside the United States, Pepsi-Cola Companys soft drink operations include the business of Seven-Up International. Pepsi-Cola beverages are available in more than 190 countries and territories. In Asia, they selected Lahore to make their regional office. This was done in 1970. This regional office is monitoring all the operations carried out in South West Asia. As in Pakistan, they only entered beverage industry. They have eleven bottlers covering whole Pakistan. The plant operating here is Riaz Bottlers (Pvt) LTD. This plant was established at Lahore in 1974. The total capacity of the plant is 30,000 cases per day. They have four filling lines in the plant operating on the three shift bases. Each shift is of eight hours. They have permanent work force of 750 people and them employee approximately 1000 people more on temporary basis during summer season. Pepsis Products Pepsi Teem Mirinda Pepsi Max Pepsi Lemon Pepsi Blue Mountain Dew 7up PROMISE OF COKE The basic proposition of our business is simple, solid and timeless. When we bring refreshment, value, joy and fun to our stakeholders, then we successfully nurture and protect our brands, particularly Coca-Cola. That is the key to fulfilling our ultimate obligation to provide consistently attractive returns to the owners of our business. TARGET MARKET Cokes commercials basically based on young generations, So, the young generation is the target market of Coke because they want to represent Coke with the youth and energy but they also consider about the old people they take then as a co-target market. MAJOR SEGMENTS Major segments are basically those people who take this drink daily and those areas where the demands is higher then the other areas. There are so many people who take this drink daily and those people who take weekly and those who take less often are always there as well. So, their basic segments are those people who take this drink regularly. FACTORS AFFECTING SALES There are so many factors, which affects the sale of coke. Here we are discussing three major factors which effects coke. Per capita income Competitors Weather Per Capita Income First we will discuss about Per capita income. This is major factor that affects the sale of this soft drink. Because which every passing year budgets are becoming very strict and tight in order to purchase things. So the disposable incomes of the people are coming down. They spend heavily on rents, utilities, and education and basic necessities and after that when they get extra money they think about this soft drink .So the decreasing per capita income effects badly in selling and production of this soft drink. And to get through with this difficulty there is need to increase the level of per capita income of Pakistan because it is much lesser than the rest of the countries. Competitors Cokes major competitor is PEPSI and there is no hesitation to say this because everyone knows that and all the other cold drinks and water, coffee, tea is the competitors. Weather Weather is the third major factor in effecting the Cokes selling. This is underdeveloped market so the cokes consumption in summers is 60% and in winters is 40%. MAJOR CUSTOMERS NEED First of all the majority dont care that what they are going to have. In other words, they dont care before drinking that whether it is Pepsi or coke. They dont actually differentiate between these two brands in order to their tastes. Consumers basically drink what they get. They believe on WHAT COLD THEY SOLD Consumers availability in brands is basically works like: Push availability Pull consumers demand. For this reason, Coca-Cola has provided their coolers and freezers in the market. They have maximum number of coolers and freezers in the market. They provide this infrastructure free of cost just to provide child coke to their customer, which they want to be purchase. Their salesman and mechanics regularly visit all the shops where coke has its infrastructure to check that either it is in proper condition or not, if not then they immediately change or repair it. STRATEGIES OF QUALITY After Micro and macro analysis Brand coke is primarily role Enhance competition moments When people watch cricket Through commercialization Fun time Though these strategies, there could be better understanding and better connection with the public. These are the key consumption. THREATS FROM COMPETITORS Threats are well planned. Price is the major threat. When price goes certain beyond the exact price whether come down or go higher its effects the consumption of soft drink. Because when the price goes higher people go for the substitute of coke i.e. Pepsi. And when price goes down they think that there is must be something wrong in it. In short it all depends on customers perception. TARGETS THAT WOULD LIKE TO ATTAIN Every organization runs on the bases of profit maximization so Coke is also looking for a high profit margin. There are three major ways of making money Overnight profit Windfall profit Ethical and un-ethical ways Over Night Profits They could be overnight profit that is for the number 1 brand for the year. This could be got my increasing sales volume Windfall Profit There can be windfall profit. They are the extras profit. When the consumption is on boom. So, there is different kind of profits. Ethical and Unethical Ways Profit can also get through ethical and unethical ways. They believe on this quote Everything is fare in love and war. Some profits stays for some time like overnight profits and some just come and go like wind fall profits. And they can also get profit through different approaches. EXPANDING TARGET MARKET In last 2 years Coke has come back in aggressive manner. Consumer has choice Attractive brand name Brand differentiating Consumer Has Got Choice Now the consumer has got choice. Because now they know the name of another big brand, though coke is the 2nd best name but it can get a better position after some time Attractive Brand Name Now the consumers know the Name of Coke, because Coke is the name, which is the most popular after the word ok. So people can better differentiate brands with each other. Brand Differentiation Now different companies have got different brand names. So, people can distinguish between brands. Two major brands coke and Pepsi also have brand names. Coca Colas Brand Coca cola is US brand. Because they believe in the togetherness, being people together and friends are being together. Coca Cola strongly believes that Pakistani temperament is US not ME Pepsis Brand Pepsis brand is basically is basically ME branded. They use the temperament of ME. In contrast to Coke they believe on individual struggle. THREATS AND OPPORTUNITIES FOR PRICE Opportunities If Coke is considered a luxury product. Then there is the tax rate system 15% sales tax 20% excise duty 27% goes to government 03% In making Budget After paying all these taxes coke has to pay electricity charges. We have to spend on distributions. After paying all these expenses Cokes margin squeezed and consumers have to pay for increasing tariffs. These are the opportunities through which we can increase the price and can get profits. Threats There are much more threats in increasing prices. Because same problem of substitute. If Coke increase the price lets say 1 rupee. Then people definitely wont go for coke. They have the best substitute of Coke that is Pepsi. So these are the threats in increasing prices. Coke will lose the margin of its profit and can face loss. STRATEGIES OF GETTING GOALS I.E. HIGH PROFITS To increase the price is the least thing, which Coke can adopt. There are so many ways through which Coke can increase the profits. Some major ways are as follows. Volume can be increased Interest level of consumers To take part in energetic festivals How to increase the volume of consumers? Coke can increase the volume by expanding the industry of coke. Through advertisements, offering different interesting things to attract people towards this product. How to increase the interest level of consumers? Coke is increasing the interest level of consumers by offering different flavors. For example Coke is increasing the number of flavors in Fanta, this is one of the product of coke. Through offering different flavors Coke can increase the Level of consumers and through this profits can be gained. How to take part in energetic festivals? Coke is already taking part in the festival like Basant since last 3 years. Coke offers different attractive things in their festival and through this Coke gained high profit and consumption of coke increased on these occasions. And this year in this year 2002 people were anxiously waiting that what interesting thing coke is going to offer. MARKETING STRATEGY Our local marketing strategy enables Coke to listen to all the voices around the world asking for beverages that span the entire spectrum of tastes and occasions. What people want in a beverage is a reflection of who they are, where they live, how they work and play, and how they relax and recharge. Whether youre a student in the United States enjoying a refreshing Coca-Cola, a woman in Italy taking a tea break, a child in Peru asking for a juice drink, or a couple in Korea buying bottled water after a run together, were there for you. We are determined not only to make great drinks, but also to contribute to communities around the world through our commitments to education, health, wellness, and diversity. Coke strives to be a good neighbor, consistently shaping our business decisions to improve the quality of life in the communities in which we do business. Its a special thing to have billions of friends around the world, and we never forget it. MARKET POSITIONING Product Range The total range of Coca Cola company in Pakistan includes: Coke. Sprite. Fanta. Diet Coke. And company offers their products in different bottle sizes these includes: SSRB (standers size returnable bottle) LRB (litter returnable bottle) NRB (no return bottle) or disposable bottle PET 1.5 (1.5 litter plastic bottle) CANS (tin pack 330 ml) Packing Coca cola products are available in different packing 24 regular bottle shell 6 bottle pack for 1.5 pets 12 bottles in a pack for disposable bottle 24 cans in one pack. PRICE STRATEGY Trade Promotion Coca cola company gives incentives to middle men or retailers in way a that they offer them free samples and free empty bottles, by this these retailers and middle man push their product in the market. And thats why coca cola seen more in the market. And they have a good sale in the market because according to the expert which product seen more in the market that sells more. Seen as sold They do agreements with a shop keepers and stores to exclusive sale in that stores. These stores are called as KEY accounts in their local language. And coke also invest heavy budget on these stores and offers them free samples and free bottles and some time cash incentives. Different Price In Different Seasons Some times Coca Cola Company change their product prices according to the season. Summer is supposed to be a good season for beverage industry in Pakistan. So in winter they reduce their prices to maintain their sales and profit. But normally they reduce the prices of their pet bottles or 1 litter glass bottle. PROMOTION STRATEGIES Getting shelves They gets or purchase shelves in big departmental stores and display their products in that shelves in that style which show their product more clear and more attractive for the consumers. Eye Catching Position Salesman of the coca cola company positions their freezers and their products in eye-catching positions. Normally they keep their freezers near the entrance of the stores. Sale Promotion Company also do sponsorships with different college and schools cafes and sponsors their sports events and other extra curriculum activities for getting market share. UTC Scheme UTC mean under the crown scheme, coca cola often do this type of scheme and they offer very handy prizes in it. Like once they offer bicycles, caps, tv sets, cash prizes etc. This scheme is very much popular among children. DISTRIBUTION CHANNELS Coca Cola Company makes two types of selling Direct selling Indirect selling Direct Selling In direct selling they supply their products in shops by using their own transports. They have almost 450 vehicles to supply their bottles. In this type of selling company have more profit margin. Indirect Selling They have their whole sellers and agencies to cover all area. Because it is very difficult for them to cover all area of Pakistan by their own so they have so many whole sellers and agencies to assure their customers for availability of coca cola products. FACILITATING THE PRODUCT BY INFRASTRUCTURE For providing their product in good manner company has provided infrastructure these includes: Vizi cooler Freezers Display racks Free empty bottles and shells for bottles ADVERTISEMENT Coca cola company use different mediums Print media Pos material Tv commercial Billboards and holdings Print Media They often use print media for advertisement. They have a separate department for print media. POS Material Pos material mean point of sale material this includes: posters and stickers display in the stores and in different areas. TV Commercials As everybody know that TV is a most common entertaining medium so TV commercials is one of the most attractive way of doing advertisement. So Coca Cola Company does regular TV commercials on different channels. Billboards And Holdings Coca cola is very much conscious about their billboards and holdings. They have so many sites in different locations for their billboards. EXPECTATIONS FOR THE COMING YEAR Every thing starts from the attitude of consumers behavior. And the basic key to attract the consumers is to throw the money away. And positive feeling felling with the brand, which they used to have Coke wants to advertise their products heavily in the coming year. And it will take the 10% of their profits. And when we take it as a global level it is $ I billion. Coming year is the challenging year for the industry of Coke. They have to take lots of decisions that how to increase the production and where they have to spend money. For gaining success in coming year they have to have some important things like: Loyal consumers are important for companys success. Workers should be the brand centric not the promotion centric. They should know how much to for the brand activities. They should also know that how much to do with the promotion activities for brand. HOW COKE DETERMINE THE YEARLY BUDGET Coke determines its yearly budget by the Sales volume Profitability Target volume Sales Volume Coke determines its yearly budget through the sales volume. They first concentrate on the thing is what is the condition of their sales? if the condition is good of their sales then they definitely increase their production and sales volume. Otherwise they concentrate on their old strategies. Profitability: The second thing through which they determines budget is the profit .if they r getting profits with the high margin, then they definitely want to increase their profits in the next coming year. Every organization runs on the basis of getting high profits. No organization wants to face Loss in their business. To get profit is the first priority of the Coke. Target Volume: To run the business every industry has some targets, which they want to achieve in a specific time period. If industry achieves those goals in that period then for the coming year it increases the volume of the target. So Coke Follow the same thing it has also some goals and targets to achieve in the given time period. When they succeed to achieve that target then they increase their target volume in the next year.

The Yucca Mountain Project :: Nuclear Waste Disposal Nevada Essays

The Yucca Mountain Project Kai Erikson argues that radiation and other forms of radioactive waste are a new species of trouble (Erikson, 1994). Nuclear waste disposal is a pressing issue of extreme importance. Nuclear waste is material that either contains a radioactive substance or has been contaminated by radioactive elements and is no longer useful. With all of the dangers surrounding nuclear waste and a half-life of one hundred thousand years this issue must be solved with complete certainty. Any mistakes or miscalculations can destroy the environment. Congress established a national policy in 1982. To solve the problem of nuclear waste disposal, this federal law is called the Nuclear Waste Policy Act. The United States Department of Energy is responsible for finding a site, building a facility, and operating the repository. They studied nine locations for ten years and then narrowed it down to three. The three sites were Hanford, Washington; Deaf Smith County, Texas; and Yucca Mountain, Nevada. In 1987, Wes Barnes, the director of the Yucca Mountain Project (an offshoot of the Department of Energy) decided the desolate mountain ridge in south-western Nevada is to become the final resting place (Monastersky, 1997). More than one hundred of America's commercial nuclear reactors are planned to deposit the worst of their nuclear waste deep into the mountain. It is to be stored permanently, but the project says it will be guaranteed for ten thousand years. The project proposes that the containers be surrounded by impermeable layers of volcanic rock guaranteeing safety (Wolfe, 1997). The Department of Energy (DOE) reports that there is 20,000 tons of used-up nuclear fuel and that number should double by the year 2000 (kieft, 1997). The fuel rods are now placed in cooling ponds near the plants. Most pools are full, or nearly full. Aware that time is running out, Yucca Mountain was the only site left. The mountain sits inside the Nevada Test Site about 80 miles of Las Vegas. A huge earth boring machine is digging a tunnel 25 feet wide into the mountain. Two miles of tunnel have already been excavated and three more miles remain till completion. The mountain is planned to receive waste by the year 2010 (www.cyberwest.com). The Nevada state government is against putting the depository in the Mountain. Many people disagree with the project a say the the site can safely hold the waste for only 100 years (www.

Crisis and Risk Management for Business Continuity: The Case of Northern Rock

a) Research problem The global economic crisis has topped the many discussions in the business world today. The current credit crunch is not only being felt in the United States where the actual problem started but in the United Kingdom as well, with more companies feeling the pinch by the day. It is a pity that many businesses have been declared bankrupt following the shock experienced from the crisis. It is however notable that the blame is partly on their side. The reason for this is that many businesses today have not bothered to come up with crisis and risk management plans to shield their businesses from such shocks. They operate based on the current situations and pay little attention to disasters that are likely to affect the business and how these effects can be minimized. Even where attempts have been made, crisis and risk management plans do not fully address all the potential risks that are likely to face the company. Another issue is that whenever the said crises occur, these plans are not properly set out so that they often end up doing little to save the situation. These characteristics perfectly fit the circumstances surrounding the liquidity crisis at Northern Rock between 2007 and 2008. Northern Rock is a British bank that is now under public ownership following a government bailout in 2008. The bank which started off as a building society became a bank in 1997 when its shares were offered in the London Stock Exchange. As of September 2008, the bank which is ranked as one of the top mortgage lenders in the UK employed 4500 employees. Until 2007, Northern Rock was doing well and was considered one of the fastest growing banks in the UK; at least based on its asset base. The ongoing economic crisis however sent the bank giant reeling as banks tightened their lending rates. As if this was not enough, funding from covered bonds and the securitisation model which made up 75 percent of Northern Rock's funds started deteriorating and eventually these markets closed simultaneously following the economic crisis. What followed was crisis after crisis as the bank threatened to go down. On September 2007, the Northern Rock approached the Bank of England to request for a liquidity support facility to contain some of the problems it was facing following the credit crunch. This caused a bank run as customers rushed to withdraw their savings. The bank was overwhelmed and intervention by the state was necessary to save the bank giant. The UK financial Investment Limited now manages the bank at â€Å"arms length† for the government which was taken into government ownership in February 2008. Northern Rock's inability to deal with the crisis has been blamed on poor risk and crisis management. b) Justification of the study The near collapse of Northern Rock is a wake up call to every business that intends to survive past any kind of crisis.Business Management Study Guide The misfortunes encountered by Northern Rock and the consequences of these should be a good lesson for other companies to learn from through the implementation of risk and crisis management. The challenge however still remains and unless the issue is addressed by giving managers a guide, another company could still go the Northern Rock way. This study will address this challenge effectively by revealing all that a manager needs to know about crisis and risk management for business continuity. Three issues are at hand with each of them carrying substantial weight. Firstly, only a few companies undertake crisis and risk management. Secondly, the few of those who have taken the initiative have not given it adequate attention. Thirdly, when the actual crisis occurs, implementation of the set plan is not normally adhered to so that the essence of the plan is in fact dissolved. Other companies just like Northern Rock are constantly at risk of disasters and hence the knowledge about how to deal with them is quite invaluable. The research which mainly aims at uncovering the dangers of not having a crisis management plan and how having one could save the company's future and form a useful guide to business managers. c) Objectives of the study. In order to ensure that this research addressed the above problems while maintaining the scope of the study, the following objectives were used to guide the research. †¢ To establish whether Northern Rock had any crisis and risk management plans in place. †¢ To identify the importance of crisis and risk management plans. †¢ To show how Northern Rock could have survived the crisis using crisis and risk management planning. Literature Review a) The Case of Northern Rock In the second half of the 2007, Northern Rock became the first bank in the UK to experience a bank run since 1866 (Shin, 2008: 2). World lenders' balance sheets were already shrinking so that banks had reduced their lending and interest rates were going up following the credit crunch (Llewellyn, 2008: 35-36). The credit crunch originated from the U. S sub-prime mortgages that led to a shortage in money available to banks for lending. The bank's over-reliance on securitisation and covered bonds is considered the major cause of the of Northern Rock's downfall (Tevin, 2008: 13). Securitisation is used to refer to the kind of funding where mortgages are used as security to obtain loans from other banks (Shin, 2008: 6). Being a prominent mortgage lender, the bank had quite a substantial amount of security. The mortgages were also used to secure covered bonds which were a constant source of finance for the bank. These two types of markets made up 75 percent of the bank's source of finance and therefore when they collapsed at the same time, the bank's finances were threatened (Victoria, 2006: 2). On the other hand, banks were shrinking their lending rates and therefore the bank could not afford to pay up its dues and sustain its mortgage lending. An innovation unique to the bank is also associated with the downfall. Northern used model that they referred to as â€Å"originate to distribute† in which they could take loans and then sell them to other investors before they matured such that they obtained additional funds and the liability of the loans was transferred to the investors (Tevin, 2008: 15). As a result of the credit crisis, the bank could not sustain its financial needs and consequently could not meet market demand. North Rock's method of funding is described by Shin (2008: 8) as an unusual business model. While banks are expected to have customer deposits as their major liabilities, Northern Rock operated on securitised loans which they offered as mortgages to their customers. Long-term loans which they repaid using the payments paid by mortgage beneficiaries were used to pay -up the loans (Llewellyn, 2008: 37-38). The mortgages were also used as security for additional loans. Deposits only accounted for 23 percent of the finances held by the bank (Tevin, 2008: 14). Given that banks heavily rely on deposits as their major assets and source of financing, the amount available was limited when loans could not provide for the required amounts. Attempts to sell off the bank were unsuccessful because no investor wanted to risk taking up an endangered bank (Adams, 2008: 1). The bank obtained the government bailout from the Bank of England in form of emergency funding (Adams, 2008: 1; Laughton, 2008: 1). This was done in the knowledge that collapse of Northern Rock could cause a major shake-up in the banking industry (Laughton, 2007: 1). The news on Northern Rock's bailout caused a bank run and depositors rushed to withdraw their money. At the same time, the share prices fell by 31 percent (Lastra, 168). b) Crisis and Risk Management. Crisis and risk management is a commonly ignored function of the management but which can play a significant role in determining the destiny of a company. Reliable studies reveal that most organisations do not take crisis and risk management seriously such that they do not put aside plans meant to counter unexpected crises (Robert and Lajtha, 2002: 184). According to McConnell and Drennan (2006: 62), the reason for this is that the probability of occurrence of crises is low within most business environments such that managers find no reason to use the company's resources to invest in countering risks that may never happen anyway. This notion is however wrong because no organisation is immune to crises and risks in the course of its operations. Yemen (2001: 65) notes that crises and disasters carry no warning and consequently always catch businesses unaware. Before they can react to the crisis by getting effective solutions, the damage is already done and chances of survival are highly minimized (McConnel and Dreannan, 2006: 60). For this reason, it is inevitable for every company to consider crisis and risk management in their strategic plan. Salter (1997: 60) defines crisis and risk management as the act of coming up with policies and procedures to be used to identify, analyse, treat and monitor risk. It is a guide on how to deal with crises and risks should they occur and how to recover from their effects (Pingeone, 2006: 37). The procedure of risk management involves the identification of areas where the company predicts that things may go wrong (Lee et al, 2007: 335). This could fall in any department of the organization. While some may be general, some risks are more likely to occur in one company than in another depending on their operations (Robert and Lajtha, 2002: 184) Crises and risks are always occurring in the business management and it is hard to predict what will happen the following day. While risks are used to represent threats or possibilities of an occurrence of misfortunes, the term crisis is used when the actual misfortune actually occurs (Lagadec 1997: 28; Shrivatsava, 1988: 284). Physical disasters such as fires, terrorist attacks, phishing attacks, floods among other disasters are among the major kinds of crises. These should however not form the sole focus of the company because they the business is bound to face many external and economic forces that could influence its performance. For example, relying on one source for supply of materials could lead to a crisis if this supplier can no longer make the supplies to the company (Pingeone, 2006: 100). It is therefore essential that a company makes such a consideration when determining the future of the business. This is actually what happened to Northern Rock who had relied on securitisation and long-term loans as their source of finance so that when banks could not lend as much as they demanded, they were left desperate with no other major source and hence had to turn to the government for help. ) Crisis and Risk Management Plan Crisis and risk management plans help to lay down the steps to be taken in the event of a crisis and in keeping the various risks that a company is exposed to at bay. In coming up with a crisis and risk management plan, the company ought to identify any possible risks that it is likely to suffer in the course of its operations (Alderman, 2008: 149; McMillan, 2006: 89). These risks are then assessed so as to come up with plausible ways of addressing them whenever they arise. This is known as making plans for post crisis actions (Alexander, 169-171). Crisis and risk management plans ensure that every employee participates in the company's safety precautions while ensuring that risks and crises are handled in the right manner. Designing the Crisis and Risk Management Plan It is notable that most companies have not yet put a risk and crisis management plan in place (Carmeli and Schaubroeck 2008: 182). This mostly stems from the fact that managers try to be optimistic; hoping that no disaster will occur. In other circumstances, they simply wish to eliminate the â€Å"unnecessary† expense on something that might never happen. There are however those who are simply ignorant and do not know how to go about implementing a plan. Further still, once the crisis and risk management plan is put in place, its implementation is often a challenge when the actual risk occurs. This is brought about by the panic that often characterises a crisis. Pingeone (2006: 99) notes that the management plan should be followed to the letter unless the situation calls for modification. He adds that the plan should act as a guide and it is for this reason that it is prepared. If properly followed while trying to adjust certain elements to fit the situation, it should be easy to solve the crisis than when there is no plan at all. The challenge of coming up with an effective plan is also cited as a problem given that response and recovery is largely influenced by the kind of crisis and risk management plan that the company has in place. To curb this problem, Smith (2001: 64-65), Fink (1986: 36-39), Gottschalk (2002:96) and Mitroff (2001: 29-35) give the following key elements that are desired for a risk and crisis management plan to be effective. Provision for continuous identification, evaluation and management of risk should be put in place. This is because the company is bound to face new challenges everyday and in the wake of globalisation, new economic and social risks and challenges keep cropping up (Mitroff, 2001: 33). ? Constant review of the effectiveness of the plan is necessary to ensure that all the desired aspects are addressed. Analysing the system of internal control which is part of the risk and crisis control annually can help the company to identify whether the plan is working as desired. For all crisis and risk management plans, the systems developed should rhyme with the organisational culture so that collisions do not occur. ? The crisis and risk management plan must be flexible and one that can effectively respond to evolving risks. A good crisis and risk management plan offers flexibility such that change in policy and new company strategy may be implemented in order to deal with the crisis at hand (Smi th, 2001: 65). ? The plan should set proper reporting procedures to be followed in the event of occurrence of an incident. On top of that, a procedure for reporting failures in the plan should be well laid out. ? The crisis and risk management plan should provide for training to all members of staff so that they are aware of the roles to take in the event of a disaster, the reporting procedures and any other relevant information contained in the plan. Research Design and Method Introduction This portion of the study establishes the ability of the company to satisfy the set objectives. It shows the design of procedures used in the study and outlines the major limitations involved during the study. Research scope The previously set objectives aim at establishing whether there was a crisis and risk management plan at Northern Rock and what could have been done better to further contain the crisis. The study is therefore limited to Northern Rock and to crisis and risk management as a management strategy. The liquidity crisis at Northern Rock forms the basis of the study. Data and data collection The data collection process was applied in such a way that its efficiency could be gauged by the results obtained from the study. In doing so, primary and secondary data were employed in the entire study process. a) Primary data This formed an important part of the research as it helped in obtaining factual information from direct respondents. The use of written questionnaires and oral interviews to obtain information from the respondents was used. The data obtained was assimilated during the analysis of the study. Respondents were notified prior to their interviews so as to ensure that the information was more accurate. b) Secondary data The use of secondary data was invaluable in the study. This is in recognition that any research must incorporate other people's work as a precedent to the study. The use of journals, books, articles and other scholarly works were highly used to obtain the theory surrounding the study. The literature review practically involved the reviewing other people's work so that secondary data was of great importance. Sample selection, technique, and size The study sample incorporated a few present and former company officials as well as economic analysts who studied the Northern Rock liquidity crisis. Strategic sampling system was used to identify the officials and individuals to be interviewed during the period of study. A total of twenty five respondents were sent questionnaires and eight agreed to perform an oral interview. Eighteen questionnaires were returned and observations and responses were assimilated for the purpose of the study. Ethics of the research methodology At the beginning of the study, the research set an objective of reducing respondents' compromise as far as possible. In order to satisfy this, respondents were not required to mention specific names within the company. For privacy purposes, respondents' names were not required in the questionnaires. This served to raise the confidentiality levels as a factor in conducting scholarly research. Limitations of the study Even though this methodology played a vital role in satisfying the set objectives, various limitations faced the researcher. Without these limitations, more information would have been obtained to further improve the study. Among the major constraints was the high level of expenses. These included questionnaire printing and posting costs as well as travelling costs to meet the respondents. The problem of incomplete questionnaires was prevalent mostly due to the highly complex human nature so that some of the staff members could have been worried about giving information they considered confidential due to fears of victimization. This could have contributed to errors in the information obtained. The time element was also limiting which did not enable maximum amount of data as would have been desired. Analysis and Findings Most of the respondents in the study ascertained that Northern Rock was lucky and were it not for the government bailout; the bank would have landed into bankruptcy. Unavailability of credit which was actually the bank's major source of finance was an unfathomable blow to the bank whose reputation had made it the fastest growing mortgage lender in the UK. The situation was made worse by the bank run which was in essence caused by the media portrayal of the crisis (Victoria, 2008: 117-119). Nelkin (1998: 347-348) notes that the media could highly influence how a crisis affects the company due to messages and speculations made. As soon as the bank sought help from the Bank of England, word went round through the media and the public went into panic following the collapse of the bank. The result was huge amounts of withdrawals which highly overwhelmed the bank's finances (Shin, 2008: 6). Northern Rock therefore sunk into losses and could barely afford to sustain the payment of loans. Analysts involved in the study suggested that the bank run could have been avoided had the bank's management taken Northern Rock's crisis management plan In an effort to keep focus on the research scope, only the section of the crisis and risk management plan associated with the liquidity crisis was analysed. For each point noted, a note on how the situation could have been handled better is provided. Northern Rock management had given a thought to the possibility of reduction of market at home and shortage of funds from local banks. To help reduce this possibility, the bank had diversified its operations to other countries like Canada, United States, Europe, Australia and Far East (Tevin, 2008: 21-22). This was considered to be a substantial backup for any eventualities in the domestic market. The company had also secured its liquidity through insurance to cover for any shortages. In their plan however, they had not anticipated a crisis that would cause the collapse of their major sources of funds at the same time. It would have been unimaginable that the source of finance that seemed so reliable would collapse leaving the bank destitute. Even Dr Ridley; the bank's chairman had noted that the bank had not though at one time that its sources of finance could collapse at the same time (Llewellyn, 2008: 49). This just goes on to show that crises are not easily predictable and that routine can be deceiving. The fact that Northern Rock's long-term sources of finances were always available to them due to the high amount of mortgage securities almost ruled out the possibility of running out of finances. The Northern Rock crisis management can be said to have been inadequate. The reasoning behind this is that should it have been adequate, the liquidity crisis may have been avoided or subsidised. As noted by Regester et al (2005: 196-198), a good plan must entail the guidelines to be followed in the event of a crisis. Further, Northern Rock's management failed to predict; which is one of the objectives of the bank's risk management plan. Varma (2008: 1) notes that banks should be able to use cash flow projections to anticipate future fluctuations in demand for their customers. Using these projections, they can easily determine whether a liquidity problem is likely to arise due to increased demand or whether inventory will pile up as a result of reduced demand. It is also possible to gauge from the rise in interest rates offered by banks and other security traders. Such information could have proved vital to the management and this could have been used to limit mortgage lending and hence reduce the impact of the crisis. As noted by Tevin (2008: 17), the bank did not even have adequate liquidity insurance, a lesson which the England Governor noted could have been learnt from Countrywide, a US bank that suffered the same crisis that Northern Rock was facing. Insurance cover serves in ensuring that the company's assets are protected. This ensures that whenever assets that the company has insured against are lost in the event of a crisis, compensation can protect it from committing more resources in replacing the asset (Alderman, 2008: 204). With such knowledge the bank could have obtained enough liquidity insurance as security for the future. They could also have provided for plans to cope with a credit crisis should they get into the same position with Countrywide. This way, it could have been ready and encountered the crisis more boldly without having to seek government bailout. Northern Rock over-relied on one source of finance so that when it collapsed the effect was quite staggering. The theory of crisis management warns against relying on one source of supply because its failure could have detrimental effects on the company (Coombs, 1999: 114-115). Northern Rock had been relying heavily on loans gained from mortgage securities to finance their clients' mortgage needs and when they could not afford to meet the demand following the reduced liquidity levels, they had nowhere to turn to (Congdon, 2009: 11). Banks which were willing to lend proved too expensive for the bank to afford and still continue to operate comfortably. The whole problem arose because once these sources of finance collapsed; there was no other source of finance leading to the liquidity crisis. It is a major observation that companies rarely think about the possibility of a time when a certain source of supply will not be available to them because as long as they are concerned they have always relied on the source (Wiley, 2006: 85). Northern Rock should have diversified more as a way to maintain the flow of funds. For example, they could have used more deposits instead of relying on loans only. Tevin (2008: 14) notes that only 23 percent of their liquidity was in the form of deposits which Victoria (2008: 119) notes to be the major sources of bank liabilities. By focusing on loans, they lost their major source of money supply when the credit crunch set in. The management did not act swiftly to respond to rumours about liquidity shortages. According to Tevin (2008: 24) the bank had received warning signs about a possible shortage in credit as a result of the ongoing economic crisis. The Financial Stability Report that the Bank of England released in April 2008 suggested that wholesale funding which was on the rise in the market could pose unforeseeable danger to liquidity (Llewellyn, 2008: 51). Analysts had also predicted the same. Instead of analysing the possible risk and taking measures, Northern Rock continued with the expansionary lending policy (Tevin, 2008: 24). Mortgages continued to be issued yet there was a possibility of being unable to sustain the demand following the credit shortage. If the management had acted wisely, it could have limited the mortgage lending so as to save the finances available until a favourable time came. Its ability to detect the possibility of such an occurrence was limited hence the reason why the company was caught unawares. The crisis and risk management plan was not also well utilized when the bank realized its plight. Referring to the liquidity crisis, Northern Rock CEO maintained that the prediction made by the bank about its source of finances had been wrong in assuming that the mortgage assets would maintain the bank's liquidity. The company has made an attempt to recover from the crisis using the government assistance issued and change in strategy. This is part of a crisis management plan which requires that a company take the necessary measures to correct a crisis. As noted by Smith (2000, 65), Northern Rock had to change strategy so as to better manage the crisis. Their â€Å"Together† loans for example were withdrawn. These loans were an incentive to first time buyers and involved combining a secured and unsecured loan to obtain finance (Tevin, 2008: 26). The bank however could not manage to offer these loans given their financial constraints and had to withdraw them. The bank is still recovering and depositors have started gaining trust in the bank again more so because the government ownership provides a substantial level of financial security. Conclusions and Recommendations After an analysis of the case of Northern Rock and the importance of crisis and risk management, it would be true to say that the company's crisis and risk management plan was not properly implemented during the liquidity crisis. The plan was also inadequate to address the seriousness of the problem given that the company had never anticipated a risk of such magnitude. It is also true that every company needs to have a crisis and risk management plan to help in coping with disasters and incidents if they occur. It can therefore be concluded that having a crisis and risk management plan cannot be useful if it is not well implemented. This is as in the case of Northern Rock which did not react to the warning signs of the impending danger of a liquidity crisis through finding alternative sources of funds or through reducing its lending capacity. Northern Rock suffered a great deal from the liquidity crisis due to poor implementation of crisis and risk management. The plan was also inadequate and insurance cover taken could not compensate for the loss incurred. What matters however is not what has been lost in the past; but what can be saved in future. As Lagadec 1997: 28; Shrivatsava (1988: 284) suggest, a crisis should act as a learning opportunity for a company to make changes and improvements. The bank needs to focus on building more solid and workable plans to contain such crises as they could happen again in the future. The plan should be made by incorporating all the various aspects of a good crisis and risk plan indicated in this study. This means that the plan to be implemented should focus on constant examination of possible risks and designing of proper measures to counter them. There should also be plans set to address crises in the event that they arise as well as plans to recover after a crisis. This does not mean that the bank should exhaust all its resources on liquidity problems alone. There are other crises and risks which could also face the company and there is need to incorporate them in their crisis and risk management plan as well. The Northern Rock saga is a vital lesson that every growing company must learn from. While risks and crises could be few and far between, the need to account for them in the company strategy is invaluable. This is because there is no way of predicting the future. This should avoid a situation in which the company has to close down because they do not have any finances to cater for the losses incurred during the crisis. Every company should maintain a crisis and risk management plan that helps to shield it from any eventualities that may occur in the course of its operations. There are several lessons that have been learnt from the Northern Rock case study and which other companies can benefit from through the following recommendations. Firstly, disaster may strike at any time hence the need to come up with a plan to deal with risks and crises. It is also notable that some disasters can be predicted so that precautionary measures taken to reduce the shock on the company. To enhance this, constant review of the risks that the company is susceptible to should be done. Secondly, reliance on a single supply could pose danger to the company hence the need to diversify operations or plan for alternatives in case the current sources fail. Finally, having no plan could lead to desperate actions on the side of the company. If the company is not lucky, it could end up closing down. In the case of Northern Rock, there were attempts to sell it and then the government bailout. The bailout means that the company is now under government control and no longer in private hands which could highly impact on the company decision processes and operations.

A Christian Worldview On The World Through The Lens Of The...

A Christian worldview would encompass the framework that we must view the world through the lens of the Bible. Human Nature: I have not given much thought as to identifying my Christian worldview on paper, and rarely have I given it much thought. To be a born again is to believe the Gospel of Jesus Christ one must take a stand for the fundamental principles of the Gospel. Those principles include belief in God as the creator of the universe and all that are on the earth and Jesus Christ as the Son of God who came to save the world from sin and redeem us back to God. The absolute truth that Jesus Christ was born of a virgin, lived, died on the cross for all mankind for the sins both seen and unseen, and rose from the grave on the third day, who has now has ascended to heaven. He will return to take us back to the place that he has prepared for the bride to come and live with him in eternity. God the Father is the Absolute, Sovereign, eternal God who has no beginning and no end, who m oves in and out of time to have interaction at his will with the children of men. The scripture is viewed as the infallible Word of God and they were written by men of old who were inspired by God. Therefore, the Christian worldview that I ascribe to are the ones that I have previously noted. Now there are those who would question or disagree with my next principle, however, I feel that a Christian should possess this nature as well. The Bible tells us in Acts 2: how the called were in the upperShow MoreRelatedOur Outlook On Life Is An Ultimate Of Beliefs, Teachings, And Morals849 Words   |  4 Pagescomposition of beliefs, teachings, and morals. Even greater, how one views the world. As a follower of Christ, a woman after God s own heart, a Christian, my world view is defined and greatly impacted my the Bible. 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