06 Feb 2010

Sample Essay: Oil Industry Mergers

Introduction

Borenstein and Moritsugu (2004) indicate that the Exxon and Mobil companies merged at the end of November 30, 1999 (ExxonMobil, 1999) when they were the two leading oil companies in the US. Their merger was motivated by a need to cut costs through economies of scale, in the face of rising operation costs. I must be added that the two companies did originate fro the same company the Standard Oil Company, which was ordered in 1911 by the Supreme Court of the US to be split into 34 companies. Out of these splinter companies Exxon and later on, Mobil emerged. This historical piece however did not have anything to do with their eventual regrouping.

In all, there were some 2,600 mergers of smaller firms between 1990 and that year. It emerges here that the main drive for mergers was the need to cut costs by approaching the market and the logistics together (Cartwright & Schoenberg, 2006, p 11).

This paper sets to discuss the merits and demerits of such mergers with special emphasis on their benefits and demerits to the project teams, stakeholders and the public at large, with the aim of making recommendations on how management of such processes can be improve.

Background

Industry mergers are a phenomenon that has been commonplace for quite sometime now. They basically involve two organizations coming together to form on large corporate under which they operate. The new organization which may have a combination of the names of the merging components or a totally new name operates as a new entity. The new rules under which the new entity operates depends in the agreement on the terms of the merger.

The history of mergers can be traced back to the 1895 to 1905 period in the US when the small companies with small market shares combined forces to form larger entities that dominated the target markets. In this way their collective value accounted for 20% of the total GDP (Cartwright & Schoenberg, 2006, p 3). Since then mergers have remained a popular way of market consolidation and strengthening of the capital base of the various firms involved.

The rise of globalization in the 1990s further increased the market for international mergers with firms located in different countries and continents coming together. These multinational mergers have resulted in huge conglomerates across borders with multibillion dollar financial bases and thousands of international shareholders.

The Exxon-Mobil Merger

The merger that took place between Exxon and Mobil falls into a broad category of mergers known as a Horizontal Merger. DePamphilis (2008, p740) states that this is where two competing companies with a similar product line and the same target market come together to fortify their presence. They turn all the energies that went into competition before to promote their joint product together. This kind of merger is easier than others since the two merging groups already understand their market and understand each others product perfectly.

In December 1 1988, the Exxon and Mobil oil companies announced their intent to carry out a horizontal merger valued at $80 billion (Cable News Network {CNN} Money, 1998). The aim of this merger was to “Create an oil entity rivaling the biggest in the world”. Under the terms of the agreement the new company would be called the Exxon Mobil Corp.

The two chief executives Exxon’s Lee Raymond and Mobil’s Lucio Noto announced then that the main motive of their merger was to compete more effectively in the face of sharp drops in oil prices. One objective the bigger company was set to achieve would be to cut costs of operation so as to maximize profit. Industry analysts said it was a good prospect for the two firms to merge since many organizations at the time were slashing the pay of employees and making capital spending plans to cut costs.

The new Company Exxon Mobil Corp indeed posted a profit of $ 9.8 billion in 1999 up from a joint $ 5.5 billion the year before, when the two firms were still separate entities (Slocum, 2009, p 8). So by all indicators the merger worked wonderfully for the two merger project teams. But the cost of merger to the other stakeholders was another story all together.

The Stakeholders

The stakeholders of this and the other similar mergers involving BP-Amoco, Chevron-Texaco, Total-Petrofina and Conoco-Phillips; are the project teams, the employees, the shareholders, the trading partners and the consumers. These stakeholders have been affected differently every time a merger of this magnitude is carried out (Kroger & Tram, 2000, pp 2-3).

Choices Facing The Project Teams

The main stakeholders in any merger are the project teams of both firms responsible for working out the merger. Much as mergers are profit and survival driven and just have to be done, there are many problems therein (Deans et al, 2002 pp 2-3). The issues to be faced include liability consolidation, welfare of all stakeholders, terms of engagement and planning for a joint future. All of these must be set into a game plan that can be executed swiftly and efficiently so that all those involved are not affected or disrupted for too long.

Those working out the merger must closely consider what their future partners are bringing on the table in terms of assets, liabilities, personnel, opportunities and previous profit margins (Kroger & Tram, 2000, p 30). This ensures that all cards are played on the table and no nasty ones are kept aside to be unleashed later. The past profitability, the market prospects, the scale of operations and the asset base and liabilities must all be declared to know the exact situation each party is getting into. This is usually easier said than dome since the temptation to hide weaknesses such as bad past business decisions usually very high on both sides.

Another challenge for both parties is to separate dreams from reality. The two companies always come together with the ego and vision of their directors and management teams. Consolidating these dreams into one solid vision may be a make or break issue for the two parties. It is imperative therefore to be able to balance dreams with reality. If one firm is wishing to expand its market presence while the other wishes to expand its capital infrastructure, then the two issues must be carefully synergized by considering the advantages and disadvantages of both against the background of the most urgent under the new circumstances. In fact, in most cases one of the parties is forced to take a backseat and give some space to the other.

One of the paradoxes is that while employees are being laid-off to cut costs, the costs of the laying-off exercise must be catered for instantaneously. The most direct way of doing this is to borrow the money to pay off employee gratuity so to borrow the money to pay off employee gratuity so as to spread the cost over many years of repaying the loan. Ultimately it is cheaper to have the employees out of the payroll, but the immediate cost of doing that is another undesirable albeit inevitable liability.

Another issue that faces the leaders of the firms is how to consolidate the disparate management practices and traditions of the two firms. It is usually tempting to ignore this factor but the outcome is almost always detrimental. Two organizations operating in the same field such as the oil giants may be completely different in their manner of operation. New rules and traditions have to be worked out that will work for both organizations (Cartwright, & Schoenberg, 2006 p 21). This involves policy and code of conduct. In many mergers those involved opt to leave such nitty- gritty for later, but this only elongates the duration of the merger unnecessarily. Employees and other operatives need to know the new rules as soon as possible since they have to resume work immediately the champagne bottles have been popped.

The other important consideration is that the welfare of the retained employees be looked into. Assuming that they have no role to play, as often happens, does not augur well for the future of the new company. The employees must be given an opportunity to invest in the future company so that they feel apart of it. If they are left floating then they may be disillusioned and disoriented by the whole merger process. When they are left at sea like yet they have a future role in the new company, is not good for its future prospects.

Both firms also have to face up to the fact that they have certain trading partners whose services may have to be terminated in the new setup. Most of these partners including suppliers and service organizations, always feel threatened by such mergers since they may be left out in preference of the firms previously serving the other merging partner. The pragmatics of cost cutting may actually ensure that this is actually the case. All the same, they have to be handled with great care. The partners usually know a plethora of weaknesses of the firms they have been dealing with and can therefore expose this knowledge on the public domain or launch nasty court cases that may delay or derail the merger altogether (Kroger & Tram 2000, p 8).

Problems Facing Trading Partners

The trading partners are all those people including suppliers, transporters, servicing and maintenance firms(Cartwright & Schoenberg, 2006, p 32). This group may have a history of serving either of the merging firms well in the past. The moment the issue of a merger comes up they immediately feel threatened. Unless they are assured by the new managers of the merged firm that they shall be retained or their outstanding credits shall be settled, life becomes very difficult for them. The prospects of going to court to settle certain matters becomes a grim reality since in many mergers they are totally left out to the equation.

The partners may find it really difficult to operate after their services are suddenly terminated as a cost cutting measure of the new arrangement. Some of them face the very real danger of going under especially if the terminated deals were their main lifeline.

Partners’ Gains

Those partners who are retained face real prospects of exponential growth, since they end up dealing with a bigger organization than they did before. They also gain from an expanded network which literally means dealing with more people and thus gaining more contacts. This is a really good prospect for business expansion.

The Employee Problems

The employees of the two companies in the merger find themselves being pushed rudely out of their comfort zones in various ways. First, they may be declared redundant. In the Exxon-Mobil Merger a total of 9000 jobs were set for cutting off out of the total of 123,000 the two firms had worldwide. This accounted for some 8% job cuts with all those workers being declared redundant. The impact of such job cuts are grave indeed on the employees who until then were comfortably working and managing their lives (Kroger & Tram 2000, p 16).

Indeed in the case of mergers it is very common for the welfare of the junior staff members who have kept the companies going for years, to be given the least priority since the main driving force of the merging groups is simply profit (Ferenczy, 2009, p 6). The problem is not just financial as they are usually given a handsome payoff for their dedicated labor. The problem is more about the fact that they have to plan their lives anew.

That is usually not the easiest thing. Getting another job usually means beginning to build up their careers from scratch, since the past experience they have accumulated may not be considered very much in the new appointment. Secondly, they are faced with the reality of having to take a pay cut if they find a firm that is no able to employ them at the same rate of payment. Thirdly, they find that that feeling of belonging that they shared in with others in the company is suddenly proved to be a cruel illusion. This may result in serious psychological consequences. Lastly, any plans they may have made for career advancement are suddenly rendered useless. This means that life has to begin from a lower level which they thought they had overcome in the past. For some the trauma and disillusionment usually mars all the gains to be made by the merger (Ferenczy, 2009, pp 6-8).

Even the employees who survive do not find it easy either. They suddenly find themselves operating with new bosses, colleagues and clients. They also have to adjust to new rules and more often than not sacrifice part of their pay in the name of cost cutting. In addition, their views may not be considered necessary when the mergers are being discussed. All these disruptions should be carefully taken into cognizance as when terms of merging are laid on the table, but unfortunately, in most cases they are not.

The Employee Gains

Among the gains of the employees are that those who survive usually end up working for higher wages once the merger picks up and the gains begin to be seen (Cartwright & Schoenberg, 2006 p 22). Higher pay packages are offered them and they experience and exciting career growth provided that the merger is successful. This offers them greater opportunities and personal development prospects than they had before.

Secondly, there is a better prognosis for career advancement. Promotion means handling more people over a larger scope. This increases the gains that go with career advancement. Generally speaking the pie is bigger and so the individual share increases as well.

The Shareholders’ Losses

Another group that is adversely affected during most mergers is the shareholders. After the big merger deal at Exxon-Mobil the shareholders found themselves left with the short end of the stick. They were compelled to take a drop in their share value due to consolidation of he new shares. When trading of the new shares opened, Exxon shareholders were staring at a drop in value of 3 points, while Mobil lost 2 points. The combined drop forced the merger value to come down to $ 76 billion from the projected $ 80 billion. This took most of the thrill out of the deal as far as shareholders are concerned (CNN Money).

Another problem that shareholders have to contend with immediately after such deals is the failure to declare dividends for ordinary shares (Cartwright & Schoenberg, 2006 p 23). The oft given excuse is that the new company is still restructuring and thus dividends will be declared later. No matter how big the firm, and how large its profit margin, there are always hidden costs in a merger that have to be attended to and so the stakeholders would be lucky to emerge with anything. Usually, only preferred shares are dealt with until the new forma settles down.

In some cases, shareholders are called upon to dig deeper into their pockets to help the new multinational take shape. This happens where certain pressing liabilities have to be taken care of first. Whatever name it may be given in such an instance, the shareholders are basically required to give more money to keep the firm running

Benefits to the Shareholders

The benefit in the long run to the shareholders is that they can gain when the merged company does grow as profit margins increase. This happens when the new firm finally settles into business and gains new ground by benefiting from the cost cutting measures.

Challenges Facing Consumers

Theses are members of the general public who buy the products of a company. They can do they can buy as individuals or as organizations. The main interests of consumers are availability of what they want at the right price and the correct quality (Kroger F. & Tram, 2000, p 20). Usually these three elements do not occur simultaneously, and so amends have to be made by sacrificing one for the other. One example of a time when such amends are made is when companies start merging.

According to Slocum (2009, p12) the merger of most United States based oil companies left a gaping hole in the pockets of consumers since the mergers meant higher pump prices at the  gas stations. The prices are usually a function of many factors, but among the most important is competition. When firms are in direct competition with each other, price manipulation is one important aspect they use to attract customers. These manipulations may not sometimes directly mean that customers pay less since there are usually hidden charges. However in general prices remain low since arbitrary price increases can be suicidal in an environment of cut-throat competition.

This advantage is lost to the customer once mergers take place. This is a direct consequence of the fact that the consumer’s money is the main target of the merging firms. When they turn their competition into partnership, they become a cartel that controls prices and thus increase it at the earliest sign of financial distress (Kroger & Tram, 2000, 21).

Advantages to Consumers

Even then, loyal consumers, especially the corporate ones are always considered when major decisions are being made. They are the ones who keep the companies going in the lean times, and with time, the companies learn that rubbing such customers the wrong way is economic suicide. So they do not emerge as losers even in a merger.

The main advantage to consumers is the improvement in quality that results from the outstanding features of each individual company’s products being consolidated into one better whole. Apart from that the consumer benefits from wide ranging products over and above what they had in the individual company before, especially in areas where only one of the partner companies was represented.

Managing Mergers

Mergers are inevitable especially when markets become saturated and competition reaches its peak (Deans et al, 2002, p2). The main means of survival in those circumstances is to ensure that the merger is well managed so that the attendant problems that may come with it are avoided. Many mergers fail not because those merging have the worst intentions but because they are complacent on certain factors which look unimportant at that point but turn out to be crucial later.

The first thing to bear in mind when handling a merger is how it will affect all the stakeholders and the general public (Baron, 2008, p 17). If all parties are brought on board throughout the merging process, such that all their views are taken into cognizance, then the whole process will be smoother. ExxonMobil set a poor precedent here that saw oil and oil products rises steeply in price in a manner that blighted their reputation. It was this same fall from grace with the public that had caused the forced split of the original mother company, Standard Oil, which had fallen afoul of the public mood with environmentally damaging practices and mistreatment of employees. So the outcry that followed the steep oil price increases was quite reminiscent of the gloomy past.

Another factor that must be borne in mind is the envisaged gains to be made by the merger. Just like one company succeeds because it has a clear vision set in clear achievable and time-bound objectives; so do two or more companies that merge into one. With this in mind, there must be a clear vision that must apply to all parties. The Exxon-Mobil merger clearly had this in mind. The vision of the two oil giants was to cut down on the costs of production, to consolidate their two markets, to strengthen their presence in the stock market and to eliminate the competition between them (ExxonMobil, 1999). Obviously they had their problems while pursuing the merger, but the end result has been splendid so far.

The two managed to cut down on production costs by laying-off a total of 9000 workers and thus having a leaner operation which soon started showing results. They also took care of the issue by putting together their wide international reach and their immense equipment base to control their production and reach an expanded clientele. All these factors worked to their advantage (DePamphilis, 2008, p16).

On the issue of competition, the two companies were accused of causing a steep rise in petroleum and gasoline prices. They were the two hugest oil companies even before their merger save for the BP-Amoco group that had merged before. They therefore had quite a clout in the market. They took full control of the market and dictated prices and supply. Eventually they emerged just as well off as they had planned.

Another issue that is important for the merging companies that they took into full account was the issue of stock markets (Baron, 2008, p 18). Apart from banks, the stock market is an important source of revenue for a company. The self-worth of the company is also seen in terms of its market capitalization. Ignoring this aspect is always misguided and that is a path that the two giants did not take. Instead they consolidated their market base such that ExxonMobil remains to date the true claimant to being the largest company in the world.

One issue that has almost completely eluded the ExxonMobil merger is to have in place environmentally friendly policies. There have been public outcries from such organization as Greenpeace. The oil giant has been accused of carrying out environmentally unfriendly practices and opposing the popular stand on global warming. In fact they have been accused of funding initiatives opposed to the cessation of global warming. Considering that this was one of the issues that faced its great ancestor Standard Oil Company almost two centuries ago, one can only conclude that old habits really die hard.

Conclusion

As time continues to pass and competition tightens between companies competing for the same markets, the drive to merge will continue taking precedence. Because of this it is very crucial the merging companies take into consideration all the factors and stakeholders involved if they are to merge successfully. As Deans et al (2009) warn, if the merger is not properly managed, it will end up in disaster.

References

Baron,  D. P., 2008. Business and the organisation. 6th ed. Chester (CT): Pearson. Borenstein S. & Moritsugu K., 2004. Wave of oil industry mergers helped push up gas prices. The San Diego Union Tribune, 28 May. p 4.

Cartwright, S. & Schoenberg, R., 2006. “Thirty Years of Mergers and Acquisitions Research: Recent Advances and Future Opportunities”. British Journal of Management 17.

Deans K.G., Kroeger F. & Zeisel S.,  2002.  Winning the Merger Endgame: A Playbook for Profiting From Industry Consolidation. New York: McGraw Hill.

DePamphilis, D., 2008. Mergers, Acquisitions, and Other Restructuring Activities. New York: Elsevier, Academic Press.

ExxonMobil, (1999).”Our History.” Last updated November 30, 1999. Retrieved on: August 17, 2009.     <http://www.exxonmobil.com/history>

Ferenczy, I., 2009. Employee Benefits in Mergers & Acquisitions, 2008-2009. New Delhi: Infibeam.

Kroger F. & Tram M., 2000. After the Merger. New Jersey: Prentice Hall

Slocum, T., 2009. No Competition: Oil Industry Mergers Provide Higher Profits, Leave

Consumers with Fewer Choices. New York: Public Citizen.

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05 Feb 2010

Sample Essay: Wal-Mart

Wal-Mart Inc. is presently the biggest retail store chain in the world. Sam Walton in 1940 founded Wal-Mart starting with only a single store that has grown to more than 4000 stores and present in over 14 countries. Wal-Mart is a big success story in the retail industry. The success is attributed to the management strategies as well as marketing strategies that the corporation has put in place (www.walmartstores.com). This section undertakes to examine the management strategies of Wal-Mart in particular, its vision, mission, objectives, goals and market strategy.

Purpose:

Sam Walton stated that, if all employees of Wal-Mart together with there, shareholders and customers, Wal-Mart can reduce the cost of living for each one. Wal-Mart will offer the world a chance to realize what it feels to save as well as have an improved life (www.walmartstores.com)

Mission/vision of Wal-Mart

As Hay (1990) explains mission statements as well as vision statements are formulated for the employees and also the customers of a company. A mission statement normally is a sentence or a brief paragraph that is written by an organization which underlines its primary purpose, values, principles and identity. Wal-Mart’s mission statement is underlined below:

“Wal-Mart’s mission is: To help people save money so they can live better.” (www.walmartstores.com)

The mission of Wal-Mart underlines it commitment to provide the ordinary people with an opportunity to buy similar things as wealth people. Sam Walton’s mission when founding Wal-Mart was to sell products low prices than his competitor, a mission that until now the Wal-Mart still strives to achieve (www.walmartstores.com).

Save money

Wal-Mart understands that price of products matters a lot to their customers, at any place they are. That is the reason why all Wal-Mart stores offer high quality products at lowest prices. Saving for Wal-Mart goes beyond money; it involves other aspects like offering energy efficient items that cut down on what customers use (www.walmartstores.com).

Better Life

The means of making its customers’ lives better is through saving money, through offering the lowest possible prices on its products; Wal-Mart understands that it can afford its customers something extra from what they have saved.

Wal-Mart as well see the opportunity to assist people have  a better live go beyond its stores and prices, that it’s the reason it supports projects that are important to neighboring committees such as education and conserving the environment. This is indicated by Wal-Mart joint projects with Mercy Corps in helping small scale farmers in Guatemala, more so that is why Wal-Mart stock fair trade coffee  on its shelves.

Saving customers’ money so that they can have a better live as stated by Wal-Mart’s mission is thus is the center of everything that Wal-Mart does.

Wal-Mart’s Slogan

A slogan is a brief, unforgettable catch word, motto or a tagline that is applied to identify an organization or it’s product in advertisements Morrisey and Acomb (1990). As for Wal-Mart its slogan is:

“Wal-Mart. Always low price. Always.” (www.walmartstores.com).

Wal-Mart’s Values

Wal-Mart values are founded on its founder values and morals. These values have assisted Wal-Mart to become the world’s number one retail store. The following are Wal-Mart’s values:

Respect:

At the center of every rule and custom of Wal-Mart is the fundamental value of respect. The company respects its customers, its associates (employees) and its suppliers. Respect is the centerpiece that Wal-Mart uses to build its relationships. Respect assists Wal-Mart to serve the communities within its stores, and in building a business that is dedicated to excellence (www.walmartstores.com).

Services to its customers

Wal-Mart has a belief that it’s their customers that makes them to be in business, thus Wal-Mart aims at treating them as the most important people in their business. Wal-Mart offers high quality products at the lowest prices possible, not forgetting to offer the excellent customer services. Wal-Mart looks at every opening where it can exceed its customers’ expectations. To be at its best, Wal-Mart strives exceed customers’ expectations (www.walmartstores.com).

Striving for excellence

Wal-Mart is proud of what it has achieved, but it is never contended to be there. Thus, it constantly strives to incorporate fresh ideas and objectives of life. Wal-Mart as an organization follows the footsteps of its founder Sam Walton, who kept on looking for improvements. Thus Wal-Mart for example is never satisfied until it lowers its prices to the lowest possible price, or until it improves its product to the highest possible quality for its customer. Wal-Mart constantly asks, “Is this the best that can be down.” This is the zeal of Wal-Mart for its business, its customers and the community as whole. Table I in the appendix shows aspects of each value.

Wal-Mart’s Objectives

The long-standing objectives of Wal-Mart stores are:

Growth

Constant adaptation.

Lee Scott the CEO of Wal-Mart, hugely contributed to these two objectives by emphasizing international growth and venturing into new retail strategies; establishing Super centers. These two objectives are long term objectives and keep on growing through addition of more stores, acquisition of businesses in foreign countries and creating joint ventures with various corporations ((www.walmartstores.com).

Selected Strategies used by Wal-Mart

For Wal-Mart to achieve its objectives, which are international growth and new retail formats or plans, Wal-Mart has used several strategies; we shall examine two of these strategies:

Dominate the industry strategy

Hayden, et al (2002) states that, one of the main strategies of Wal-Mart stores is to dominate the retail industry. The founder of Wal-Mart established a retail philosophy that is still followed by the Wal-Mart. Indeed, Wal-Mart is mainly a discount retailer store since they sell their merchandize at the lowest price possible. Through selling products at the lowest price, Wal-Mart underlines that the core of success for a discount retailing store is to reduce the prices on a product to the lowest end possible, reducing the profit and earning profit on high volume of sales made.

Another aspect of this strategy is seen in the competitiveness of each store. Every store is given an encouragement to aggressively compete against other stores around its customer base until such a Wal-Mart store dominates the local competitors. Presently, Wal-Mart is the world leading retailer store and the leading company allover the world in regards to sales with a record of over $200 billion sales as indicated on the Fortune 500 list (www.fortune.com). As stated the main strategy of Wal-Mart is to dominate the industry, to achieve this, the company uses the power of its size as well as its volume purchasing power to successful carry out this strategy (www.walmart.com)

Expansion strategy

A strategic objective of Wal-Mart is expansion to new markets, which it has managed to successfully. A close look at facts and figures reveals Wal-Mart’s dominance and influence. Presently Wal-Mart has a workforce of more than 1.3 million, one million employees working in US Wal-Mart stores alone. In addition Wal-Mart has more than 4000 stores; more than 1200 of these are located in foreign countries. Locally, as stated Wal-Mart has more than 3,000 stores and over 70 distribution centers in the US alone (Hayden, et al, 2002). Wal-Mart serves over 100 millions in a week in 50 states of America, Puerto Rico and in other countries where Wal-Mart stores exists.

Globally, Wal-Mart has its presence in Mexico, United Kingdom, Canada, China, Brazil, Germany and Korea. Its global expansion strategy has been forceful and powerful. The most recent expansion strategy of Wal-Mart is to gain entry into a foreign market through corporate takeover of a leading retailer. After buying a retailer chain, Wal-Mart changes the stores to its own. Three countries, where in the past did not have Wal-Mart stores, have become part of Wal-Mart’s international existence when local retail chains were taken-over. Wal-Mart in 1994, took-over 122 Woolco stores in Canada, presently there are 196 Wal-Mart stores in Canada. Again, in 1998 Wal-Mart entered Germany by buying 21 stores of Wetkauf, today Wal-Mart has 94 stores in Germany. Similarly, Wal-Mart bought ASDA in the United Kingdom and acquired 229 stores in 1999; presently there are over 250 Wal-Mart stores in UK (www.walmartstores.com).

This specific strategy of taking over other corporate gives Wal-Mart an advantage upon entering new market, in one moment a big competitor is removed, giving Wal-Mart real estate, employees and a huge presence in the new market. This shows effective application of Wal-Mart’s size and financial power, since only some if any of its competitors are capable of doing this successful. Wal-Mart creates brand familiarity, whilst retaining the previous common outlets. Slowly as the domestic Wal-Mart starts to make profit, and the local management evaluates their competition situation, Wal-Mart starts to re-decorate the acquired stores so that they look similar to “Wal-Mart’s”, later Wal-Mart starts to build bigger stores in the new market. The success of this strategy can be attested by the fact that presently, Wal-Mart is the biggest retailer chain in UK and Canada (www.walmartstores.com).

Has the strategies of Wal-Mart worked?

The proof that the strategies taken by Wal-Mart worked continued growth and rise to be the top most retail store not in America but in the world. Wal-Mart has shown that it is possible to sell all products on low prices. And that it is also possible to have Super Centers that stock almost all items. Wal-Mart’s management style and marketing strategies has led the way in retail industry. Table II in the appendix shows (Five year average 1995 -2000) comparative financial performance of selected retail stores.

One action plan for Wal-Mart

Even though, Wal-Mart has been very successful, there have been a number of issues regarding its human resources management. Bearing that human resource is the most important asset of an organization Wal-Mart should improve its human resources management. Issues have been raised regarding Wal-Mart’s employees reluctance to join organizations that are anti-unions, its widespread foreign product outsourcing, gender issues, particularly discrimination against female workers. Thus, for high success, Wal-Mart needs to improve these areas.

Conclusion

As Mintzberg and Quinn, (1992) notes, in present day business environment that is characterized high competition, budget-centered planning or projected-centered planning approaches are not enough for big corporations to survive and thrive. Companies must undertake strategic planning, to clearly identify objectives and evaluate the internal and external environment to create a strategy, carry out the strategy, assess its progress and make the needed modifications to remain on the right track. Wal-Mart Inc. has been able to understanding this concept of strategic management and utilized it well to achieve the success it enjoys today.

Reference:

Canales, J.; Kibble, B. and Terk, N (2000): One Step Beyond Strategic Planning: Foundation News & Commentary, Vol.41 Issue 5; p 78-83

Hay, R (1990):  Strategic management in non-profit organizations, Westport: Greenwood Press,

Hayden, P; Lee, S; McMahon, K & Pereira, M (2002): A Case Study on Wal-Mart Stores Inc. Wal-Mart: Staying on Top of the Fortune 500 Accessed on 22/7/2009 from: http://mike-pereira.com/subpage/docs/walmartcs.htm

Lichtenstein, N. (2006) Wal-Mart: The Face of Twenty-First-Century Capitalism. New Press

Mintzberg, H & Quinn, J (1992): The Strategy Process:- Concepts and Contexts: Prentice-Hall, Englewood Cliffs, NJ

Morrisey, G & Acomb, B (1990): The Executive Guide to Strategic Planning: Jossey-Bass, San Francisco

Wal-Mart (2009): About Us (Wal-Mart): http://walmartstores.com/AboutUs/

Appendix

Table I: Wal-Mart values and some of their elements (www.walmartstores.com )

Respect Service to customers Striving to excel
Open door Pleasing shopping Constant improvement
Accountability Friendly environment Result oriented
Trust Daily low prices Competitive spirit
Open communication Satisfaction guaranteed Integrity always
Teamwork Community minded Change agents

Table II: Comparative Financial Performance of selected retail stores (Five year average 1995 -2000) source: www.mba.tuck.dartmouth.edu/pdf/2002-2-0013.pdf

Assessment Wal-Mart Kmart Sears Target Walgreen
Five-year return on equity (%) 19.9 4.8 20.8 17.9 18.3
Five-year sales growth (%) 15.4 1.3 3.2 9.4 15.3
Five year net revenue (%) 18.1 -5.7 32.4 19.3
Sales in Billions 191.3 37.0 40.9 36.9 21.2
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30 Jan 2010

Sample Essay: The Difference Between Management and Leadership

Introduction

Is there any difference between leadership and management? Or leadership and management are the same? On a close look it can be seen that many managers are not leaders, though successful in their field. Leaders lead from the front and managers believe in directing controlling and planning and improving the efficiency of the organization. A manager makes the subordinates to work, a leader work with the people. Management philosophers and thinkers have been interested in identifying the difference between a manager and a leader.. Some leaders show management skills and some mangers show leadership skills. (Mccrimmon M, 2007) It is now well established that there is difference between a manager and a leader

Leader leads from front

A leader leads from the front. His language will be like come let us do the work. On the other hand a manager believes in planning and coordinating the work. He uses management techniques to manage others. Followers voluntarily follow the leader. This may not be the case with managers. Subordinates is been asked to obey the instruction of the manager by virtue of his position. The subordinates may be obeying the manager on his leadership skills or may be just as it is part of their duty. It is also common the subordinates dislike the manager and still follows his action to save his or her job. A leader has his interest common to the followers. When the common interest is being identified, people voluntarily follow him. Rather than asking the people to work, a leader prefers to call them for work and they just follow the instructions of a leader. This important quality makes a big difference between the style of functioning of a manger and a leader.

Difference in working style

There is a big difference in the working style of a manager. A leader attracts the people with the charisma he is having. He used to have an upper hand in technological knowledge than the workers. Leadership may not have any relevance with the functioning of the organization. On the other hand the management is different in its way of functioning. A manager keeps the organizational priority at his best. He has to do certain tasks as per the guidelines set by the organization. He then plans to achieve this by his people. Here the manager uses the modern management tools. He is interested in directing, planning and organizing. To make this effective he also uses modern management tools. A leader innovates and the manager administers (Bennis W, Doyal S, 2006). Leadership is setting up vision and Direction and management is implementation of this (Doyal S, 2006).

A leader set his vision and the followers follow his vision almost voluntarily. He seldom needs force to attract towards him in execution of his direction and vision. On the other hand the manager executes the vision of the organization. On his journey towards this he will also be using leadership skills to effectively manage his people. A manger with leadership skills can effectively manage the organization. There should be a force attracting the followers or a subordinate to the person directs them. In case of leadership it is often the quality of the leader or his charisma that attracts the people to him. On the other hand the manager and the leader should be the two sides of the coin. Latest management trends show an inclination towards improving the leadership qualities of a manager. It is accepted that a manager should improve the output of the organization but it should be on the cost of the people working in the organization.

Directing Function

The directing function of the manager is making people ready to perform certain task or assigning certain task to the people. This functional area of the manger has more to do with leadership. Once a task is to be performed, the concerned manager has to detail people or direct people to accomplish the task. This is mostly done in different ways by a manager and a leader. However both leader and a manager use the function of directing. Followers voluntarily work as per the direction where as manager needs to have something else for motivating the people to work. This may be different to different organization and also as per the management style it differs. Organizations have special structure and policies to motivate the people to work and managers are part of it.

In the field of emergency medical services the directing function of the manager has a lot to do with routine jobs. Things are to be done at high pace and many times immediate decisions are to be taken. The chances of going these decisions wrong are high. In this scenario subordinates should be motivated and encouraged to take decisions at time of emergency. Also the manager should be able to provide directions without any delay. His competence as a leader is very important. A leader comes forward to take the responsibility of the actions of his followers. The followers also recognize this fact and there are more people willing to work under a leader under emergencies. This is what actually needed in an emergency service. At the same time the leader should be conversant with the procedures adopted in an emergency. A manager is a technical person and he is likely to be thorough in procedures and policies. Union of managerial qualities and leadership skills will be a good formula for emergency medical services.

Emotional Intelligence

Leaders are emotionally more intelligent than ordinary managers. A manager wants to be successful should have high emotional intelligence. Emotional intelligence is the ability to understand and control one’s emotions and to understand the emotions of others. People having high emotional intelligence tend to be leaders. According to Terry, “a leader shows the way by his example. He is not a pusher; he pulls rather than pushes (Terry R G, 1988). A typical manager does not follow this style. He plans and direct people to get the work done. There is set of duties and responsibilities for each person in the organization. A manager ensures this is been done. He uses his control function to see things are going as per the schedule. A manger often uses his control powers. In contrast a leader expects his subordinates to perform the way it is desired. For example if a staff is coming late to his duty. The typical manager may think of taking corrective action, where as a leader may be thinking to find out the reasons behind the late coming of the staff and may be willing to support that person. Similar actions make the follower emotionally attached to the leader and they keep the individual interest only next to the common goals

In emergency medical service, emotional intelligence is a highly required quality of the person heading the operation. A leader who is empathetic and understands the emotions of others can do a lot in getting people involved in the service. A leader should avoid knee jerk reactions. It is already said emotional intelligence makes the difference in actions of a manager and a leader. A manager who is low in emotional intelligence may follow only the rule book and this kind of attitude may lead to poor quality service especially in emergency medical service. It is good to be knowledgeable but at the same time the managers should understand the need of being empathetic to the subordinates and the customers.

Leadership in Emergency Medical Service

The EMS (Emergency Medical Service) is becoming more and more complex day by day. The system is working with a lot of supervisors, ordinary staff and managers and a wide net work is being formed. Due to all these it has become very difficult for people associated with these services to survive without leadership skills. A leadership includes motivating and directing people to work. Emergency service requires quick action and this demands intrinsic motivation rather than anything. Only a true leader can make the intrinsic motivation in people following him. A leader motivates people to work for a common goal. In this service too, the person heads the department has to motivate the people to work for the common goal. A true leader can do it more effectively than a manager.

A leader should be a team player. Emergency service is always a team play. Mere management principles will not make any difference to the organization. A lot of uncertainty is present with the Emergency services. A manager should be capable of handling these services. People under him should be willing to work for extra hours if required. If extra service is required it should be given on volunteer basis. Here the scope of leadership is more visible. A leader can motivate his team members to provide their best.

Team members perform will perform to their full potential when the team leader motivates them to do so. The team leader should be empathetic to his team mates. He should make the people well aware of the team goal and the members should feel that the goal is common to all. Then only their full potential can be utilized. A leader should also provide a platform for the members to learn and grow. This will make the team members to become more professional. This will also increase the efficiency of the team to perform tasks.

Functions of management

Functions of management are Directing, Organizing, Planning, controlling and staffing. Professional managers are trained to perform these functions. Some people are on the view that Directing is the most important function of a manager. Many managers believe decision making is an important function of the manager. In the Emergency Medical Service Industry manager should be good at decision making. He will have to make decisions in seconds. A manger is trained to have these qualities. In management schools Case studies are used to impart the skills of decision making.

A leader has the quality of decision making and directing, a leader’s method of directing and decision making differ from that of a manager. Leaders decision are derived from that of his team members where as the managers decisions are learned decision and the decision the manger thinks to be good for the company.  In respect to other function like controlling and planning a manger uses modern management tools. An ordinary leader may not know these tools for planning and controlling. Hence in these function a manger may have an upper hand in delivering the duties. But if the manager has leadership skills then he can really outperform an ordinary manager. All leading management institutes have special curriculum to sharpen the leadership skills of the managers. It is also said it is important to become a leader then become a manager by learning management tools. Management is ‘managing men’ and a leader is expected to do this function well. Leadership involves in common interest and goal. By this common interest and goal a leader can motivate people to attain common goals. Managers seek scientific methods to perform their task. Leaders are not interested in going for such tools and management techniques. They are good motivators.

Born Leaders and Managers

Many people believe leaders are born to be leaders but not they believe there are born managers. People believe management qualities are trained. This may not be true regarding leadership qualities. For example, in accident sights some people emerge as leaders and guide others on what to do. These leaders are not trained to become managers or leaders. It is also observed that such people repeat the leadership role in similar occasion. This shows they are born leaders. Many view that leadership skills can be trained on individuals. But training on leadership skill is more difficult than training on management skills. It is also observed that function of direction is the most difficult part for any managers. Unless people have certain inborn skills it is difficult to direct other people.

In emergency medical service, to make the service more useful and effective, leaders are required than mere mangers. Emergency situation are unique and the robotic act will not help. A kind of intuition is the requirement of medical services. It is not that made up managers will be a failure. But born leaders can perform the task of emergency dealing perfectly

Leaders should have technical skills and personal skills to be more effective. If the leader does not have adequate knowledge people may not obey him in the long run. The followers should believe that the leader is more knowledgeable and technically competent than them. This gives the followers confidence to work with the leader and they will feel an assurance that the leader will look after them in case of any trouble. Leaders are more approachable than managers. They like to meet people and discuss their problems. Leaders suggest measures to resolve the worries of the people when people approach them. These characteristics are not applicable to managers. Managers are mainly concerned in increasing the profitability of the organization. In contrast leaders are more concerned about their followers.

Managers and Leaders

Successful managers are efficient leaders. Bill Gate is a successful leader as well as a good manager. There are other examples too. Most successful managers are not MBA holders rather they are good leaders. On a close view it can be understood that it is important to become a leader first than becoming a manager. Story of successful managers in all fields underlines this factor.

There are other differences in the styles of managers and leaders. A manager makes his decision and then sells his decision to his followers. Manger compares alternatives before making decisions. He asks his subordinates to question if they have any doubt. In case of a leader his decisions are more acceptable to the mass and that is the reason they follow the leader.

Conclusion

There is a difference between leadership and management. Managers are more concerned about planning, controlling, staffing and organizing. Leaders are more concerned about directing and organizing people. They act more as a representative of the followers. People follow leaders voluntarily than by virtue of their position. Leaders should have high emotional intelligence. In Emergency Medical Service leadership qualities are more sought after than mere management skills. Managers with good leadership skills can produce best result. Successful business people are good leaders as well as good manager. To be successful in the long run a manager should have leadership skills.

Reference

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Terry R G (1988), Principles of Management, Richard D Irwin Homewood III.

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http://www.nemsma.org/LinkClick.aspx?fileticket=FGTTfMTe5CU%3D&tabid=37&mid=409

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Abdul-Karim, Z. (2009, April 9). Leadership in Uncertain Times – Integrity. Retrieved April 16, 2009, from http://ezinearticles.com/?Leadership-in-Uncertain-Times—Integrity&id=2203907

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