Q1. An example of such company can be Mondelez International Inc. (the departments of the company in Russia and Brazil). Managers of the departments focused on the financial perspective and did not react timely to the inflation and need to reduce prices. As a result, overall revenues of Mondelez International have decreased by 2%, and operating income reduced by 30% in the third quarter of 2012. Demand for the products of Mondelez International have decreased, and customers switched to other competing brands. The disproportional emphasis on financial perspective led to poorer performance and affected all stakeholders; now the company is focused on price cutting and on balancing the demand in order to return to previous rates of growth in Russia and Brazil.
Q2. One example of a company that failed to address relevant customers timely is General Motors. This company missed the early start of manufacturing of hybrid vehicles; while Nissan and Toyota started development and manufacturing of hybrid cars in the 1990s, the first hybrid car by GM only appeared in 2004. As a result, Toyota hybrid cars have a large part of this new market, while GM is still lagging behind. In the companies where all part of BSC operate equally customer needs are regularly studied and the need for new products or services is identified timely.
Q3. Example of business process where opposing stakeholder interests meet: industrial interests and environmental interests. Factory workers and management represent one group of stakeholders (with industrial interests), society and environmental protection groups are other stakeholders which have environmental interests. The purpose of the former group is to earn profit, increase production and reduce costs, and the purpose of the latter group is to minimize effect on environment (which results in increased costs and increased legal and financial pressure on factory’s operations).
Q4. One important measure of organizational learning is the ability of the company to react quickly and flexibly to market and environmental changes; this measure is critical because companies can quickly lose their market position without this feature, but it is quite hard to evaluate this organizational ability because it is multifaceted and complex.
Q5. Often, customer perspective and financial perspective of the balanced scorecard are difficult to balance, because customer requests and demands might go beyond the scope of organizational resources. Sometimes, the needs of particular groups of customers cannot be satisfied because this would be too costly for the company. For example, Saatchi and Saatchi company chose to focus on the 20% of clients which brought 80% of revenue, and paid less attention to the smaller clients; this approach let the company reach financial success, but at the same time required to make certain sacrifices from the customer perspective.
Q6. Business administration is a complex and multifaceted occupation, which requires diverse skills and knowledge. Two core concepts which are essential for business administration, are, in my opinion, transformational leadership and financial management. Despite of the nature of the business, the organization is inevitably dealing with finance, and effective skills of financial management are a must. The organization is strongly influenced by the leader, and it is important for anyone involved in business administration to master the concept of transformational leadership in order to manage organizational dynamics in the quickly changing market environment.
Q7. For identification of long-term economic trends, financial managers use different economic variables as indicators. Two of these variables are interest rate and balance of payments. Balance of payments shows the difference between exports and imports, and changes in the balance of payments show the state of economic and political stability. Interest rates represent the amount charged by lenders for borrowing money; this variable affects the dynamics of investments in the country.
Q8. Internationalization directly affects corporate financial planning and brings more challenges in this process. If the company has departments overseas or works with foreign partners (which is true for almost all companies at the market nowadays), corporate financial planning should include the risks associated with exchange rates and different economic development, address legal issues in different countries, adhere to different accounting standards, etc. Therefore, internationalization reshapes corporate financial planning and adds more dimensions into it.
Q9. The choice of investment would depend on the risk affiliation, on the existing investments, on the personal minimal return rate and on the overall financial strategy. On average, with slight risk aversion and stable financial position, it would be reasonable to invest 30% into debt securities, in order to create a solid financial background, and 70% in equity securities with a well-balanced portfolio, because equity can give far more significant gains compared to debt securities.
Q10. Corporate diversification is one of the leading factors in capital budgeting decisions. Diversification takes place when there are new markets which can be addressed by the company, and there are important opportunities in these markets. Other perspective of corporate diversification is the situation when current market is saturated and the company has to look for neighboring or new markets to develop further. The position of the company with regard to corporate diversification outlines the types and affiliation of new projects initiated by the company. Therefore, capital budgeting decisions should be based both on financial viability of the projects and on the company’s position with regard to corporate diversification.
Q11. The concepts of NPV and IRR are highly important for financial management. NPV is used to determine current value which can be added by the new project with regard to the time value of money. IRR is the project’s rate of return which can be used to compare new projects.