Management Issues in Manufacturing Company

Introduction

In order to lead a firm to success, much attention should be paid to the position and responsibilities of a manager. In this context, a manager is a person who is responsible for organizing resources and activities according to a firm’s strategy and goals, and the purpose is to reach a high position in the market and maximize profits (Hirschey and Bentzen 35-38). The purpose of this paper is to analyze certain managerial issues faced by the selected company in terms of sustainability and with the focus on specific strategic steps to be taken to overcome such issues as the misallocation of resources, the manager-worker problem, the threat of a takeover, the impact of government regulations, and weak output decisions and pricing.

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The Company’s Present Situation

The company under discussion belongs to the manufacturing sector, and its profitability, sustainability, and the role in the market in terms of attracting customers and receiving orders from the government directly depend on effective management. However, currently, the company faces problems associated with inappropriate management, such as resource misallocation resulting in increased expenses, the manager-worker problem affecting the motivation of employees, the threat of a competitor’s takeover related to decreased profits, the pressure of government regulations, poor pricing, and ineffective output decisions. The previous manager who was responsible for developing commercial strategies and implementing financial goals was not successful in using the firm’s resources appropriately in order to achieve the economic profit because of inefficient practices and decisions associated with selecting suppliers, organizing the staff’s work, controlling operations, and attracting investments.

Resource Misallocation

Effective economic decisions require the focus on the appropriate allocation of available resources. In this firm, resource misallocation is associated with the lack of outsourcing. The problem is that the company spends many resources in order to address technological tasks that are not directly associated with the firm’s operations and can effectively be outsourced without the necessity of purchasing needed equipment, hiring specialists, and changing work processes (Hirschey and Bentzen 742-745; Wei and Li 838). For instance, significant expenses associated with the development of the IT department in this company do not directly influence the firm’s profits as IT functions play only the supportive role in the company’s operations without affecting productivity.

As a result, resource misallocation in the firm leads to the situation when significant financial resources are spent on organizing activities that do not influence the quality of produced goods, relationships with customers, and productivity. Expenses associated with hiring employees are also high, and they are not correlated with costs spent on retention practices to improve employees’ commitment and motivation (Baye and Prince 147-148). The research and development department, marketing, and the quality management programs remain to be under-funded, and this aspect decreases the firm’s possibility to maximize its profits because of the lack of innovation in operations and processes, problems with the quality of goods, and talent and financial shortages in several key departments of the company. From this perspective, the firm loses potential profits because of resource misallocation that is also associated with the factor of sustainability. The ineffective use of available resources has a negative impact on social sustainability with the focus on employees’ interests, customers, and community members, as well as on economic sustainability because of certain limits for the company’s progress.

Strategic managerial decisions to address resource misallocation should include steps oriented to reallocating resources and funds into the strategically important areas in the company’s work. Thus, it is possible to recommend investing more financial and human resources in the research and development department, operations management to improve performance and productivity, marketing, and quality management (Wei and Li 840). This approach will help the company maximize its profitability. Moreover, it is also necessary to outsource tasks and activities that perform a supportive role and can be completed by experts while using fewer resources.

Manager-Worker Problems

In the company, managers are interested in increasing profits because of having a certain share and bonuses if the economic performance of the firm is comparably high. However, the nature of the manager-worker problem is that profits are directly dependent on employees’ productivity and performance, but the staff is not motivated enough in order to work to increase the firm’s profitability (Baye and Prince 231-234; Gormley and Matsa 432-433). In this particular case, managers demonstrated the inability to motivate employees to increase their productivity not only because of the integration of new procedures and algorithms but also due to workers’ disinterest in contributing to the company’s growth.

The following negative effects on the company’s profitability can be observed: employees spend working hours ineffectively, decreasing productivity; they are not interested in improving their performance; employees do not realize the strategic role of improving the overall company’s performance for them; workers are oriented to minimizing their efforts while working in the firm. All these aspects influence the firm’s sustainability because its social aspect becomes unaddressed as workers can feel dissatisfied with their position in the company (García et al. 298; Halac and Prat 3105). As a result, it is rather problematic for the company to implement changes and stimulate the staff to improve their performance and adopt new models of working. In order to achieve a sustainable growth in a company, much attention should be paid to relying on human resources’ interests.

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Strategic decisions that can be applied in order to improve the situation are associated with providing employees with the fraction or bonuses that depend on the company’s financial performance. It is possible to adopt the practice of profit sharing for this company because principles of revenue sharing and piece rates are not appropriate for the manufacturing sector. Thus, to address the issue, it is relevant to make the compensation of employees directly dependent on the firm’s profitability during a certain period of time (Baye and Prince 231-234). Moreover, this practice should be supported by the implementation of certain policies that demonstrate what activities can positively influence the company’s profits and what regulations exist in this area. If an employee knows that his or her efforts and performance can contribute to improving the company’s profitability depending on strategic goals shared by managers and to increasing his or her bonus, this factor can be used to boost revenues.

The Threat of a Competitor’s Takeover

At the current stage of its development, the discussed firm does not demonstrate a stable growth in profits, and the risk of a takeover is high. The problem is that any ineffective managerial strategies and weak decisions potentially influence companies’ status in the market, performance, and profitability (Baye and Prince 230). The presence of many managerial issues accentuates the fact that the previous manager did not perform his or her duties and responsibilities effectively, and the threat of a takeover is high because of decreased revenues and share premiums. This situation can lead to reconsidering the management of the firm from the perspective of investors and shareholders who are not interested in a manager who cannot guarantee the maximization of profits.

Thus, the previous manager was replaced with a new one, and the situation of the competition and the threat of a takeover were not viewed by the previous leader as risky and leading to the loss of his or her position. This process negatively affected the company’s sustainability because the firm was not economically stable. The problem is that even weak outcomes and decreased profits did not make the manager reconsider his or her strategies, practices, and techniques in order to improve the situation in economic terms and avoid the necessity for investors to replace an ineffective manager with a new one in order to respond to the competition in the market.

The necessity of a takeover or replacing a manager in the firm negatively affects the company’s operations because of costs related to training, improving policies, and implementing changes. In order to address this problem, it is important to emphasize the threat of a competitor at initial stages when a manager begins to perform his duties poorly (Lel and Miller 1589). If the situation does not change, it is necessary to create specific conditions that will contribute to saving costs while working with a new manager: it is important to prepare training programs, to focus the attention of a leader on cooperation and to accentuate specific benefits received by managers when profits of the company increase along with improving employees’ performance and customers’ loyalty.

Government Regulations

Working with orders from the government, the discussed firm faces the necessity of addressing regulations that are related not only to its operations and human resource practices but also to controlling relations with the government. The company’s operations are negatively affected by the government regulations regarding anti-discriminatory laws and norms regarding the trade within states and nationally. As a result, the company needs to address some regulations that limit its possibilities to hire experienced professionals requiring higher wages and extended benefits and compensation plans, that determine the principles of taking the governmental orders, and that limit trade opportunities (Hallward-Driemeier and Pritchett 122-123). Another category of regulations that can negatively influence the firm’s progress is associated with taxes and relevant laws.

Therefore, the management of the company needs to focus on revising policies to address government regulations and reduce costs associated with their implementation to practice. The problem is that changes in governmental regulations can directly influence operations of the firm, and managers can be forced to alter their procedures to adapt operations to a new regulatory context (Baye and Prince 184; Gormley and Matsa 432). The latest changes in governmental regulations were related to the taxation policy. An unstable situation regarding the used regulations negatively influences the company’s sustainability. In this context, it is also relevant to analyze how the company followed regulations regarding hiring employees according to anti-discriminatory laws.

In order to decrease potential negative consequences of these changes, a new manager needs to focus on decreasing costs where it is possible in order to compensate for increased taxes and associated expenses. Another strategic step is connected with improving human resource practices with the focus on revising hiring procedures, performance evaluation procedures, and compensation policies because a number of governmental regulations are directly connected with changes in regulating employer-employee relationships (Hirschey and Bentzen 410-412). Alternative variants for addressing changes in taxation and human resource policies and regulations should be developed by managers depending on the latest tendencies in legal and economic areas.

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Poor Pricing and Output Decisions

Output decisions made by managers, as well as proposed pricing strategies, can be ineffective in many cases if fluctuations of prices in the market and actual fixed inputs are not appropriately taken into account. If a manager fails to determine minimum and maximum relevant prices for the produced goods in the selected market with reference to the involved costs, it is almost impossible to focus on efficient pricing that can lead to maximizing profits (Hirschey and Bentzen 573-574). In addition, the impact of poor output decisions on a firm’s progress is even more critical. Weak output decisions become the result of the ineffective analysis of inputs that can be controlled by a manager in order to achieve maximum outcomes (Baye and Prince 184). If output decisions are inadequate, it is rather problematic for the company to determine its position in the market and develop toward domination and price leadership.

From this perspective, it is important to pay attention to the fact that ineffective pricing and output decisions negatively influence the firm’s sustainability with reference to its economic aspect. When output-reaction curves are analyzed inappropriately, risks of wrong decisions that can influence the economic profit for the firm are high (Hirschey and Bentzen 501-503). Ineffective pricing decisions in the context of the intense competition in the market also do not contribute to stabilizing the position of the firm and making it sustainable (Gormley and Matsa 432). As a result, it is necessary to adopt efficient pricing strategies in order to address the experienced problems in terms of output decisions and their effects on profitability.

For the case of the discussed firm, it is possible to recommend referring to the principles of peak-load pricing in order to address the supply-demand issue within the market in the most efficient manner. The specifics of the goods produced by the firm, as well as provided services, allow for determining certain obvious peaks in purchasing products which can influence pricing (Baye and Prince 429). Therefore, manipulating prices that depend on the periods of higher and lower demands, it is possible to achieve increases in profits and address competitors’ strategies. Moreover, it is also important to recommend changes in making output decisions with reference to the necessity of analyzing inputs and fixed costs before planning activities and forecasting revenues. The thorough analysis of inputs and external factors is the most appropriate option in this case that will allow the manager to become successful in realizing financial strategies and predicting actual profits. These strategic steps need to be taken in order to help the company win the leading position in the market within the shortest period of time.

Conclusion

This paper has presented the analysis of five specific managerial issues that were faced by the selected company and that negatively influenced its profitability. It has been found that the misallocation of resources and the inability of the company to effectively use the outsourcing option, reduce costs, and change investment and funding plans affected not only manufacturing operations but also the overall performance of the firm while decreasing its potential revenues. Therefore, certain steps to address this problem have been proposed and described in the paper. In addition, it has been found that the manager-worker problem significantly influences the quality of employees’ work, resulting in negative impacts on financial gains. As a result, the focus on changing the compensation plans has been offered in order to provide employees with a significant financial incentive that can influence the quality of work in addition to a traditional salary.

The threat of a takeover has also been discussed, and certain techniques to overcome the observed problem in the company have been described with reference to the recent literature on the topic. Moreover, the company also faces the problems with the impact of government regulations on operations and the problem with weak pricing and output decisions. Effective steps to be used to address these issues have also been analyzed. The firm needs to be prepared for relying on flexibility while addressing changing government regulations. Much attention should also be paid to altering approaches to making pricing and output decisions in the context of this firm in order to avoid failures in attracting customers and receiving revenues. It is possible to state that the listed strategic steps are oriented to decreasing the negative impact of the determined problems of the company’s sustainability in order to guarantee its adequate progress and associated increases in profitability.

Works Cited

Baye, Michael R., and Jeff Prince. Managerial Economics and Business Strategy. 8th ed., McGraw-Hill/Irwin, 2014.

García, Jose A., et al. “The Principal‐Agent Problem in Peer Review.” Journal of the Association for Information Science and Technology, vol. 66, no. 2, 2015, pp. 297-308.

Gormley, Todd A., and David A. Matsa. “Playing It Safe? Managerial Preferences, Risk, and Agency Conflicts.” Journal of Financial Economics, vol. 122, no. 3, 2016, pp. 431-455.

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Halac, Marina, and Andrea Prat. “Managerial Attention and Worker Performance.” American Economic Review, vol. 106, no. 10, 2016, pp. 3104-3132.

Hallward-Driemeier, Mary, and Lant Pritchett. “How Business Is Done in the Developing World: Deals Versus Rules.” Journal of Economic Perspectives, vol. 29, no. 3, 2015, pp. 121-140.

Hirschey, Mark, and Eric Bentzen. Managerial Economics. 14th ed., Cengage Learning, 2016.

Lel, Ugur, and Darius P. Miller. “Does Takeover Activity Cause Managerial Discipline? Evidence from International M&A Laws.” The Review of Financial Studies, vol. 28, no. 6, 2015, pp. 1588-1622.

Wei, Chu, and Chuan-Zhong Li. “Resource Misallocation in Chinese Manufacturing Enterprises: Evidence from Firm-Level Data.” Journal of Cleaner Production, vol. 142, 2017, pp. 837-845.

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