Question

● Resource misallocation

● Manager-worker problems

● Threat of competitor’s takeover

● Government regulations

● Poor pricing and output decisions

Critically analyze how each of the above can impact(affect) firms’ sustainability and identify the appropriate strategic steps(solutions) you will apply to revamp this company.

Answer 1

Introduction:-

Governance in microeconomics is of prime importance. Micro economics refers to that branch of economics which deals with smaller organizations. The economy is made up of several different kinds of producers, the contribution of which leads to economic success and growth for any country. As such, economists have always shown how companies need to be managed and need to set their goals depending on the forces of demand and supply and thus being profitable for themselves and for the society as a whole.

Case Specifics:-

A firm’s sustainability refers to their ability to last the future and be able to run business for many years to come. Further it translates into the firm making higher profits for itself and is able to run smoother operations. The points as listed above are explained along with strategies to tackle each problem effectively.

Resource Misallocation:-

Problem:-

The allocation of resources is extremely important for companies to be able to sustain themselves. At most times, firms which fail have not been able to foresee that unnecessary expenditures lead to the ultimate downfall of business.

At times, companies deploy excess of capital than is actually required in business at the current stage, and end up producing in higher quantity which leads to depletion of resources at critical points for a company. The resultant is that the cost of carrying inventory rises which ultimately causes failures for the enterprise. The problems also relate to one section of the business receiving higher resources than the others where it might actually be required or in shortage off

Solution

This problem can be overturned by deploying modern methods of managing inventory such as Just in Time techniques which ensure that resources reach different stages of production at the exact time, which avoids over spending. Further, demand and supply estimation and analysis can largely save the management from over or under spending and other techniques such as Enterprise Resource Planning (ERP) Software’s can also be used to judge the exact requirements of resources and allocate accordingly.

Manager-worker problems:-

Problem:-

Manager worker problems are more complex than most companies realize. Companies tend to spend a large part of their income towards training and development of employees. As a result of manager and worker problems, companies lose a lot of efficiency, productivity and can ultimately lead to higher turnover ratios which mean people leaving the firm can increase this ultimately impacts the turnover for employees respectively.

Solution:-

Ultimately, the solution to a problem like this would be to incorporate strong human resource measures which would reduce the impact of a worker and manager relationship problems. Involvement of the Human Resource team at critical points has largely resulted in saving organizations from catastrophes due to problems which are more personal than organizational in nature. Understanding these problems at an early stage and counselling of both parties is equally required to maintain sustainability for an organization.

Threat of competitor’s takeover:-

Problem

For companies which do not trade on the stock markets, competitor takeover generally means that competing firms capitalize on the market share which the company currently has. This could be in the form of promotional strategies or introducing new products and services which tend to be better than our company. On part of public listed companies, this resonates into companies acquiring major shareholding and taking over the management of a company altogether.

Solution

The solution to this problem lies in constant innovation which allows firms to be profitable and at the same time having investors in confidence so that mass selling of shares can be avoided which is one of the key reasons that impact sustainability for organizations.

In the long run, firms must be encouraged to innovate and have competitor strategies in mind while taking critical decisions for a firm. This would allow them to tackle any existing threats which may lead to their overall downfall respectively.

Government regulations:-

Problem:-

Government regulations while, cannot be controlled by organizations altogether and may have a sudden impact on the business in case of exceptions, most likely these impact sustainability only when owners and policy makers of companies do not tend to have the required skills to judge changes. Often ignorance of existing regulations and industry standards across the globe are key reasons why companies would fail and government regulations would hurt their overall sustainability.

Solution:-

Most large companies today deploy legal assistance teams, which keep them updated about trends and laws which the government is most likely to implement. These teams also assist companies on existing laws which may require them to take alternative actions and increase their chances of sustainability. Thus being informed by legal advisors or otherwise and having a holistic view about the business environment in which government regulations are given due importance are extremely important for business owners to tackle this problem respectively.

Poor pricing and output decisions:-

Problem:-

Poor pricing and output decisions tend to increase the overall costs of operations for a business enterprise as the overall unsold inventory rises which is a major part of the costs of a firm. Further, incorrect pricing decisions can tend to cause large losses for a firm which if unchecked leave the company in a condition where sustainability gets directly impacted. Underpricing would mean large losses for the firm while overpricing would lead to lesser market share for the company.

Solution:-

The solution is to decide ones pricing strategies after reviewing key market trends and overall overheads which a firm may spending on. Further output decisions need to be taken by assessing the demand well in advance and being prepared for any changes which may take place. Thus, the management must be competent enough to understand the dynamics of pricing and demand and forecasting tools must be adequate to ensure that the company is successful and has no threat to its sustainability respectively.

Please feel free to ask your doubts in the comments section if any.