Spruce Street Shelter Sam Donaldson, the laundry supervisor of the Spruce Street Shelter, stared at the memo that had just reached his desk: The shelter has adopted a responsibility accounting system. From now on you will receive quarterly re- ports comparing the costs of operating your department with budgeted costs. The reports will highlight the differences (variances) so that you can zero in on the departure from budgeted costs. (This is called management by exception.) Responsibility accounting means you are accountable for keeping the costs in your department within the budget. The variances from the budget will help you identify which costs are out of line, and the sizes of the variances will indicate the most important ones. Your first such report ac- companies this announcement. [Exhibit 1] As this report indicates, your costs are significantly above budget for the quarter. You need to pay par- ticular attention to labor, supplies, and maintenance. Please get back to me by the end of this week with a plan for making the needed reductions. Mr. Donaldson knew he needed a plan, yet midwinter was the busiest time of the year at the shelter, and the laundry was piling up faster than his staff could wash it. BACKGROUND Spruce Street Shelter was located in the heart of a large metropolitan area in the north-central United States. Founded in the late 1800s, it had been serving the homeless ever since, providing hot meals, shelter, and companionship. Situated on a busy urban thoroughfare, it was a haven of last re- sort for many of the city's indigent, and “home” for many others. As might be expected, the de- mand for its services was especially high in the winter, when temperatures frequently dropped to below freezing, and life “on the street” became unbearable. The shelter provided three services. Its most significant activity was the Hot-Meal Program, where it served hundreds of meals a day. A meal of hot soup and a sandwich was available to any- one who arrived between the hours of noon and 2pm and 5pm to 7pm. Its second program was its Overnight Hostel, where it had 150 beds that were available on a first-come, first-served basis. The linen was changed daily, and fresh towels were always available, so that the shelter’s clients could look forward to “clean sheets and a hot shower.” Finally, it had a counseling program, in which a staff of three full-time social workers assisted clients to cope with the difficulties that had brought them to the shelter, and in establishing themselves in a more self-sufficient lifestyle. SYSTEM CHANGES In March, the shelter had hired a new administrator to improve its business activities. A busi- ness school graduate with prior experience in manufacturing and service companies in the private sector, one of his first steps had been to introduce what he called “responsibility accounting.” He had instituted a new budgeting system, along with the provision of quarterly cost reports to the shelter’s department heads. (Previously, cost data had been presented to department heads only in- frequently.) The annual budget for the current fiscal year had been constructed by the new administrator, based on an analysis of the prior three years’ costs. The analysis showed that all costs increased each year, with more rapid increases between the second and third year. He considered establishing the budget at an average of the prior three years' costs hoping that the installation of the system would reduce costs to this level. However, in view of the rapidly increasing prices, he finally chose HBSP Product Number TCG267 THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. _____________________________________________________________________________________________ This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to illus- trate either effective or ineffective handling of an administrative situation. Copyright © 2014 by The Crimson Group, Inc. To order copies or request permission to reproduce this document, contact Harvard Business Publications (http://hbsp.harvard.edu/). Under provisions of United States and interna- tional copyright laws, no part of this document may be reproduced, stored, or transmitted in any form or by any means without written permission from The Crimson Group (www.thecrimsongroup.org) For the exclusive use of S. Nguyen, 2018. This document is authorized for use only by Sydney Nguyen in Costs/Budgets - 2018 Fall taught by YONG GYO LEE, University of Houston from Aug 2018 to Feb 2019. the prior fiscal year’s costs less 3 percent for the current year’s budget. He decided to measure ac- tivity by client nights, and to set the budget for pounds of laundry processed at last year’s level, which was approximately equal to the volume of each of the past three years. Quarterly budgets were computed as one-fourth of the annual budget. Mr. Donaldson had re- ceived the report shown in Exhibit 1 in mid-January. He reflected on its content: A lot of my costs don’t change, even if the number of pounds of laundry changes. I suppose laundry la- bor, supplies, water-related items, and maintenance vary with changes in pounds, but that’s about all. Nevertheless, shouldn’t my budget reflect those changes? Also, I hadn’t planned for the fact that I was given a salary increase as of October 1—was I supposed to refuse it to help keep my budget in balance? Finally, I think it’s important to note that I had to pay overtime to the staff because the department became inundated with laundry during the cold snap we had back in mid-December. Because of this, my average hourly rate for the whole three months was $10.20 instead of the $9.00 that was in my budget. In fact, and maybe this is a little picky, the average number of minutes it took my staff to wash a pound of laundry actually dropped from .48, which was my budget target, to .47 for the quarter. Somehow, even though it’s pretty small, I think that should be taken into consideration.

Assignment

1. What is your assessment of the method the administrator used to construct the budget?

2. Prepare a flexible budget for the laundry department. What does it tell you?

3. Compute the appropriate labor variances. What do they tell you?

4. What should Mr. Donaldson tell the administrator about his budget variances?

SPRUCE STREET SHELTER E

xhibit 1. Performance Report -- Laundry Department

October - December (Over) % (Over) Under Under Budget Actual Budget Budget Client nights 9,500 11,900 (2,400) (25) Pounds of laundry processed 125,000 156,600 (31,600) (25) Costs Laundry labor $9,000 $12,512 $(3,512) (39) Supplies 1,125 1,875 (750) (67) Water and water heating and softening 1,750 2,500 (750) (43) Maintenance 1,375 2,200 (825) (60) Supervisor's salary 3,125 3,750 (625) (20) Allocated administrative costs 4,000 5,000 (1,000) (25) Equipment depreciation 1,250 1,250 - 0 --------- --------- -------- ------- Total $21,625 $29,087 $(7,462) (35)

The owner of a local supermarket wants to estimate the difference between the average number of gallons of milk sold per day on weekdays and weekends. The owner samples 8 weekdays and finds an average of 218.91 gallons of milk sold on those days with a standard deviation of 33.376. 10 (total) Saturdays and Sundays are sampled and the average number of gallons sold is 377.74 with a standard deviation of 49.365. Construct a 99% confidence interval to estimate the difference of (average number of gallons sold on weekdays - average number of gallons sold on weekends). Assume the population standard deviations are the same for both weekdays and weekends.

Question 8 options:

Question 9 (1 point)

It is believed that using a solid state drive (SSD) in a computer results in faster boot times when compared to a computer with a traditional hard disk (HDD). You sample a group of computers and use the sample statistics to calculate a 99% confidence interval of (1.12, 10.49). This interval estimates the difference of (average boot time (HDD) - average boot time (SSD)). What can we conclude from this interval?

Question 9 options:

Question 10 (1 point)

A pharmaceutical company is testing a new drug to increase memorization ability. It takes a sample of individuals and splits them randomly into two groups. After the drug regimen is completed, all members of the study are given a test for memorization ability with higher scores representing a better ability to memorize. Those 21 participants on the drug had an average test score of 24.483 (SD = 4.32), while those 25 participants not on the drug had an average score of 22.121 (SD = 6.091). You use this information to create a 90% confidence interval for the difference in average test score of (-0.302, 5.026). Which of the following is the best interpretation of this interval?

Question 10 options:

Question 11 (1 point)

Disability Services introduced a new mentorship program to help students with disabilities achieve better scholastic results. Test grades were recorded for 27 students before and after the program was introduced. The average difference in test score (after - before) was 9.632 with a standard deviation of 3.293. If Disability Services is interested in creating a 99% confidence interval for the true average difference in test scores, what is the margin of error?

Question 11 options:

Question 12 (1 point)

Researchers in the corporate office of an airline wonder if there is a significant difference between the cost of a flight on Priceline.com vs. the cost of the same flight on the airline's own website. A random sample of 5 flights were tracked on Priceline.com and the airline's website and the mean difference in price (Priceline.com - Airline Site) was $-65.796 with a standard deviation of $17.3604. Create a 90% confidence interval for the true average difference in costs between the vendors.

Question 12 options:

Question 13 (1 point)

A new drug to treat high cholesterol is being tested by pharmaceutical company. The cholesterol levels for 26 patients were recorded before administering the drug and after. The 90% confidence interval for the true mean difference in total cholesterol levels (after - before) was (-15.31, 15.82). Which of the following is the appropriate conclusion?

Question 13 options:

Question 14 (1 point)

Automobile manufacturers are interested in the difference in reaction times for drivers reacting to traditional incandescent lights and to LED lights. A sample of 21 drivers are told to press a button as soon as they see a light flash in front of them and the reaction time was measured in milliseconds. Each driver was shown each type of light. The average difference in reaction times (traditional - LED) is 1.6 ms with a standard deviation of 5.61 ms. A 90% confidence interval for the average difference between the two reaction times was (-0.51, 3.71). Which of the following is the best interpretation?

Question 14 options:

Molex Inc. and their reporting of a financial error found during their audit. This is the only company on the S&P 500 Index to have reported an error during the year.

1. Do you think it is because companies are doing a better job reporting on their financial statements or do you think it is just because they are getting away with the fraud?
2. What techniques have you learned so far in class that you could have implemented to help catch this financial error?

Honesty for Banks Is Still Such a Lonely Word: Jonathan Weil

March 02, 2011, 7:04 PM EST

• Tweet
• inShare1

• Business Exchange
• E-mail
• Print

More From Businessweek

• Retirement Plans, Milan Probe, EU Cartel Fines: Compliance
• New York, Chicago Law Schools Among Group Sued Over Job Data
• Goldman Sachs Among Banks Fighting to Exempt Half of Swaps Books
• Farmers Bet on Rates as MetLife Battles Rural Lenders: Mortgages
• California’s Harris Seeks to Improve Mortgage Deal With Holdout

By Jonathan Weil

March 3 (Bloomberg) -- So many big companies. So few big mistakes.

Last August an electronics manufacturer named Molex Inc. did something remarkable, at least by today’s standards for disclosing bad news. It filed a special report with the Securities and Exchange Commission known as an 8-K, saying it had overstated its shareholder equity by $101 million and that investors shouldn’t rely on its financial statements for the previous three years.

What made this event so unusual is it was the only negative restatement disclosed in this manner last year by a company in the Standard & Poor’s 500 Index. That’s according to Audit Analytics, a Sutton, Massachusetts, research firm that tracks such data. Molex, based in Lisle, Illinois, included its corrected results in its fiscal 2010 annual report the same day.

You could look at this in different ways. Perhaps the quality of today’s financial reports is so pure that only one S&P 500 company had to disavow its books last year because its results weren’t as good as originally reported. Or it may be that too few of America’s largest companies are willing to admit their errors and disclose them prominently.

“It’s one or the other,” says Don Whalen, research director at Audit Analytics. “Either companies’ internal controls have improved dramatically, so they’re not making mistakes. Or it’s too good to be true, and the information is not getting out.”

Course Correction

Whichever it is, the number of companies correcting errors in their books has declined dramatically. Last year 699 SEC- registered companies filed financial restatements, according to Audit Analytics. That was up from 640 in 2009, but less than half the record 1,566 companies in 2006.

The figures for banks, in particular, look unnaturally low. Forty-four banks restated last year, one fewer than in 2009. Even more curious, there were 133 banks that issued corrections from 2008 through 2010. That was down from 169 banks during the previous three-year period, before the financial crisis took off in earnest, which makes no sense.

Here we had the greatest banking industry meltdown since the Great Depression. Hundreds of lenders failed. And yet the number of banks correcting accounting errors declined while the collapse was unfolding. There were no restatements by the likes of IndyMac, Washington Mutual or Lehman Brothers, for example. The obvious conclusion is the government has been giving lots of banks a free pass, as have their auditors.

Bad Books

It’s not just banks, either. Fannie Mae and Freddie Mac, for instance, took massive bailouts in 2008 without ever conceding errors in their balance sheets. No wonder nobody high up in the financial world is going to jail, when regulators won’t force even those outfits to be honest and acknowledge their books were disastrously wrong.

Molex wasn’t the only S&P 500 company that revised its results last year. There were 10 in all, including Zions Bancorporation. In January 2010, the Salt Lake City-based lender warned investors not to rely on its financial reports for the two previous quarters. Zions’ corrections made earnings and equity look better, though, unlike the fixes at Molex.

The other eight S&P 500 companies that restated last year, including Tyco International Ltd., disclosed revisions without disavowing their previous financial reports in 8-Ks.

Soft Disclosure

About 53 percent of all restatements by U.S. companies in 2010 were handled this way, on the grounds that the errors supposedly weren’t big enough to warrant more prominent disclosures. Sometimes called “stealth restatements,” the corrections instead got tucked elsewhere, such as footnotes in press releases or companies’ quarterly and annual reports.

One explanation for why restatements peaked in 2006 is that the Sarbanes-Oxley Act, starting in late 2004, required many companies to begin subjecting their internal financial-reporting systems to audits by outside accounting firms. As companies improved their internal controls, they found more errors and issued more corrections. Then after they completed their initial overhauls, the theory goes, the number of errors fell sharply.

There’s another school of thought, too. In August 2008, an SEC advisory committee released a report concluding there were too many restatements and that lots of them had resulted from accounting errors that the markets didn’t care about. The panel recommended relaxing the benchmarks for determining when restatements would be needed, drawing howls from some investors and praise from the business lobby.

Who’s Restating

Sure enough, corrections are far fewer today than when the panel began its work, especially at large corporations. The latest increase in the overall figures was driven by tiny companies, which tend to be less mature and easier for auditors and regulators to push around. The number of restaters with less than $75 million of shares available for trading rose to 551 last year from 484 in 2009. Meanwhile, the number of larger companies that restated their books fell to 148 from 156.

Whalen says he still believes improvements in companies’ internal controls are the main reason for the broad decline since 2006. About 40 percent of last year’s restatements had no effect on earnings, according to Audit Analytics. So it’s not as if humdrum errors are never getting fixed.

He’s at a loss, though, to explain how there could be fewer banks that restated their books after the financial crisis started than before. “As a layman, you know there’s something wrong with that,” he says.

No kidding.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

--Editors: Steven Gittelson, Charles W. Stevens

Click on “Send Comment” in the sidebar display to send a letter to the editor.

To contact the writer of this column: in New York at [email protected]

To contact the editor responsible for this column: James Greiff at [email protected]

Many prestigious universities have a system called a “Legacy Preference System” which is used to decide which applicants should be accepted to the university. If an applicant’s parent is an alumnus of the university, the applicant will be admitted with lower GPA and SAT scores than if the parent is not an alumnus. (There is currently a lot of discussion about the fairness of this system, but universities get a lot of money from their alumni so they are unwilling to change it!!)

Your assignment for MP2 is to implement a computerized system like this for a very small prestigious university. The university has two schools, Liberal Arts and Music, each with their own criteria for accepting students. Your program must read in certain information about an applicant and print a message saying whether the applicant should be accepted or not.

The criteria for acceptance are:

Liberal Arts

1. No more than 5 people can be accepted.
2. If a parent is an alumnus, the GPA must be at least 3.0, but if no parents are alumni the GPA must be at least 3.5.
3. If a parent is an alumnus, the combined SAT score must be at least 1000, but if no parents are alumni the SAT must be at least 1200.

Music – no preferences for alumni here.

1. No more than 3 people can be accepted.
2. Math and verbal SAT’s must be at least 500 each.

Your program must accept as input the school the student is applying to (L or M), their high school grade point average, their math SAT score, their verbal SAT score and whether or not either parent is an alumnus (Y or N). The program must process several applicants, echoing the data for each applicant and printing a message indicating if the student was accepted to the school they were applying to. If they were not accepted, the message should indicate why. This message only has to indicate one reason for failure in cases of multiple disqualifications. Acceptances are to be made in the order received so that if a school is full, a later applicant cannot be accepted even if they happen to have better qualifications than an earlier one. You do NOT have to check for bad data coming from the file – assume that it is in the required format and has appropriate values.

The data file is arranged with the information for each applicant on a separate line. Your program must process the data until the end of file is reached, at which time the program must print out the total number of applicants and the number of acceptances to each school. The data file should be created by you. Create the file and store it in the same project folder as your program. Please turn in a hard copy of this file along with your program and output.

SUGGESTION You should design, compile, run and debug your program in stages. You might start by testing if your program can just read and echo the data file. After this is working accurately move on to identifying the school the person is applying to, then continue to add more of the details. Remember to use good style with consistent indentation, plenty of comments, good variable names etc. and don't forget to echo the data as it is read. The output must be clear and readable with appropriate string constants and spacing. Here is an example of the input data file:

L 4.0 600 650 N
M 3.9 610 520 N
L 3.8 590 600 N
…
Sample output from the first few lines of the example data file follows:

Acceptance to College by (your name)

Applicant #: 1
School = L GPA = 4.0 math = 600 verbal = 650 alumnus = N
Applying to Liberal Arts
Accepted to Liberal Arts!!!
*******************************
Applicant #: 2
School = M GPA = 3.9 math = 610 verbal = 520 alumnus = N
Applying to Music
Accepted to Music!!
*******************************
Applicant #: 3
School = L GPA = 3.8 math = 590 verbal = 600 alumnus = N
Applying to Liberal Arts
Rejected - SAT is too low
*******************************
…
There were xx applicants in the file
There were xx acceptances to Liberal Arts
There were xx acceptances to Music
Press any key to continue

Use the following input file for your program, notice there is exactly 14 applicants, make sure you display the counts at the end of your output as in the sample above.

mp2accept.txt

L 4.0 600 650 N
M 3.9 610 520 N
L 3.8 590 600 N
L 3.0 600 600 Y
L 3.4 600 600 N
L 3.0 500 490 Y
L 2.9 500 500 Y
M 3.5 500 490 Y
M 3.9 490 600 Y
L 3.5 700 500 N
L 3.1 600 400 Y
L 3.0 490 510 Y
L 4.0 800 800 Y
M 3.2 500 500 N

here is my solution;(i don't know where I am wrong, I couldn't open up the mp2accept file)

#include <iostream>
#include<fstream>
#include<string>
#include<iomanip>
using namespace std;

int main()
{

   //prompt the user for input
   int x;
   ifstream inputFileX;
   inputFileX.open("Cis161:\\assignment2\\mp2accept.txt");// this fstream is to read the data from the file
   getline(inputFileX, line);
   string mp2accept,line;
   if (inputFileX.good() == false) {
       cout << "Unable to open the file named " << mp2accept;
       exit(1);
   }
   while (true) {
       getline(inputFileX, line);
       if (inputFileX.eof()) break;
       FILE OUTPUT
           cout << line << endl;
   //prompt the user for input
  
   char school; // character variable for school and alumunus
   bool LiberalArts = false, Music = true;
   int Math, Verbal; // Integer variable for SAT score
   int SAT;
   float GPA; // float variable for GPA
   char Alumunus;// character variable for alumunus

   // is the student accepted either LiberalArts or Music school
   const int LiberalArtslimit = 5; // limits for counting accepted and total applicants
   const int Musiclimit = 3;
   int LiberalArtsNum, MusicNum;

   filename = "mp2accept.txt"; //opening file
       // conitinuing extracting data until end of the file
  
       if (LiberalArtsNum == LiberalArtslimit)// checking for availability of seats
       {
           cout << "Sorry there is no avaialble seats\n";
           return 1;
       }
       // Checking for other requirements includes GPA
       if ((GPA < 3.0 && Alumunus == 'Y') || (GPA < 3.5 && Alumunus == 'N'))
       {
       cout << "Rejected" << endl;// print a messsage 'GPA is too low for art school'
       }
   if ((Math + Verbal < 1000 && Alumunus == 'Y') || (Math + Verbal < 1200 && Alumunus == 'N'))
       {
           cout << "Rejected" << endl; //print a message'SAT is too low for art school'
       }
       else
       {
           cout << "Applicant is accepted to LiberalArts" << endl;
           LiberalArtsNum++; //counter for accepted applicant in LiberalArt school
       }
   }
   // iF appliacnt applied to Music school, checking requirements

   if (MusicNum == Musiclimit)// checking for availability of seats
   {
       cout << "Sorry there is no avaialble seats\n";
       return 1;
   }
   else if (Math < 500) {
       cout << "Rejected" << endl;// print a message'Math score is too low for admsission'
   }
   else if (Verbal < 500) {
       cout << "Rejected" << endl;// print a message'Verbal score is too low for admsission'
   }
   else
   {
       cout << "Accepted to Music" << endl;
       MusicNum++; // count applicants accepted in Music school
   }
   cout << "*******************************\n";
   //Print overall output
   cout << "There were" <<applicant count<< "Applicants in the file" << endl;
   cout << "There were" << LiberalArtsNum << "Applicants accepted in LiberaLArts" << endl;
   cout << "There were" << MusicNum << "Applicants accepted in Music School" << endl;
   return 0;

Part 1: WT Corp. manufactures crankshafts for 2L automotive engines. In order to attach a crankshaft to a flywheel, six holes are drilled in the flange end of the crankshaft. These holes are to be drilled 0.4750” in diameter. The holes are not threaded and go all the way through the flange. (See Figure 1.)

All six holes are drilled simultaneously. Every hour, the operator inspects four crank shafts resulting from four consecutive cycles of the drill press. All six holes on each of the four crankshafts are measured and the values are recorded. (See Table 1)

In this case each crank represents a sample. There are 6 measurements for each sample represented by the individual holes.  

Use the data in Table 1 to calculate x-bar and R values for the crank shafts. Make x-bar and R charts using the data. This should result in 2 charts with 48 points on them. Label the charts carefully. The use of Microsoft Excel is highly suggested as this data will be used more than once during this three part exercise. You may also use Minitab. Make sure you use the Line chart option.

Questions:

1. What do the charts say about the process?

2. Are there any out of control conditions?

3. In your opinion, is this the correct way to use a control chart? Why or why not?

Case Study: Use of Data for Control Charts

Part 2:

After shipping this group of crankshafts, you receive a call from your customer. They are very disturbed. Apparently, the crankshafts are not the quality expected. The customer feels that the hole diameters on each crank are not consistent. You point out that the process is under control, as verified by the control charts. In response, your customer suggests you take another look at the data.

After taking a close look at how the data is organized, you discover a small but significant point. The range chart indicates a fairly wide range of values for each subgroup. (This R chart is designed to monitor within subgroup measurements.) You realize that the average diameter is based upon the sum of the diameters found on each crankshaft. The charts do describe crankshaft to crankshaft variation, however, each of the holes is drilled using a different tool. To truly monitor the process, each tool must be monitored separately.

To measure the tool to tool variation, the data must be arranged differently. Recreate the control charts using the method indicated below to find the average and range of the data. This should result in 2 charts with 72 points each.

HOUR 1

                        Crank

Hole       1          2          3          4                   Ave.    R

1        4751    4752    4750    4750                4751    2

2        4752    4751    4750    4752                4751    2

3        4747    4752    4751    4749                4750    5

4        4745    4745    4741    4745                4744    4

5        4752    4751    4750    4752                4751    2

6        4753    4750    4752    4750                4751    3         

Questions:

Now what do the charts say about the process?

What is a likely problem that could explain what you see in the chart?

What is the difference between this charting method and the charting method used in part 1?   What part of the process are we monitoring in each of these methods?

THis is the data

Solve in excel plz

*Answer the 3rd question ONLY* Read the case study Italy Defied Starbucks—Until It Didn’t, i only left the other questions becasue they are related:

“We arrive with humility and respect in the country of coffee,” Howard Schultz, the former longtime CEO of Starbucks, told Corriere della Sera, Italy’s leading daily, last week. He was about to inaugurate, in Milan, the first Italian outpost of the global chain that supersized coffee and now vies with McDonald’s and Coca Cola as a symbol of American gastronomic imperialism. Even, of course, if Italy has one of the world’s most developed coffee cultures, which in fact is what inspired Schultz to convince the founders of the small Starbucks coffee company to open its first coffeehouse in 1984.

Italy is a country where the pumpkin is generally found in the ravioli, not the latte, and so the Milan Starbucks isn’t just any Starbucks branch. It’s a huge “Roastery” in the former Milan outpost

of the Poste, the Italian postal service, and is meant as a full “experience,” Starbucks said in a press release that has already been mocked by Eater. (“Eight Ridiculous Things Starbucks Is Saying About Its New Store in Milan.”) The Roastery, the first in Europe after others in Seattle and Shanghai, will offer coffee and food and also illustrate Starbucks’s roasting process.

Okay. But a question leaps to mind: Does Italy need Starbucks? “Che tristezza,” one Italian friend told me when I asked her about it opening in Milan. “How sad.” I called the Tazza d’Oro, one of Rome’s most historic coffee shops—they’re called bars in Italian—and Laura Birrozzi, a manager, offered some thoughts. “We and Starbucks sell something completely different. We have quality Italian espresso,” she said. I asked her if she’d ever been to a Starbucks, and she said she had on one occasion, on a visit to London. “It wasn’t the coffee I’m used to,” was all she’d say.

At the Milan Roastery, an espresso will cost 1.80 euros “sitting or standing,” Corriere della Sera noted, since in Italian coffee shops, the price changes depending on whether you have table service or gulp your drink down at the bar. A cappuccino will cost as much as 4.50 euros. This has already prompted Italy’s consumer association to file a complaint with Italy’s antitrust authority, saying the prices were far above average for Milan. Online, Italians are already complaining that Starbucks could drive up prices elsewhere in Italy. (Still, from the coverage, it seems the Roastery piqued people’s curiosity; the lines were around the block for the musical-gala opening party.)

The announcement last year about the opening did not go over well. The columnist Aldo Cazzullo wrote in Corriere della Sera then that “as an Italian,” he considered the opening of Starbucks in Italy nothing short of “a humiliation.” Though he conceded that the arrival of the chain might make some Italian coffee shops step up their game: Starbucks “represents a philosophy, as well as a sort of office for people who don’t have an office,” he wrote. “Maybe our bars will also become more hospitable.”

But, he ended on a discordant note: “I wonder how many of the 350 jobs announced in Milan will go to young Italians and how many to young immigrants,” Cazzullo wrote. It’s unclear what kind of immigrants he had in mind, or why hiring immigrants would be an issue. What is clear is that in Italy, coffee seems to connect in unexpected ways to national identity. There were polemics last year after Starbucks sponsored a garden of palm trees in Piazza Duomo, to drum up enthusiasm ahead of its opening this year. This prompted Matteo Salvini, then only the leader of the far-right League party and now Italy’s interior minister and deputy prime minister, to decry what he called the “Africanization” of Italy, and to call for the defense of the “Italianness” of coffee. “All that’s missing are the sand and camels, and the illegal immigrants will feel at home,” he said then.

Schultz has been trying to open Starbucks in Italy for decades, and the fact that Italy has such excellent coffee everywhere—even the coffee at the average highway rest stops in Italy is better than much of what’s served in good restaurants elsewhere in the world— was no doubt a major issue. In 1998, Michael Specter wrote in The New Yorker about Schultz’s efforts to open Starbucks and said a branch of the chain would open in Italy “next year.”

So why the delay? For one thing, Italians don’t drink coffee the way Starbucks serves coffee. In Italy, coffee—espresso—is drunk generally standing up, at a coffee bar. Cappuccino or caffè latte is drunk in the morning or sometimes in the late afternoon if you haven’t had a proper lunch, and never after meals, because who can digest milk after a meal? Italians are very attuned to proper digestion.

Also, Italy has a market economy with some protectionist elements. In her interview with Schultz for Corriere, the journalist Daniela Polizzi noted that the context had changed in the past 20 years, from one of adjusting to globalization to one in which trade barriers have become an issue. Starbucks now has 30,000 stores in 77 countries, including 3,400 stores in China, with 45,000 employees, Schultz answered. Italy hasn’t given up quite so much ground, but the chain has now established a beachhead there.

Some saw the arrival of Starbucks as a window into the challenges to the Italian economy. “The lack of Starbucks indicates a double anomaly: On the one hand, the biggest coffee chain in the world wasn’t present in Italy, and on the other, the biggest coffee chain in the world isn’t Italian,” the journalist Luciano Capone wrote in Il Foglio, an intellectual daily, this week, citing the economist Luigi Zingales. It seemed a sign of how Italy’s economy is based on smaller businesses with more modest ambitions. More than 90 percent of Italian companies have fewer than 15 employees.

Then there’s the flip side. “Operating in Italy, in competition with Italian coffee bars, it’s probable that Starbucks will soon learn to make excellent espressos and cappuccinos,” Capone continued. “But will the Italian system manage to learn from Starbucks how to create a global chain? It would be a small step for us, but a great step for mankind: Finally the rest of the world would discover that coffee and pizza aren’t the kind on offer at Starbucks and Pizza Hut.”

So if the wheel is coming full circle, does Olive Garden have any plans to open in Italy? I asked its spokeswoman, Meagan Mills. “We do not have any plans,” she wrote back. “Thanks for thinking of us, though!”

Questions to answer

1. What are the main marketing environment factors affecting Starbucks business in the Italian market? Why are these factors affecting the Italian market?
2. Explain the impact of these factors on Starbucks’ marketing. Give a specific example for each factor.
3. Based on your analysis of the two previous questions, discuss the promotion strategies of Starbucks in the Italian market. What modifications to the company’s product components might be necessary?

Employee Attitudes and Turnover Are Issues at Yahoo!

Marissa Mayer, former vice president of Google Product Search, left the company to become CEO of Yahoo! in October 2012. At that time, Yahoo’s stock was selling for $15.74. In January 2016, it was selling for $29.77, after reaching a high of $52.28 in 2014. Investors were not happy with the drop in revenue—and market share—from 2014 to 2016. Some felt the company’s strategies were lacking and that new leadership was needed. Hedge fund investor Starboard Value LP demanded that the board fire Mayer.⁸¹

Let’s take a more detailed look at what happened at Yahoo!

According to a Dow Jones reporter, “Yahoo’s expenses have risen while revenue has declined in the three-and-a-half years since Mayer took the reins. In the first nine months of 2015, operating expenses totaled $3.9 billion, up 20 percent from the same period in 2014. During that same time, revenue excluding commissions paid to search partners dropped 4 percent to $3.09 billion.” Yahoo! also has been cutting costs via layoffs. The head count in 2016 was 10,700, down from a peak of 14,000 before Mayer arrived.⁸²

It is estimated that 33 percent of the workforce left the company in 2015. A CNBC reporter noted that Mayer’s concern about brain drain led her to approve “hefty retention packages—in some cases, millions of dollars—to persuade people to reject job offers from other companies. But those bonuses have had the side effects of creating resentment among other Yahoo! employees who have stayed loyal and not sought jobs elsewhere.”⁸³

Even more troubling is the manner in which some of these layoffs were executed. In 2014, “managers called in a handful of employees each week and fired them,” recalled one reporter. “No one knew who would be next, and the constant fear paralyzed the company, according to people who watched the process.” In March 2015, the situation got worse. “Mayer told the staff at an all-hands meeting that the bloodletting was finally over. Shortly thereafter, she changed her mind and demanded more cuts.”⁸⁴

In January 2016, Mayer jokingly told employees at a company meeting that “there are going to be no layoffs ‘this week.’” Insiders say these types of comments are eroding employee morale and leading to the exodus of key employees.⁸⁵

Key human resource decisions and policies likely contributed to poor employee work attitudes and turnover. The first was the company’s decision that employees could no longer telecommute. The head of human resources at the time, Jackie Reses, said, “We need to be one Yahoo!, and that starts with physically being together.” She defended the decision by stating, “Some of the best decisions and insights come from hallway and cafeteria discussion, meeting new people, and impromptu team meetings.” Reses believed that telecommuting hurt the company. “Speed and quality are often sacrificed when we work from home,” she said.⁸⁶ But the decision also created bad press for the company.

A reporter noted, “The new rule didn’t just frustrate Yahoo employees who were directly affected, it also set off a fair amount of debate and criticism on Twitter from entrepreneurs, tech company employees and journalists who cover the industry.”⁸⁷ This in turn likely created a negative impact on Yahoo!’s ability to recruit highly talented employees.

The second human resource decision was Mayer’s implementation of the quarterly performance review (QPR) system. This process allegedly led to the firings of more than 600 people in 2013. The system works by first having managers rank their employees into five categories, each with a quota: greatly exceeds expectations (10 percent of employees), exceeds (25 percent), achieves (50 percent), occasionally misses (10 percent), and misses (5 percent). Two “misses” ratings in recent quarters can result in termination. Many managers see this system as a forced curve, though Mayer contends the rankings instead serve as guidelines.

Anonymous postings on an internal message board suggested that managers did not agree with Mayer. Here is what one manager had to say:

“I was forced to give an employee an occasionally misses, [and] was very uncomfortable with it. Now I have to have a discussion about it when I have my QPR meetings. I feel so uncomfortable because in order to meet the bell curve, I have to tell the employee that they missed when I truly don’t believe it to be the case. I understand we want to weed out mis-hires/people not meeting their goals, but this practice is concerning. I don’t want to lose the person mentally. How do we justify?”⁸⁸

Other employees felt the system was vulnerable to human bias and was not fairly applied across levels of management. One commented:

“Will the ‘occasionally misses’ classification apply to L2 and L3 execs also? At every goals meeting, we find Page 76senior staff who missed even the 70 percent goals. Thus, by definition, they should be classified as ‘occasionally misses.’ Two such classifications, and that person should be let go, amiright? How about we set an example for the rest of the company and can a few of the top execs who miss (or who sandbag their goals to make sure they ‘meet’)?”⁸⁹

Employees have become even more fearful of the process given the number of layoffs.

Sadly, employee morale does not appear to be improving. Surveys conducted by Glassdoor revealed that “only 34 percent of Yahoo!’s current employees foresee the company’s fortunes improving. That compares to 61 percent at tanking, scandal-struck Twitter and 77 percent at Google.”⁹⁰

Another issue that may be causing feelings of inequity involves Mayer’s compensation package. “Executive pay at Yahoo! is essentially based on Alibaba’s stock price,” which is outside her control: Yahoo! has a 15 percent stake in Chinese web giant Alibaba, valued at $25.7 billion. “Of Mayer’s $365 million pay over five years, only 3.3 percent will actually be affected by her performance.”⁹¹ This policy goes against the common managerial practice of paying people for their performance.

So where does this leave Mayer and Yahoo! as a whole? Broadly speaking, threats of layoffs continue. The company, which lost $4.4 billion in the last quarter of 2015, announced it would lay off 15 percent of its workforce in 2016.⁹² Under pressure from investors such as Starboard Value LP, Yahoo sold its core business to Verizon Communications Inc. for $4.83 billion in 2016. The sale included Yahoo’s e-mail business, websites dedicated to news, finance, and sports; advertising tools; real estate; and some patents. It does not include “Yahoo’s cash or its shares in Alibaba Group and Yahoo Japan. After the deal closes, these assets will become a publicly traded investment company with a new name.”⁹³

APPY THE 3-STEP PROBLEM-SOLVING APPROACH TO OB

Step 1: Define the problem.

Step 2: Identify causes of the problem

Step 3: Make recommendations for solving the problem. Consider whether you want to resolve it, solve it, or dissolve it, Which recommendation is desirable and feasible?

*Answer the 4th question ONLY* Read the case study Italy Defied Starbucks—Until It Didn’t, i only left the rest because they are related.

“We arrive with humility and respect in the country of coffee,” Howard Schultz, the former longtime CEO of Starbucks, told Corriere della Sera, Italy’s leading daily, last week. He was about to inaugurate, in Milan, the first Italian outpost of the global chain that supersized coffee and now vies with McDonald’s and Coca Cola as a symbol of American gastronomic imperialism. Even, of course, if Italy has one of the world’s most developed coffee cultures, which in fact is what inspired Schultz to convince the founders of the small Starbucks coffee company to open its first coffeehouse in 1984.

Italy is a country where the pumpkin is generally found in the ravioli, not the latte, and so the Milan Starbucks isn’t just any Starbucks branch. It’s a huge “Roastery” in the former Milan outpost

of the Poste, the Italian postal service, and is meant as a full “experience,” Starbucks said in a press release that has already been mocked by Eater. (“Eight Ridiculous Things Starbucks Is Saying About Its New Store in Milan.”) The Roastery, the first in Europe after others in Seattle and Shanghai, will offer coffee and food and also illustrate Starbucks’s roasting process.

Okay. But a question leaps to mind: Does Italy need Starbucks? “Che tristezza,” one Italian friend told me when I asked her about it opening in Milan. “How sad.” I called the Tazza d’Oro, one of Rome’s most historic coffee shops—they’re called bars in Italian—and Laura Birrozzi, a manager, offered some thoughts. “We and Starbucks sell something completely different. We have quality Italian espresso,” she said. I asked her if she’d ever been to a Starbucks, and she said she had on one occasion, on a visit to London. “It wasn’t the coffee I’m used to,” was all she’d say.

At the Milan Roastery, an espresso will cost 1.80 euros “sitting or standing,” Corriere della Sera noted, since in Italian coffee shops, the price changes depending on whether you have table service or gulp your drink down at the bar. A cappuccino will cost as much as 4.50 euros. This has already prompted Italy’s consumer association to file a complaint with Italy’s antitrust authority, saying the prices were far above average for Milan. Online, Italians are already complaining that Starbucks could drive up prices elsewhere in Italy. (Still, from the coverage, it seems the Roastery piqued people’s curiosity; the lines were around the block for the musical-gala opening party.)

The announcement last year about the opening did not go over well. The columnist Aldo Cazzullo wrote in Corriere della Sera then that “as an Italian,” he considered the opening of Starbucks in Italy nothing short of “a humiliation.” Though he conceded that the arrival of the chain might make some Italian coffee shops step up their game: Starbucks “represents a philosophy, as well as a sort of office for people who don’t have an office,” he wrote. “Maybe our bars will also become more hospitable.”

But, he ended on a discordant note: “I wonder how many of the 350 jobs announced in Milan will go to young Italians and how many to young immigrants,” Cazzullo wrote. It’s unclear what kind of immigrants he had in mind, or why hiring immigrants would be an issue. What is clear is that in Italy, coffee seems to connect in unexpected ways to national identity. There were polemics last year after Starbucks sponsored a garden of palm trees in Piazza Duomo, to drum up enthusiasm ahead of its opening this year. This prompted Matteo Salvini, then only the leader of the far-right League party and now Italy’s interior minister and deputy prime minister, to decry what he called the “Africanization” of Italy, and to call for the defense of the “Italianness” of coffee. “All that’s missing are the sand and camels, and the illegal immigrants will feel at home,” he said then.

Schultz has been trying to open Starbucks in Italy for decades, and the fact that Italy has such excellent coffee everywhere—even the coffee at the average highway rest stops in Italy is better than much of what’s served in good restaurants elsewhere in the world— was no doubt a major issue. In 1998, Michael Specter wrote in The New Yorker about Schultz’s efforts to open Starbucks and said a branch of the chain would open in Italy “next year.”

So why the delay? For one thing, Italians don’t drink coffee the way Starbucks serves coffee. In Italy, coffee—espresso—is drunk generally standing up, at a coffee bar. Cappuccino or caffè latte is drunk in the morning or sometimes in the late afternoon if you haven’t had a proper lunch, and never after meals, because who can digest milk after a meal? Italians are very attuned to proper digestion.

Also, Italy has a market economy with some protectionist elements. In her interview with Schultz for Corriere, the journalist Daniela Polizzi noted that the context had changed in the past 20 years, from one of adjusting to globalization to one in which trade barriers have become an issue. Starbucks now has 30,000 stores in 77 countries, including 3,400 stores in China, with 45,000 employees, Schultz answered. Italy hasn’t given up quite so much ground, but the chain has now established a beachhead there.

Some saw the arrival of Starbucks as a window into the challenges to the Italian economy. “The lack of Starbucks indicates a double anomaly: On the one hand, the biggest coffee chain in the world wasn’t present in Italy, and on the other, the biggest coffee chain in the world isn’t Italian,” the journalist Luciano Capone wrote in Il Foglio, an intellectual daily, this week, citing the economist Luigi Zingales. It seemed a sign of how Italy’s economy is based on smaller businesses with more modest ambitions. More than 90 percent of Italian companies have fewer than 15 employees.

Then there’s the flip side. “Operating in Italy, in competition with Italian coffee bars, it’s probable that Starbucks will soon learn to make excellent espressos and cappuccinos,” Capone continued. “But will the Italian system manage to learn from Starbucks how to create a global chain? It would be a small step for us, but a great step for mankind: Finally the rest of the world would discover that coffee and pizza aren’t the kind on offer at Starbucks and Pizza Hut.”

So if the wheel is coming full circle, does Olive Garden have any plans to open in Italy? I asked its spokeswoman, Meagan Mills. “We do not have any plans,” she wrote back. “Thanks for thinking of us, though!”

Questions to answer

1. What are the main marketing environment factors affecting Starbucks business in the Italian market? Why are these factors affecting the Italian market?
2. Explain the impact of these factors on Starbucks’ marketing. Give a specific example for each factor.
3. Based on your analysis of the two previous questions, discuss the promotion strategies of Starbucks in the Italian market. What modifications to the company’s product components might be necessary?
4. For the promotion strategies that you have outlined in the previous question (Q3), suggest two specific recommendations for these promotion strategies. Give a specific example of how Starbucks should implement these two recommendations in the Italian market.