In this case study, the situation Byte is facing is that their production facilities are operating at 100% capacity. Byte has three facilities in the United States and they are all running three 8 hr. shifts, 24 hours a day. Since demand for the products is so high, Byte has an immediate need to increase production but lacks the physical space to do so. This is a serious problem because other companies, both domestic and international, have been entering the market due to the high profit margin and consumer demand.
Lack of available products from Byte will leave their loyal buyers no other choice but to entertain these new manufacturers. The C. E. O. and Chairman of the Board of Byte Products, James Elliot has addressed this problem by proposing the construction of a new production plant in the Southwest United States which once in operation will bill able to produce enough to keep up with the current demand. Unfortunately the new plant will take three years to build and if Byte is unable to supply enough product they will lose their hold on the market and other companies will step in to satisfy demand.
Byte Products Essay Example
Mr. Elliot has heard various suggestions from staff specialists on how to address this shortage of product. Byte could license production of their products to another company in the U. S. but premium charged to them to cover the overhead costs would increase the price of the product and they would lose customers. Another option would be to license their products overseas where manufacturing and overhead costs are much cheaper, When the company was was established, the founding members agreed to keep manufacturing in the United States and the shareholders believe this policy has been an asset.
Licensing production overseas would enable others companies to reproduce there efficient production methods as well as leave them vulnerable to patent infringement. Any licensing of Byte’s production would not guarantee quality control and adherence to their standards. The only other option favorable to Mr. Elliot was the temporary leasing of another facility until the construction of the new plant is finished. The empty facility, located in the northeast U. S. could be inexpensively leased but would need three months for renovation.
Unfortunately it has been determined that this facility will never be profitable due to inefficient production, high union labor costs and warehousing and transportation issues. Temporarily though using it for additional production would alleviate the supply shortage. Mr. Elliot feels this is their best option and will present it to the Board at the next meeting. Things do not go as well as he expected when outside director on the board opposes his solution on the premise that it is unethical to set up a temporary plant and disrupt a community.
His arguments surprise and sway members of the board and he tells Mr. Elliot he feel there is no compromising using this temporary facility. Based on the facts of this case study, I feel that Byte management was lacking strategic planning for the future. If sales have consistently increased for the last six years, there should have been a plan put into place at least five years ago to address increased supply demands. Obviously the board and the shareholders were happy that the company was profitable but they did not plan for what was necessary to support future sales.
The C. E. O. who was also on the board is doubly at fault for not doing the same. He should have presented a strategic plan to the board and they should have reviewed it. Corporate governance is one main issue in this case because a board of directors has a responsibility to the shareholders to oversee the activities of the corporation and to insure they are protected as well as to maximize profits. There is a conflict of interest when the C. E. O. is also the chairman of the board because the board may feel pressured to always go along with what the C. E. O. says.
In this case it seems that neither the C. E. O. nor the board had a plan to deal with increased production needs. I think that Byte’s situation should have been addressed initially at the Evaluation and Control step of the strategic management model. They were obviously tracking their increased sales but where was the evaluation of how those numbers affected their production. They should have seen their limitations and planned for their increased product demands. This would have returned them to the first part of the strategic management mode, environmental scanning.
Internally, their strengths did lie in the fact that that had a very efficient production system and they were a leader in the industry but they did not plan for increased production needs and this was a weakness in the structure of the organization and their chain of command. They should have analyzed the capabilities of the three plants they had and set up a pro forma based on increased sales to predict is they would be able to fulfill future orders. Eternally, they did not seem to anticipate that other companies might want to step into the market since there was demand, high profit margins and not a lot of competition.
They should have known that a technology such as theirs would be increasing over time and that in order to stay the industry leader they would have to stay on top of their game and constantly watch out for any competition. I think that the board member who opposed the temporary solution should have expressed his feelings sooner or at least foreseen this situation. It is irresponsible for him to reject the proposal without having some idea of another solution. I think they can come to a compromise. If they do use the empty plant in the northeast U.
S. they can try and bargain with the union to set up a plan that benefits the employees. By letting the community know in advance that the plant will only be open for three years, the company and the unions can work together to come up with a solution that benefits both parties. They could also offer job transfers to their employees. The company cannot realistically expect to make a profit at this plant but must recognize that it exists to offset shortages in production. That is where strategy formulation comes in to play.
If the mission of the company is to supply their products and continue to be the industry leader they need to increase production and plan a schedule for sales fulfillment. There is also the other option of finding a plant closer to where they are building the new facility. Even if they might pay more to lease the building and set it up, the savings from labor costs and transportation costs might offset those factors. Corporate governance and the social responsibility of a company to the community could be addressed at Byte in the future by creating an nterprise strategy which explains the companies ethical values and social responsibilities and analyzes how they relate to the concerns of their various stakeholders.
Stakeholder analysis would identify the primary and secondary stakeholders and the effects of ant strategic decisions on each group. Based on Carroll’s four responsibilities of a business organization, the economic and legal concerns of the primary stakeholders come first. Once these concerns are satisfied the social responsibilities which affect the secondary stakeholders should be addressed.
Ethical responsibilities are standards of behavior not required by law but ignoring them could have serious consequences. Many people are expecting companies to act ethically and will not do business with those who do not act in a socially responsible manner. Even though it might be profitable for a company to operate this way in the long run they will suffer financially. The role of the board of directors of a company has changed significantly over the last decade due in part to ethical breaches made by top management of big companies.
It is now legally required for boards to oversee management and boards themselves are now regulated by government. Management for companies as well as their boards have a responsibility to the shareholders who invest in them and to the stakeholders who enable them to operate. In this case, the profitability of Byte products is at risk as well as their corporate reputation. Proper and thorough strategic planning could have anticipated both situations and would have created strategies to address them both before they became major problems.