Price Elasticity in Air Travel

Price Elasticity in Air Travel Introduction: Elasticity is define as the quality sth has being able to stretch and return to its original size and shape. (Oxford advanced learners dictionary 6th edition). In Physics elasticity is defined as the property of a substance that enables it to change its length, volume, or shape in direct response to a force effecting such a change and to recover its original form upon the removal of the force. (dictionaryreference.com). Suppose that your employer allows you to work extra hours more after your contracted hours for extra pay at the end of the month, the amount of extra money you will earn at the end of the month will depend on how much more extra hours you are able to work. Then how responsive you are to this offer can be seen as elasticity. Therefore I will define elasticity as the measure of degree of responsiveness of any variable to extra stimulus. From my example above elasticity can be calculated as Em = percentage of extra money you earn/percentage of extra hours worked. The concept of elasticity can be used to measure the rate or the exact amount of any change. In economics elasticity is used to measure the magnitude of responsiveness of a variable to a change in its determinants (sloman) such as (demand and supply) of goods and services. For the purpose of this essay am going to be examining the concept of elasticity of demand and supply in the airline industry. Types of Elasticity Price or own price Elasticity of demand Income elasticity of demand Cross elasticity Price or own price elasticity of demand It is the measure of the degree of sensitivity or responsiveness of quantity demanded is to a change in price of a product (Edgar.K. browing). Our assumption often is that all demand curves have negative slopes which means the lower the price the higher the quantity demanded but sometimes the degree of responsiveness vary from product to product. For example a reduction in the price of cigarettes might have only bring about a little increase in quantity demanded whereas a supermarket reduction in the price of washing up liquid will produce a big increase in quantity demanded The law of demand and even Common sense tells us that when prices change, the quantities purchased will change too. However, by how much? Businesses need to have more precise information than this they need to have a clear measure of how the quantity demanded will change as a result of a price change. Price elasticity is calculated as the percentage (or proportional or rate) of change in quantity demanded divided by the percentage (or proportional or rate) of change in its price. Symbolically: Pà Ã¢â‚¬Å¾D=%ΆQ/%à ¢Ã‹â€ Ã¢â‚¬  p Here à Ã¢â‚¬Å¾ denotes elasticity and à ¢Ã‹â€ Ã¢â‚¬   Graphically Elasticity measure in percentage because it allows a clear comparison of changes in qualitatively different things which are measured in two different units (sloman). It is the only sensible way of deciding how big a change in price or quantity, so their calls a unit free measurement. Generally when the prices of good increases the quantity demanded decreases, thus either of the number will be negative which after division will end up in a negative result, due to this fact we always ignore the sign and just concentrate on the absolute value, ignoring the sign to tell us how elastic demand is. The larger the elasticity of demand, the more responsive the quantity demanded is of elasticity. Degrees of elasticity Perfectly elastic Highly elastic Relatively elastic Relatively inelastic Highly inelastic Perfectly inelastic Elastic Demand Elastic demand occurs when quantity demanded changes by bigger percentage than price.(Sloman) Here customer has lot of other alternative. The value is always higher than 1, the change in quantity has a bigger effect on total consumer spending than in price. For example if there is a reduction in the price of a bottle of washing up liquid say from  £1.00 to 50p people will buy more probably to store up, in doing this they will end up spending more on the product than they will do on a normal day. An Inelastic Demand Elasticity in airline industry The airline industry is deeply impacted by the elasticity of demand, externalities, wage inequality, and monetary, fiscal, and federal policies. The elasticity of demand is based purely on current market conditions, thcustomers September 11th tragedy had a negative affect on the entire travel industry. It impacted the fiscal and monetary policies, supply and demand, and it created staffing problems nationwide. The rate of wage inequality is improving due to legislation that has created a pay increase in participating cities across the United States. The airline industry is viewed has being unstable because it is based on current market conditions, and the market is always changing. purpose for travel, and available substitutes. Externalities continue to influence the elasticity of demand. The Elasticity of Demand The airline industry is an extremely unstable industry because it is highly dependant upon current market conditions. Events such as inflation, terrorist attacks, and the price of oil have greatly influenced the demand for airline tickets throughout the years. Competition consistently affects the price of airline tickets because it gives the customer other options. Substitutes that are existence is traveling by train, car, or avoiding travel whenever possible. Customers have resorted to all named substitutes during turbulent times in our economy. The elasticity of demand is greatly affected by the customers purpose for travel. Airline customers typically fly for business or pleasure. With the wave of technology, a large percentage of business travel has been eliminated to conserve spending. Elasticity In the airline industry, price elasticity of demand is separated into two segments of consumers and is considered to be both elastic and inelastic. A good example of how elastic demand is related to the airline industry is in relation to travel for pleasure. Pleasure travellers will be affected by the amount of travel they do based on the demand increase or decrease, affected by prices that lower with high demand or prices that rise with low demand; directly attributed to competition in this market (Gerardi Shapiro, 2007). Inversely, the business traveller would apply to an inelastic demand for this market. This has shown by demand increases or decreases, as well as the price distribution attributed, which has little effect on the buying power of the business person (Gerardi Shapiro, 2007). Furthermore, Voorhees and Coppett (1981) explain that elastic demands exist for the pleasure traveler due to demand increase rising while prices lower and vise versa. The business traveler exper iences an inelastic demand due to the quantity of service demanded and quantity has not decreased as prices have risen. In other words, this travel is seen as a necessary business tool, not affected by price changes in the demand curve. As we have seen, the airline industry is extremely price elastic. Small shifts in prices have dramatic effects on the consumer base. Externalities, such as noise ordinances, can cause negative effects, driving cost upward and threatening loss in demand due to a price sensitive customer base. Since deregulation, competition in the economy have kept prices in the industry low and have caused airlines to force cuts in areas such as wages; contributing to a growing concern of wage inequality. Refrences: Gerardi, K., Shapiro, A. (2007, April). The Effects of Competition on Price Dispersion in the Airline Industry: A Panel Analysis. Working Paper Series (Federal Reserve Bank of Boston), 7(7), 1-46. Retrieved April 30, 2008, from Business Source Complete database. Mankiw, N. G. (2004). Principles of economics (3rd ed.). Chicago, IL: Thomson South-Western. Morrison, S., Watson, T., Winston, C. (1998). Fundamental Flaws of Social Regulation: The Case of Airplane Noise. Retrieved May 8, 2008, from http://www.brookings.edu/~/media/Files/rc/papers/1998/09_airplane_winston/09_airplane_winston.pdf Voorhees, R., Coppett, J. (1981, Summer). New Competition for the Airlines. Transportation Journal, 20(4), 78-85. Retrieved April 30, 2008, from Academic Search Premier database. The airline industry is a private good. Mankiw (2004), states that private goods are excludable and rival goods. One needs to see through the anti-trust laws and regulations that tempt some to call the industry a natural monopoly; airlines still reserve the right to administer price and destination. The airline industry shows that it is an excludable good by having the power to place prices on fares and having the ability to refuse service to any person for whatever the reason. The airline industry also shows that it is a rival good because when someone purchases fare for a seat, it diminishes the ability for another person to get a seat on the plane. Because the airline industry is a private good, in a competitive market place, prices, supply, and demand are very sensitive to new policies or tax incidences placed on them. Associated content.com viewd 18/11/10 WordPress.comThis phenomenal increase in the demand for domestic air travel is not surprising. Airfare is an expensive commodity that few people can afford or are willing to pay for it. Also, a typical consumer may not be able to avail such commodity regularly. It takes time for the consumer to demand for it again. In economics, this scenario is being explained by its ELASTICITY. The concept of elasticity is being referred as the responsiveness of the quantity demanded of a good or service to a change in its price, income, or cross price. This post will provide a better understanding on this matter, specifically the price elasticity. Analysis Below consists of indicators that determines the elasticity of a good/service. Domestic air travel has been employed as a sample commodity. Substitutes. (The more substitutes it has, the higher the elasticity.) Airlines have numerous substitutes such as land or sea transportation. Percentage of Income. (The higher the percentage that the products price is of the consumers income, the higher the elasticity.) Airfares are too expensive relative to household income. Necessity. (Basic goods have lower elasticity.) Airline tickets are luxury goods. Duration. (The longer a price change holds, the higher the elasticity.) Airline fare does not change for a long time. Breadth of Definition. (The broader the definition, the lower the elasticity.) Domestic airline travel has more specific definition than ordinary air transportation. 1. Introduction The purpose of this study is to report on all or most of the economics and business literature dealing with empirically estimated demand functions for air travel and to collect a range of fare elasticity measures for air travel and provide some judgment as to which elasticity values would be more representative of the true values to be found in different markets in Canada. While existing studies may include the leisure business class split, other important market distinctions are often omitted, likely as a result of data availability and quality.[3] One of the principal value added features of this research and what distinguishes it from other surveys, is that we develop a meta-analysis that not only provides measures of dispersion but also recognizes the quality of demand estimates based on a number of selected study characteristics. In particular, we develop a means of scoring features of the studies such as focus on length of haul; business versus leisure; international versus domestic; the inclusion of income and inter-modal effects; the age of the study; data type (time-series versus cross section) and the statistical quality of estimates (adjusted R-squared values). By scoring the studies in this way, policy makers are provided with a sharper focus to aid in judging the relevance of various estimated elasticity values.[4] 2. Elasticity in the Context of Air Travel Demand. Elasticity values in economic analysis provide a units free measure of the sensitivity of one variable to another, given some pre-specified functional relationship. The most commonly utilized elasticity concept is that of own-price elasticity of demand. In economics, consumer choice theory starts with axioms of preferences over goods that translate into utility values. These utility functions define choices that generate demand functions from which price elasticity values can be derived. Own-price elasticity of demand concept airtrav_2e.gif (1,979 bytes) Therefore elasticities are summary measures of peoples preferences reflecting sensitivity to relative price levels and changes in a resource-constrained environment. The ordinary or Marshallian demand function is derived from consumers who are postulated to maximize utility subject to a budget constraint. As a goods price changes, the consumers real income (which can be used to consume all goods in the choice set) changes. In addition the goods price relative to other goods changes. The changes in consumption brought about by these effects following a price change are called income and substitution effects respectively. Thus, elasticity values derived from the ordinary demand function include both income and substitution effects.[5] Own-price elasticity of demand measures the percentage change in the quantity demanded of a good (or service) resulting from a given percentage change in the goods own-price, holding all other independent variables (income, prices of related goods etc.) fixed. The ratio of percentage changes thus allows for comparisons between the price sensitivity of demand for products that might be measured in different units (natural gas and electricity for example). Arc price elasticity of demand calculates the ratio of percentage change in quantity demanded to percentage change in price using two observations on price and quantity demanded. Formally this can be expressed as: Equation(1) where: Equationrepresent the observed change in quantity demanded and price Equationrepresent the average price and quantity demanded. The elasticity is unitless and can be interpreted as an index of demand sensitivity; it is measuring the degree to which a variable of interest will change (passenger traffic in our case) as some policy or strategic variable changes (total fare including any added fees or taxes in our case). In the limit (when Equationare very small) we obtain the point own-price elasticity of demand expressed as: Equation(2) where: Q(P,S) is the demand function P = a vector of all relevant prices p = the goods own-price. q = equals the quantity demanded of the good S = a vector of all relevant shift variables other than prices (real income, demographic characteristics etc.) We expect own-price demand elasticity values to be negative, given the inverse relationship between price and quantity demanded implied by the law of demand, with absolute values less than unity indicating inelastic demand: a less than proportionate response to price changes (relative price insensitivity). Similarly, absolute values exceeding unity indicate elastic or more sensitive demand: a more than proportionate demand response to price changes (relative price sensitivity). The ratio of change in quantity demanded to change in price [equation (1)] highlights that elasticity measures involve linear approximations of the slope of a demand function. However, since elasticity is measuring proportionate change, elasticity values will change along almost all demand functions, including linear demand curves.[6] Estimation of elasticity values is therefore most useful for predicting demand responses in the vicinity of the observed price changes. As a related issue, analysts need to recognize that in markets where price discrimination is possible aggregate data will not allow for accurate predictions of demand responses in the relevant market segments. In air travel, flights by a carrier are essentially joint products consisting of differentiated service bundles that are identified by fare classes. However the yield management systems employed by full-service carriers (FSCs) also create a complex form of inter-temporal price discrimination, in which some fares ( typically economy class) decline and some increase (typically full-fare business class) as the departure date draws closer. This implies that ideally, empirical studies of air travel demand should separate business and leisure travellers or at least be able to include some information on booking times in order to account for this price discrimination, and that price data should be calibrated for inter-temporal price discrimination: for example, the use of full-fare economy class ticket prices as data will overestimate the absolute value of the price elasticity coefficient. Within the set of differentiated service bundles that comprise each (joint product) flight, the relative prices are important in explaining the relative ease of substitution between service classes. Given the nature of inter-temporal price discrimination for flights, the relative price could also change significantly in the time period prior to a departure time. The partial derivative in (2) indicates that elasticity measures price sensitivity independent of all the other variables in the demand function. However when estimating demand systems over time, one can expect that some important shift variables will not be constant. It is important that these shift variables be explicitly recognized and incorporated into the analysis, as they will affect the value of elasticity estimates. This will also be true with some cross-sectional studies or panels.[7] In particular changes in real income and the prices of substitutes or complements will affect demand. In air travel demand estimations, income and prices of other relevant goods should be included in the estimation equation. Alternative transportation modes (road and rail) are important variables for short-haul flights, while income effects should be measured for both short and long-haul. The absence of an income coefficient in empirical demand studies will result in own-price elasticity estima tes that can be biased. With no income coefficient, observed price and quantity pairs will not distinguish between movements along the demand curve and shifts of the demand curve.[8] The slope of a demand function, which affects the own-price elasticity of demand, is generally expected to decrease (become shallower) with: The number of available substitutes; The degree of competition in the market or industry; The ease with which consumers can search and compare prices; The homogeneity of the product; The duration of the time period analyzed.[9] Given the implied relationships above, any empirical demand study should carefully define market boundaries to include all relevant substitutes and complements and to exclude products that might be related through income or other more general variables. In air travel, ideally market segment boundaries should be defined by first separating leisure and business passengers and second long-haul and short-haul flights. The reason is that we expect different behaviour in each of these markets. Within each of these categories, distinctions should then be made between the following: Connecting and origin-destination (O-D) travel; Hub and non-hub airports;[10] Routes with dominant airlines and routes with low-cost carrier competition. In addition, for the North American context, long-haul flights should be further divided into international and domestic travel (within continental North America). These market segment boundaries are illustrated in figure 2.1 below, which also highlights the relative importance of intermodal competition for short-haul travel. While distinctions in price and income sensitivity of demand between business and leisure or long and short-haul travel are more intuitive, other distinctions are perhaps less obvious. If available, data that distinguishes between routes, airlines and airports would provide important estimates of how price sensitivity is related to the number of competing flights and the willingness to pay of passengers utilizing a hub-and-spoke network, relative to those traveling point-to-point, more commonly associated with low cost carriers. To the extent that existing studies assume that each passenger observation represents O-D travel, they will not be capturing fare premiums usually associated with hub-and-spoke networks and full service carriers, nor will they necessarily capture the complete itinerary of travellers utilizing a number of point-to-point flights with a low cost carrier. For example, a passenger who travels from Moncton to Vancouver with Air Canada, and utilizes the hub at Pears on International airport, is being provided with a number of services that includes baggage checked through to the final destination and frequent flyer points as well as a choice in flights and added flight and ground amenities. The fare for Moncton-Vancouver includes a premium for these services. Now consider a passenger that is travelling with WestJet from Moncton to Hamilton, and then with JetsGo from Toronto Pearson Airport to Vancouver. In this case there are no frequent flyer points to be attained and baggage has to be collected and re-checked after a road transfer between Hamilton and Pearson International. Although the origin and destination is the same for these passengers, the itineraries are significantly different. In many cases data used for demand estimates would not able to account for these differences. Route-specific data can also capture competition that may exist between airports and the services they offer as well as airlines. This may be especially true for certain short-haul routes where intermodal competition (road and rail) can play an important role in shaping air travel demand. 3. Measurement Issues Oum et al. (1992) provide a valuable list of pitfalls that occur when demand models are estimated and therefore affect the interpretation of the elasticity estimates from these empirical studies. 1. Price and Service Attributes of Substitutes: Air travel demand can be affected by changes in the prices and service quality of other modes. For short-haul routes (markets) the relative price and service attributes of auto and train would need to be included in any model; particularly for short-haul markets. Failure to include the price and service attributes of substitutes will bias the elasticity. For example, if airfares increase and auto costs are also increasing, the airfare elasticity would be overestimated if auto costs were excluded. 2. Functional Forms: Most studies of air travel demand use a linear or log-linear functional specification. Elasticity estimates can vary widely depending on the functional form. The choice of functional form should be selected on the basis of statistical testing not ease of interpretation. 3. Cross-Section vs. Time-series Information: In the long run demand elasticities for non-durable goods and services are larger in absolute terms, than in the short run. This follows because in the long run there are many more substitution possibilities that can be used to avoid price increases or service quality decreases. In effect there are more opportunities to avoid these changes with substitution possibilities. Data tends to be cross-sectional or time-series although more recently panels have become available. A panel is a combination of cross-section and time-series information on several routes for a multi-year period is a panel. Cross-sectional information is generally regarded as indicating short run elasticities while time-series data is interpreted as long run elasticities. In time-series data the information reflects changes in markets, growth in income, changes in competitive circumstances, for example. Policy changes should rely on long run elasticities since these ar e long run impacts that are being modelled. Short run elasticities become important when considering the competitive position of firms in a highly dynamic and competitive industry. 4. Market Aggregation/Segmentation: As the level of aggregation increases the amount of variation in the elasticity estimates decreases. This occurs because aggregation averages out some of the underlying variation relating to specific contexts. Since air travel market segments may differ significantly in character, competition and dominance of trip purpose, interpreting a reduction in variation through aggregation as a good thing would be erroneous. Such estimates might have relatively low standard deviations but would be also be relatively inaccurate when used to assess the effect of changes in fares in a specific market. 5. Identification Problem: In most cases only demand functions are estimated in attempts to measure the demand elasticity of interest. However, it is well known that the demand function is part of a simultaneous equations system consisting of both supply and demand functions. Therefore, a straightforward estimation of only the demand equation will produce biased and inconsistent estimates. The problem of identification can be illustrated by describing the process by which fares and travel, for example, are determined in the origin-destination market simultaneously. To model this process in its entirety, we must develop a quantitative estimate of both the demand and supply functions in a system. If, in the past, the supply curve has been shifting due to changes in production and cost conditions for example, while the demand curve has remained fixed, the resultant intersection points will trace out the demand function. On the contrary, if the demand curve has shifted due to changes in personal income, while the supply curve has remained the same, the intersection points will trace out the supply curve. The most likely outcome, however, is movement of both curves yielding a pattern of fare, quantity intersection points from which it will be difficult, without further information, to distinguish the demand curve from the supply curve or estimate the parameters of either.[11] Earlier we identified sources of bias that can arise from problems with aggregation, data quality, implicit assumptions of strong separability among others. Almost all demand studies have an implied assumption of strong separability in that they only consider aviation markets in the analysis. Such studies in effect constrain all changes or responses in fares or service to be wholly contained in the aviation component of peoples consumption bundle. The paper by Oum and Gillen (1986) is the one exception where consideration of substitution with other parts of consumption was included in the modelling. It would be difficult to extract a conclusion from this one study as to existence, degree and direction of bias in elasticity estimates when other parts of consumption are and are not included in the modelling. However, having said this, an inspection of the elasticity estimates from this study shows they are not significantly different than other time-series estimates. 3.1 Data Issues Elasticity estimates depend critically on the quality and extent of the data available. Currently, the best data for demand estimation is the DB1A 10 percent ticket sample in the US, but even this data has some problems.[12] The DB1A sample represents 10 percent of all tickets sold with full itinerary identified by the coupons attached to the ticket. However with electronic tickets, as more and more tickets are being sold over the Internet, there is a growing portion of overall travel that may not be captured in the sample. This means that the proportion is not 10 percent but something less.[13] Other important considerations are the amount of travel on frequent flyer points, by crew and airline personnel. In Canada we have poor quality data because it is incomplete, even if it were accessible. Airports collect traffic statistics but these data make it very difficult to distinguish OD and segment data. Airlines report traffic data to Statistics Canada (or are supposed to) but these data do not include fare information or routing. Knowing the itinerary or routing is important because of differences in service quality and hubbing effects. Fare data is also more useful than yield information since it identifies the proportion of people travelling in different fare classes. Yet, in many cases yield information is used as a weighted average fare. There is also the problem that carriers of different size may have different reporting requirements. Some researchers and consultants have been cobbling together data sets for analysis by using the PBX clearing house information. These data are limited and apply only to those airlines that are members of IATA.[14] The current public data available in Canada simply does not permit estimation of any demand models. Besides demand side data it is also important to have supply side information. Elasticity estimates should emerge from a simultaneous equations framework. This data is more accessible through organizations like the OAG[15], which provide information on capacity, airline and aircraft type for each flight in each market.[16] These data measure changes in capacity, flight frequency and timing of flights. One study, which undertook an extensive survey to collect multimodal data,[17] was the High Speed Rail study sponsored jointly by the Federal, Ontario and Quebec governments. This study, which had three different demand modelling efforts, examined the potential for High Speed Rail demand, and subsequent investment, in the Windsor-Quebec corridor. The analysis included intermodal substitution between air, rail, bus and car. The study was undertaken in the early 1980s. However, it is not possible for public access to any of the technical documents that would allow an assessment of the study. Attempts in the past to obtain access to the data have proven fruitless. 3.2 Distinguishing Elasticity Measures As we have stated, price elasticity measures the degree of responsiveness to a change in own or other prices (fares). However, care must be exercised in interpreting the elasticity since they differ according to how they have been estimated. Many empirical studies of air travel demand estimate a log-linear model. In evaluating such studies, it is important to keep in mind that the empirical specification implies a certain consumer preference structure because of the duality between utility functions and demand functions. It is equally important to remember that empirically estimated demand functions should contain some measures of quality and service differences or quality changes over time. Failure to include metrics for frequent flyer programs, flight frequency, destination choice or service levels in estimating an air demand function can lead to downward bias in the price elasticity estimates. Price elasticities can be estimated for aggregate travel demand as well as modal demand. Figure 3.1 illustrates the differences between aggregate and modal elasticities.[18] Our interest is in modal elasticities not the aggregate amo

Comparison of Book and Movie of One Flew Over the Cuckoos Nest :: Movie Film comparison compare contrast

Comparison of Book and Movie of One Flew Over the Cuckoo's Nest      Ã‚  Ã‚  Ã‚  Ã‚   One Flew over the Cuckoo's Nest is a book written by Ken Kesey to accomplish a certain mood within it's chapters.   The feelings and moods given in the book differ greatly from those in the movie because of multiple changes in character development.   Each and every time a movie is produced from a book, the producers are forced to change parts of the story in order to suit the audiences needs for a faster paced plot.   It is impossible to capture every mood or setting which the author creates.   What is lost can sometimes be the real meaning behind the story.      Ã‚  Ã‚  Ã‚  Ã‚   The characterization of chief Bromden is a good example of the changes made from book to movie.   His past is a vital piece of information contributing to the mood and understanding of the story.   In the movie, Bromden is nothing more than a crazy Indian who doesn't want to talk so pretends to be deaf and dumb.   Much of the understanding and respect is lost in the transition between book and movie.   In the book, Bromden has flashbacks to his childhood, lighting on significant points in his childhood.   His background is never even brushed upon in the movie.   Of course it would have been nearly impossible to tell of Bromdens life in a movie, much less show the world from his point of view as in the book. Bromden is still a very interesting character but the real puzzle to his problems is lost.      Ã‚  Ã‚  Ã‚  Ã‚   McMurphy is a very sly, cunning man.   He knows how to play his game and does it well.   In the book as McMurphy progresses, he goes through many stages where he is rebellious, then docile, then rebellious again.   This is due to the fact that he learns exactly what it means to be committed and what it takes to be released.   Then he begins to see that all his ward mates (I don't know what you want to call them) are counting on him so he becomes rebellious again.   These reactions to his environments encourage McMurphy to be not crazy but intelligent and quick.   This is exactly the way a character such as McMurphy should act.

Johann Wolfgang Von Goethe Essay

Johann Wolfgang von Goethe was a German writer and polymath back in the 1800s. Goethe is considered the supreme genius of modern German literature. Although he was alive so long ago, the ideas he put out there are still pertinent to the modern world: such as my personal life, recent movies, and current events. Goethe came up with this viewpoint on life: Until one is committed there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative (and creation) there is one elementary truth, the ignorance of which kills countless ideas and splendid plans that the moment one definitely commits oneself, then providence moves too. All sorts of things occur to help that would never have otherwise occurred. A whole stream of events issues from the decision rising in one’s favor all manner of unforeseen, incidents and meeting and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can, begin it. Boldness has genius, proven and magic in it. Begin it now! Goethe’s quote is a universal truth. His philosophy is even proven in my life. A project was given to me that I grew abhorrence for. Procrastinating until a couple days before the due date, I became upset and overwhelmed. I started convincing myself I could not do it. My mother said, â€Å"you’re making it harder than what it is. Do your research. Let the ideas come to you. It will all come together once you start. Stop putting it off and just do it. â€Å" With that in mind, I centered my concentration to my project and nothing but my project. Ideas kept coming to me as I let my mind and words flow. I became the person I needed to pretend to be for the project. I completed it to my best ability. I even made the appearance of my project outstanding. My teacher was so impressed with my work that she presented it to the class, and it was passed around the room. It all happened because I focused my mind on that specific goal. The movie Forrest Gump is an all-time favorite. The main character was committed to every task he was given. One day he decided to run, and he ran across the United States. It took him 3 years, 2 months, 14 days and 16 hours until he felt he was finished. Furthermore, while he was at camp in the army, all he did was play ping-pong. All he thought about was ping-pong. He even played ping-pong in his sleep. He was so good a whole crowd would come to watch him play. Even when he was in the army and went to save his â€Å"best good friend† Bubba, he didn’t stop until he found him. He saved his whole platoon that day while searching for Bubba. Every time he was on a mission or had a goal, he would direct all his focus to that particular objective. He had the ability to focus on anything and do it to his full potential. In the world today, we are in an economic crisis. Companies lay off workers; therefore, there are loads of unemployed people. Since they have no jobs, they are not receiving money. Companies aren’t selling much because people have no money to buy things that are not necessities. There is no flow of money. Everyone is afraid to put their cash out there because they are frightened by the fact that they might not be successful and wouldn’t have enough to buy necessities anymore. There is ineffectiveness and hesitancy in the world. No one wants to take a risk and be committed to one thing. Once people devote themselves to fixing the economy, it will happen. However, everyone is waiting on someone else to do it. Just like in the great depression, everyone was afraid to do something about the problem, until everyone said enough is enough and were devoted to fixing the problem; and look what happened because of that. We solved the crisis. In my final analysis, many people are not focused and are worried about too much. Focus on one thing and commit yourself to it. Everything a person does should be there center of attention. By doing this, one will achieve their goal and maybe even more than expected. Goethe’s philosophy shows how to reach a goal: Focus, commit, and do it. Just like Nike, a successful shoe company, says, â€Å"Just do it† and whatever you want to happen, will happen.

Organizational Structure For Abc Systems Business Essay - Free Essay Example

Sample details Pages: 9 Words: 2581 Downloads: 4 Date added: 2017/06/26 Category Business Essay Type Research paper Did you like this example? The purpose of this report is to analyze how ABC Systems could develop and implement human resource strategies that could improve the HR function and organizational effectiveness. This report is divided into sessions. The first session is a briefing about the most appropriate organizational structure and processes for the company taking into account the current external environment. Don’t waste time! Our writers will create an original "Organizational Structure For Abc Systems Business Essay" essay for you Create order The second session talks about different approaches of personnel management, human resource management and strategic human resource management that would help the company to implement change and overcome resistance to change. The third and fourth session is about the companys human resource planning and recruitment and selection processes, to see how they could be enhanced and how capable they currently are to cope with the planned expansion. The fifth session deals with an investigation into the contribution that human resource development and knowledge management could make to enhancing individual and organizational performance. The sixth session is a few recommendations on performance and reward strategies that the company should undertake in order to reduce the high level of turnover within the company. Finally, the last session gives a few suggestions on how to develop a harmonious and trusting employment relationship within the existing and new expanding company. All these sess ions will help ABC systems to achieve its organizational goals and objectives effectively and efficiently. Session 1: Organizational Structure for ABC Systems A firms size can affect the nature of external environmental impacts as well as its ability to respond. Small businesses with limited resources, particularly in terms of finance and management, are unable to scan or analyze the environment and therefore react negatively towards environmental changes. However, small firms have certain advantages over large businesses when it comes to adapting to economic changes. They have a smaller decision-making base in terms of leadership and can also make faster changes in the workforce or product offerings. Generally, some types of small businesses thrive in a slow economy. For example, companies that facilitate vehicle and property repossessions show an increase in profits during a slow economy. Firms that have a solid financial backing can increase in expansion opportunities by buying out their struggling competitors or gaining their competitors customer bases. Similarly, ABC system, a small but growing company will continue to not only e xpand its market but its product portfolio as well. The most appropriate organizational structure for ABC system is the matrix organizational structure. Basically, this design groups employees by both function and product. This structure is useful for companies that deal with multiple products and that work in different geographical areas. In this case, individuals would work across teams and projects as well as within their own department or function. Session 2: Defining Personnel Management, Human Resource Management and Strategic Human Resource Management Personnel management is the process of acquiring, using and maintaining a satisfied workforce. Basically, it deals with rules and regulations made for the personnel working in the organization. The main focus here is the achievement of objectives by giving more powers and authority to managers. Human Resource Management on the other hand, is broader than personnel management. Recognizing the importance of employees and dealing with issues related to people such as compensation, hiring, employee motivation etc. are some of its core functions. The main focus here is the co-ordination and development of the personnel of the organization. Effective human resource management enables employees to do a better job and therefore contribute to the accomplishment of the organizations goals and objectives. Strategic human resource management is defined as linking human resources with the strategic goals and objectives of the company in order to achieve excellent business results. It also helps in developing an organizational culture that foster innovation, flexibility and competitive advantage. In a nutshell, a good HR strategy will always be aligned with the organizational strategy and the HRM policies and programs. Implementing Change Over the years, HRM processes and functions have changed and will continue to change due to the changes in the internal and external environment. As businesses become more competitive, the practice of HRM has become more strategically focused. There are always rapid changes in industries likes telecommunications and computer technologies. In such cases, ABC systems needs to constantly determine whether or not to increase their capabilities in order to have a competitive advantage. The company needs to continuously identify its competitors, its key success factors, product life cycle and well as the driving forces in the buyer sector. For example, in the PC industry, PC components and the software that run them are provided by different suppliers. This means that the company needs to effectively form a good relationship with not only the buyers; but the suppliers as well. Thus, the Strategic human resource management systems needs to be able to recruit, staff and develop employee s to understand the needs of these buyers and suppliers. These in turn, will the firm to achieve the overall organizational goals and objectives. It is vital that every strategic option that the firm considers should have a human resource implication. For example, if the firm has a developed a strategy to implement new technology, then it needs to plan on recruiting and training new staff to understand and use the new technology. HR managers need to play a central role in helping implement change. For example, structural change may require performance reviews to decide who needs to be terminated and who needs to stay. Changing employee attitudes, skills and behavior are efforts that human resource managers need to undertake in an organization undergoing changes. Overcoming Resistance to Change Psychologist Kurt Lewin formulated a change process that can be implemented in the face of resistance. This includes three steps: 1. Unfreezing: Unfreezing means reducing the forces that strive to maintain the staus quo. In this case, HR managers needs to make people understand that there is a need for change and to search for new solutions. Basically, the HR manager needs to establish a sense of urgency. 2. Moving: Moving means helping employees to develop new behaviors, values and attitudes. The main aim here is to alter individuals behavior. 3. Refreezing: By implementing reward systems, performance appraisals and procedures, employees would be motivated to support and maintain these new changes. Session 3: Evaluation of the ABC System Human Resource Planning Human Resource planning is a strategic management process aimed at ensuring that the organization will have the human resources it needs now so that in the future it will be able to achieve the organizational goals and objectives. Through HRP, the organization will be able to match the needs of human resources to those of the business in the short and long term form of a quantitative and qualitative perspective. Furthermore, HRP has a strategic role to play when looking at the ways in which people are employed and developed in order to improve organization performance. Currently, ABC Systems human resource policies and procedures operate on a reactive basis with limited forward planning and strategic thinking. Its structure has evolved rather than being planned. With the planned expansion and increase in competition, ABC Systems would be re-structured. This means new employees would have to be recruited and existing employees need to be trained so that they can adjust easi ly to these changes. Basically, the company would have to take on a more proactive approach. The Following Steps in the process of Human Resource Planning can be applied to ABC Systems. The HRP is normally done by the HRD manager: 1. Review of Organizations Objectives The HRD manager studies the objectives of the organization and analyses all the jobs needed to achieve these objectives. 2. Estimation of Manpower Requirements The Manpower requirement is estimated by the HRD manager. Basically, he studies the number of employers and managers required to do the job in the organization. This estimation is done in terms of quantity and quality. 3. Estimation of Manpower Supply The HRD manager then estimates how many managers and employers are available in the organization. 4. Comparison of Manpower Comparisons are done to understand the manpower requirements and manpower supply. 5. Difference In case of no difference, the HRD manager does not take any act ion. However, if he comes across a difference, the HRD manager should take the following actions: Manpower Surplus In the case of a manpower surplus, the following actions are undertaken: 1. Termination 2. Lay Off 3. Voluntary Retirement 2. Manpower Shortage: 1. Promoting Staff Internally 2. Overtime 3. Training to improve quality 4. Hire staff externally, etc 6. Motivation of Manpower Employees are motivated by providing financial and non-financial incentives 7. Monitoring Manpower Requirements The HRD manager needs to constantly monitor the manpower requirements. When an employee leaves the company, it should not stop the functioning of the day-to-day activities of the firm. Session 4: Evaluation of ABC Systems Recruitment and Selection Process: It can be seen that ABC Systems has a high turnover rate, with a number of employees leaving within a short period after the recruitment and selection process. Through recruitment, an organization aims to attract the most suitable employees to a particular job. The selection process on the other hand, involves choosing suitable individuals for a specific job. However, at ABC Systems, employees are recruited without the application of formal assessment methods. This means that the competent individuals are doing jobs that are unsuitable for them. In order to increase quality outputs and reduce turnover, it is vital that individuals are placed at the right job and at the right time. ABC Systems can achieve this by recruiting employees from inside the organization through techniques such as internal promotions, lateral transfers and job rotation. This type of technique is cost effective and provides opportunities for employees to develop their careers within the organization. Ho wever, at the same time, it prevents new ideas from emerging because the present staff continues to work in the existing ways of working. ABC Systems need to take into account both the cost of recruiting employees and the importance of linking this process with other human resource processes. If this recruitment and selection process is ineffective, it may lead to a range of issues including those with performance management, learning and development and ultimately retention. Session 5: Evaluation of Human Resource Development in enhancing individual and organizational performance Human Resource Development involves training employees, providing opportunities to learn new skills, ensuring that employees have the resources to perform day-to-day activities and above all perform their jobs to their full potential. The employees at ABC Systems are not given an induction at the start of the employment. An induction essentially helps employees understand organizational philosophies, goals, objectives, regulations and practices. It also helps the new employee to familiarize with his superiors, subordinators and peers. A good induction programs is the basement of mutual understanding for all parties. Currently, employees are incompetent to carry out their allocated tasks effectively. This results in mistakes and a reduction in quality and output. One way, ABC Systems can eliminate these issues is to give more importance to the training and development of both existing and new staff. Technically, training helps changing attitudes, skills and knowledge of a pers on and therefore results in an improvement of the behavior and skills of the employee. Trainings should be planned keeping in mind the individual goals as well as the organizational goals. This is in turn, helps the organization achieve effectiveness and sustainability. Session 6: Recommended Performance and Reward Strategy for ABC Systems Performance Management Performance Management is a strategic approach which helps in increasing an organizations overall effectiveness. This can be done through improving the capability, competence and performance of individuals and teams. The main aim here is to align individual objectives to organizational objectives and reward these individuals appropriately for their contribution towards the organization. ABC Systems needs to develop and implement an effective Performance Management System (PMS). This requires the following 1. A clear alignment between the corporate strategy and all other strategies. 2. Engagement of all employees with senior management, which plays an important role in cascading objectives downwards. 3. A review, or appraisal, process, that provides informative feedback on a regular basis. Performance Appraisal This is an integral part of PMS, as it allows the employees to discuss their performance with their line manager. This performance review is done by comparing the individuals performance with the set of agreed objectives. Furthermore, it provides an assessment of the employees suitability for promotion, further development and reward levels. Reward Strategies Individuals perform their jobs in anticipation of rewards. All employees look forward to their basic salary in return for their days work. Thus, ABC Systems needs to consider the type of payment system used as a part of their reward system in order to attract and retain employees. Basically, effective reward systems would help the organization to be more competitive, increase motivation, retain key employees and reduce turnover. ABC Systems can use extrinsic as well as intrinsic rewards. Extrinsic rewards are external rewards that are tied to certain employee behaviors, skills or roles in an organization. For example, an employee who is overworked may value additional vacation time or reduced workload compared to a few extra pounds. Intrinsic rewards on the other hand are derived from the satisfaction an employee gets because they have done a job well. For this purpose, Job Enrichment needs to be done by the manager. This involves improving work processes and environments so tha t the job is more satisfying for employees. Session 7: Initiatives that will help develop employment relationships within the existing and new expanding company. Employee Relationship is basically the relationship which exists between the employers and employees in the workplace. Currently, ABC Systems have a poor communication issues amongst employees. This has led to reduction in morale and also has de-motivated the employees. Generally, lack of communication in the organization, such as between managers and employees, results in conflicts which can harm an organization. Following are a few ways that ABC Systems can develop good employment relationships: Psychological Contract: One way to develop harmonious and trusting relationships is to enable employers to enter into psychological contracts with their employees. A psychological contract expresses a set of expectations that are exchanged between a set of parties in an employment relationship. Such parties include employers, managers, individual employees and other colleagues. For example, at Designs, employees were allowed to leave work early every Tuesday afternoon. This arrangement was never written, but has always been acknowledged by the management. However, it should be noted that breach of this psychological contract could damage employment relationship and affect the commitment of the employees. Equality of Opportunity And Managing Diversity It is essential that the company promote a work environment that recognizes the importance of respect for different races, sexes and backgrounds of individuals within the organization. With the expansion of ABC Systems, the company will be recruiting new employees from different backgrounds and cultures. It is therefore vital that the company put into place policies and practices to build an inclusive and harmonious workplace. Companies that manage an excellent diverse workforce are able to bring about better business performance and higher employee engagement. Deal With Conflict Situations With employees from different backgrounds, age groups and cultures; it is likely that the organization will have to deal with conflict situations. In such cases, it is essential that discipline and grievance procedures be implemented. The disciplinary and grievance procedures provide a framework for dealing with conflicts that occur between the employer and employee. Such procedures ensure that employees are treated in the same way in similar circumstances and that issues are deal with quickly. Session 7: References