ADVANCED MANAGERIAL PRINCIPLES AND OERATIONS MGT

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SECTION A

Question 2a

Analyze the reasons for Rock Bottom's success or failure in each of the three phases identified in
the scenario. Evaluate how Rick Hein's leadership style contributed to the success or failure of
each phase.

Answer

This case study presented provides the success and failure story of Rock Bottom founded by
Rick Hein. Rock Bottom’s life is presented in three phases.

Phase I (1965-1988)

This period was the foundation and Growth phase of Rock Bottom. When Rock Bottom initially
opened, it stood in stark contrast to the general stores, which sold domestically manufactured
electrical items alongside other household goods. Rock Bottom specialized primarily in selling
electrical products, as well as Japanese imports. Japanese goods were new to the country, but
they were more sophisticated and dependable than domestic alternatives. As a result, the new
goods were in the introduction and growth phases of their product life cycles at the time.

During this stage, the firm experience rapid growth and huge success. During this time, Rick
Hein was a democratic leader which means he considered all employees equal and was
apprehensive of all opinions. In terms of marketing, the creative manner Rock Bottom promoted
its products set them apart from prospective competitors. The stores were designed to be
specialized shops, distinct from the general stores where customers typically purchased the sort
of items supplied by Rock Bottom, perhaps allowing Rock Bottom to have a first mover
advantage in this market. Rick Hein additionally ensured that clients were aware of Rock Bottom
by cultivating a strong public presence, a distinct image, and staging stunts to publicize the firm.
Rick Hein saw the rising purchasing power of young people, who desired to spend their
disposable income on high-tech electronic items in order to enjoy popular music. Rock Bottom
was designed specifically to meet those requirements. Rock Bottom made advantage of
technology by seizing possibilities provided by the advancement of the Japanese electronics

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sector. The market/environment is responsible for the components of Rock Bottom's success
stated above. However, Rick's leadership style also contributed to Phase I's success. Rick was a
dynamic leader and entrepreneur who created a vision for the organization and then encouraged
employees to work toward it. Rick was a great motivator as well. He hired young people who
were knowledgeable about the items they were marketing. Rick recognized that his staff's talents
and expertise were critical to Rock Bottom's success, and success was generously rewarded.

Phase II (1989-20X2)

This period saw the firm fully functional and past the growth stage (Maturity Stage). During this
stage the firm experienced drastic change in leadership (Rick Hein became less democratic,
leaning words autocracy). The firm also went public and franchises were considered. During this
time, competition was at an all-time high. By the late 1980s, a slew of new entrants had joined
the market. As most rivals were able to join the market and duplicate Rock Bottom's product
offering and service style, Rock Bottom's distinguishing edge faded. As a result, Rock Bottom
will be unable to maintain its distinct competitive edge. As consumers are split among a rising
number of rivals, it will be unable to continue sales and profit growth.

Rock Bottom was approaching the mature stage of the industry life cycle, and the leadership
needed to adapt to this shift in product life cycle. Rick's strategy was to list the firm on the stock
exchange and utilize the proceeds to grow the business. This choice, however, caused a number
of issues for the firm. For starters, the firm was now under pressure to give shareholders with
acceptable returns. The firm would now be required to pay dividends to outside shareholders as
well as monitor and maintain the stated share price.

Also, Rick altered the firm's organizational structure and approach in an attempt to build the
company so that it could produce value to its owners. Managers have less freedom and flexibility
as their amount of control grew. Furthermore, the reward packages are more carefully managed.
The new changes did not impress the managers, and several of them departed. Furthermore, as a
public company, Rock Bottom was required to publish information concerning the compensation
of its directors. Shareholders perceived Rick's personal image and lifestyle to be extravagant and
decadent. Combining the responsibilities of Chairman and CEO was unlikely to be good business
practice for a public firm.

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In terms of leadership style, Rick was unable to adapt to a developing marketplace and
organizational structure. His personal image and lifestyle were now causing problems for the
firm, and he struggled to understand that he now had to follow rules and governance, as well as
serve stakeholders/shareholders, rather than do what he wanted.

Phase III (20X3-20X8)

In Phase III, the firm was not competitive as before. This phase was the downfall of the firm.
There was difference in opinions between owner (Rick Hein) and the workers. Whereas in Phase
I, Rock Bottom provided new and intriguing items, by the turn of the century, music was
increasingly being played via downloaded computer files or MP3 devices rather than through hi-
fi systems. The popularity of the product was decreasing. The Rock Bottom product line has not
been changed to reflect this. Hi-fi systems are considerably more dependable than they were in
the 1960s at the turn of the century, and hence endure much longer. As a result, individuals have
to update their equipment less regularly, lowering demand for Rock Bottom's products even
further.

In addition, Rock Bottom has remained to operate only as a high-street business, with no plans to
create an internet store. The operational costs of a high street shop vs an internet business imply
that Rock Bottom no longer has the low cost advantage that it had in Phase I. The internet had
also made pricing more transparent, allowing consumers to evaluate various merchants and items
before selecting what to buy and where to buy it. This empowered customers by providing them
with a far broader range of products and suppliers. Rock Bottom would be driven out of the
market if they are unable to operate at low enough expenses to maintain their prices competitive.

Rick's leadership style had an impact on Rock Bottom as well. Rick alienated his supervisors
with his disorganized and unfocused attitude, and he alienated himself much more by being
hostile and unpleasant to them. He reacted to the freedom afforded by no longer being a public
business by spending a huge sum of money on a celebration party, further undermining the
company's already tarnished reputation.

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Question 2b &c

Rick Hein considered franchising the Rock Bottom brand at two points in its history -1988 and
20X7.

Explain the key factors that would have made franchising Rock Bottom feasible in 1988 but
would made it ‘unlikely to be successful’ in 20x7

Answer

It is true that Rick Hein considered franchising the Rock Bottom brand at two points in its
history -1988 and 20X7. From the case, two (2) major reason can be identified as to why
franchising Rock Bottom would have been feasible in 1988 but unlikely to succeed in 20X7.
First, there is the case of financial performance. In the case of Rock Bottom, the firm was a
successful, profitable company in 1988 and an unsuccessful company in 2007. The more
profitable a firm is, the more tempting it is to potential franchisees. Franchises invest in the firm
in the intention of receiving a share of the earnings. Rock Bottom was still financially successful
in 1988, making it appealing to franchisees. Rick Hein would have made money through
franchising, which he might have spent to improve the brand's image. He would not have needed
to list the firm on the stock exchange in order to acquire capital, and the brand would not have
suffered as a result. Furthermore, a significant amount of future risk would have been shifted
from the company to the franchisees. Clearly, franchising would have been a wise idea at the
time. However, by 2007, Rick Hein had a challenge because the majority of Rock Bottom's
stores were now losing money. Franchisees are unlikely to want to invest in a firm that is losing
money. It is a challenge to sell franchise when a firm’s profitability takes a hit.

There is also the problem of brand image, which is linked to the firm's success in certain
respects. When a franchisee invests in a firm, a large portion of what they are purchasing is the
brand itself; hence, the better the brand, the more likely the franchise will thrive. The brand was
strong in 1988, and it was regarded to be youthful and creative. It was a major name in the
industry, and as such, it is likely to have maintained client loyalty long after other competitors
entered the market. This would be appealing to prospective franchisees. However, the brand
image was negative in 2007. Rick Hein’s lavish lifestyle had affected client views, and the firm
itself had become out of date for the contemporary market, with no online offerings considering

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the emergence of technology. Potential franchisees would be turned off by this firm and would
instead invest their money in a company with a better, more positive brand image.

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Question 3a

Identify and analyze, using an appropriate model, the internal contextual features that
could influence the success or failure of the chief executive's proposed strategic change.

Answer

PSI's plan to create and market a software package for the general retail business marks a
significant strategic move. It has been quite effective in recognizing and fulfilling the software
needs of a specialized niche market, the retail pharmacy industry, up to this point. It is now
focusing on being a market differentiator. The firm’s projected entry into the general retail
market constitutes both a new product and a new market, and from the standpoint of Ansoff's
growth matrix, it is a diversification strategy with significant risk.

The plan would result in substantial strategic shift and is being met with opposition from the
software development director, who is in charge of a key activity in this transformation. As a
result, plans are frequently incremental in character, modifying prior or current methods.

The proposed change is so fundamental that it calls into question the current business model as
well as the procedures and activities that support it. It has been proposed that there are two
essential measures of change: the kind of change and the extent of change. When the two
fundamental metrics of change are considered, four forms of change may be identified:
revolution, evolution, adaptation, and reconstruction. PSI's intended entry to the broader retail
market looks to be an evolutionary step. It is gradual since it will build on the organization's
existing abilities, practices, and values.

However, it is transformative since the projected shift from the current market niche to a market
requiring a generic solution represents a fundamental shift in strategic direction. Internal
activities and procedures will need to alter dramatically for the firm to effectively create and
implement the new package. In PSI's case, the evolution is pushed from the top down by the
CEO's goal to build a business that is attractive to acquire, at which time he may release part of
his investment in the company.

The three directors may not see the move as innovative in the same way. The suggestion may be
seen by the CEO and the sales and marketing director as an adaptive adjustment, realigning the
firm to capitalize on a commercial opportunity that will lead to the achievement of their personal

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objectives. They may regard the present product as a special implementation, to which the
software development director will almost certainly agree with, based on his/her appraisal of the
change as evolutionary.

Question 3b

The success of any attempt at managing change will be dependent on the context in which that
change takes place. Identify and analyze, using an appropriate model, the internal contextual
features that could influence the success or failure of the chief executive's proposed strategic
change for PSI

Answer:

Change management at a small business like PSI is significantly different from how it would be
done in a huge international firm with hundreds of partners. Considering the contextual factors
that must be considered while determining how to manage a strategic change initiative. A review
of the context for change at PSI should serve as a wake-up call to the CEO. Where the CEO has
the authority to force change, there are issues regarding capacity and scope, which may make it
difficult for the firm to maintain its present resources and capabilities. There is risk that the
planned change would eliminate them, causing issues in their existing market. To address this,
the following recommendations are made.

Frist, considering the fact that in PSI, the CEO wields absolute power, which is bolstered by
ownership of the majority of the shares, the CEO must first obtain the assistance in terms of
cooperation and collaboration, of the software development director. In reality, his position of
authority may lead to his imposing a plan that is fundamentally unsuitable for the company.

Again, it will be important to ensure that PSI has the resources necessary to implement the
suggested adjustment. However, the scenario's evidence is not encouraging. Assume the firm
was recently chastised at a user group convention for failing to achieve its projected release
dates. Obtaining the necessary materials will need both money and time. There is no evidence
that the firm is financially capable of acquiring additional resources. Since it is a private
corporation, it cannot raise funds through the stock market. It will be dependent on additional
investments from present stockholders, and the software development director may be hesitant to

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engage. Furthermore, integrating software engineers into a firm takes time. They must learn how
the product works and is developed. Because they are unlikely to be a productive unit many
months or years after being appointed, and this lack of development may coincide with the chief
executive's frustration.

To add to this, there is no indication that the company is prepared for the sort of transformation
requested by the CEO. The present strain on the software development team suggests that the
suggested new strategy may be met with hostility. They could be ready for a plan that leads to
the consolidation of pharmaceutical goods so that flaws are addressed and new needs are
provided on time.

Furthermore, if there is a wide range of experience, then change may be beneficial. Change may
be impeded if the company has adopted a specific strategy for a period of years. The firm's stated
goal of becoming a highly trained professional organization offering excellent software services
to the retail pharmacy industry, as well as the company's relative stability during the previous
three years, appear at odds with the chief executive's vision of development. There is also
evidence that the goals of the sales force and those of the software developers are already at
odds, and this appears to be considerably more likely in the setting of a generic retail software
package.

Even in a small company like PSI, the degree of change should not be underestimated. The
supply of a clearly defined sector backed by a vertical marketing strategy differs greatly from the
horizontal marketing strategy necessary for the projected entry into the general retail market. It is
doubtful that it will have comparable expertise in both the generic retail sector and the various
specialist retail segments that it plans to target with its flexible software package.

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SECTION B: Part 1

Question 1

Provide five means through which productivity at your work place can be increased
Answer

Productivity at my workplace can be increased a variety of means.

The first of which is the adoption of technology. This will reduce human effort and increase
reliance on automated systems for quick and effective work and delivery.

A second means of improving productivity is the creation of self-managed teams among

employees. This will improve teamwork, collaboration and cooperation, which are essential
aspects of productivity.

A third means of improving productivity is to introduce employee training and development

measures to identify the weaknesses of employees and to help them address these measures.
Training and development can be considered as part of motivation measures.

A fourth function will be to introduce good and efficient monitoring practices as part of
leadership to ensure employees deliver on KPIs.

Finally, productivity can be enhanced through the creation of a strong organizational culture to
improve internal cohesion among employees.

Question 2

Explain why it is important to ensure product components are kept to the barest minimum
whether in a series or in a parallel design form.

Answer

A product must be functional, usable and reliable. However in designing a product, components
must be kept at the barest minimum. This will prevent product impairment and provide for
optimal conditions of the product. This will also save costs and reduce waste.

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Question 3

Why must a business be aware of its order qualifiers and order winners at all times?

Answer

Order qualifiers are necessary attributes that a product must possess for it to be entered into
competition. Order winners, however, are the ‘winning’ attributes that lead to customers buying
a product. Order qualifiers and order winners are significant notes for the business. Businesses
need to be aware of their order qualifiers and winners in order to meet customer expectations. It
also helps the business to meet market demand and consumer specifications.

Question 4

There are two school of thought when it comes to quality management: The optimal quality level
view says that, it is not worth investing in quality at some point, whereas the other view says
quality has no limit irrespective of the cost incurred to achieve it. Explain why you prefer one
over the other especially as related to the underlining business of your job.

Answer

The ideal level of quality spending is the trade-off between the expense of achieving such quality
and the cost of achieving such quality. In accounting, the benefit should always outweigh the
cost. To create a high-quality product, several procedures and processes must be followed. Items
of high quality need to be reasonably priced. Customers do not just examine pricing when
purchasing items; they also evaluate quality. Thus, I am of the view that, quality must be upheld
at a reasonable cost to the business.

Question 5

In few sentences explain what Total Quality Management is and list the main attributes a
business such as a hospital or a fruit juice producer should possess or show to qualify for TQM
certification.

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Answer

Total Quality Management (TQM) is a business management strategy aimed at embedding

awareness of quality in all organizational processes. TQM has been widely used in
manufacturing, education, government and service industries. A business such as a hospital or a
fruit juice producer should possess the following qualities to qualify for TQM certification:

i. Customer focus
ii. Obsession with quality,
iii. Teamwork
iv. Continual Improvement Systems
v. Cleanliness and facility Standards Adherence

Question 6

Why is it important to be mindful of where you locate a business, especially one that provides
only services as compared to one that produces products?

Answer

Choosing a location for a business has always been critical. Location is crucial in attracting and
maintaining the finest workers, many of whom pay special attention to where they work in order
to maximize work-life balance. A company's long-term success can be greatly boosted by good
location. For service based firms, good locations can influence employee recruitment and
accessibility to clients and customers. For product based firms, good location as ease transport to
markets, movement of goods and services, and affect brand acceptance.

Question 7

i. Name one advantage and one disadvantage of Standardization to a service provider.

ii. Name one advantage and one disadvantage of Standardization of a product to a customer.

Answer

Standardization to a Service provider:

Advantage- Lowered costs since the company employs similar strategies across different outlets
and this helps them enjoy economies of scale.

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Disadvantage- Reduces the flexibility of a service provider to cater for custom tastes and
expectations.

Standardization of a Product to a customer:

Advantage- The customer is assured of quality control and is guaranteed a uniform experience
across brands.

Disadvantage- Unique customer needs are not met.

Question 8

A catering company prepared and served 300 meals at an anniversary celebration last week using
eight workers. The week before, six workers prepared and served 240 meals at a wedding
reception. What are some possible reasons for the productivity differences?

Answers

Labor productivity was higher at the wedding event (40 meals per worker) than at the
anniversary (37.5 meals per worker). Despite the decrease in workers, this could be possible if
the workers were better trained or if the workers worked faster. It can also be due to proper
planning by the company or better coordination by employees at the wedding. However, external
factors like the number and attitude of attendees could have influenced the performance.

Question 9

Explain how a careful design of a service can have a great impact on the profitability of an
organization.

Answer

Product design can affect product cost. A good product design factors in the cost-benefit as well
as the efficiency of the product. In effect, reduced cost of a product means increased profit to the
firm. A good product design also has less returns and product damages, which means reduced
expenditure for product management and increased good will for the product. This also leads to

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an increase in the financial performance of the firm. Good designs also reduce transportation
costs, and thus reduces expenses and increases profit.

Question 10

What are the two most important characteristics to consider when deciding on a process for of a
product or service, and why?

Answer

A product is a physical good that a customer can see, touch, feel, try on, taste, or utilize in some
other way. A product can be measured and tallied, but a service cannot. That is, anything a
consumer encounters but does not keep or remember. It is less tangible and results from the
application of talents and experience to a specific demand. Firms that sell just products are on
one end of the business spectrum, while companies that only provide services are on the other.

The characteristics that differentiate the two includes tangibility and value. A product is
tangible. Items such as packaging and presentation may compel a customer to purchase a
product. Services, on the other hand, are not tangible, which can make them more difficult to
promote and sell than a product. Products tend to meet a customer's need or want, therefore
businesses may capitalize on this to sell a product. A service is more about marketing a
relationship and the value of the relationship between the service buyer and supplier. A car, for
example, is something a customer can touch, see, and use. Therapy, for example, is not a
physical service. As a result, the client must comprehend the value of the service, which might
be difficult to convey.

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SECTION B: Part 2

Question 1a

Determine the best site for the warehouse using the center-of-gravity technique.
Answer

The Centre of Gravity Technique is an approach that seeks to compute geographic coordinates
for a potential single new facility that will minimize costs. The formula is given by:

Cx =
∑ d ix Vi Cy =
∑ d iy V i
∑Vi ∑Vi
Where

C = X coordinate of center of gravity

x
C = X coordinate of center of gravity
y
d = X coordinate of the ith location
ix
d = Y coordinate of the ith location
iy
V = volume of goods moved to or from ith location
i

Given,
Tema (11, 12), Osu (7,30), East Legon (52, 35) and Achimota (30, 45),
At 85, 110, 75 and 60 (in 1000’s) tonnes
we have:
11 ( 85 ) +7 ( 110 )+ 52 ( 75 ) +30(60)
CX=
85+110+75+ 60
935+770+ 3900+ 1800
CX=
330
7405
CX=
330
CX = 22.44

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 12 ( 85 ) +30 ( 110 ) +35 ( 75 ) + 45(60)
CY=
85+110+75+60
1020+3300+ 2625+2700
CY=
330
9,645
CY=
330
CY = 29.23
Hence, the best site for the warehouse using the center-of-gravity technique is
(Cx, Cy)= (22.44, 29.23)

Question 1b

i. Explain why there has been an increase in customer service

Answer:

The total reliability of CPP is given as 0.95 and the reliability of components of PPP is 0.97. The
reliability of components of PPP is higher than the total reliability of CPP. It must be noted that,
more components is associated with less reliability, hence an increase in customer service.

ii. What should have been the reliability of the components in order to achieve or
better the reliability provided by CPP?

Answer:

Let Reliability of each component be R

Reliability of components = R1 x R2 x R3 x R4= 0.95.

Hence R4 = 0.95, R= (0.95)1/4

R= 0.987, to 2 dp, R= 0.99

In order to achieve or better the reliability provided by CPP, the reliability of the components
must be 0.99.

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 iii. suggest a new design that will guarantee a reliability that matches at least that
which was provided by CPP without increasing the number of components since
key manufacturing cost is directly proportional to the number of components

Answer:

To improve the reliability of the system, the back-up component should be added to component
with least reliability since this component is more likely to fail.

Reliability of one back up

Reliability= 1- (1-0.97) (1-0.97) = 1- (0.03) (0.03) = 1- 0.0009= 0.9991

New reliability= 0.9991 x 0.97 x 0.97 x 0.97 = 0.91

The reliability of one back up component= 0.91

Reliability of two back ups

Reliability= 1- [(1-0.97) (1-0.97)] x 1- [(1-0.97) (1-0.97)] x 0.97 x 0.97

= 0.9991 x 0.9991 x 0.97 x 0.97 = 0.94

New reliability= 0.94

The reliability of second back up component= 0.94

Reliability of three back ups

Reliability= 1- [(1-0.97) (1-0.97)] x 1- [(1-0.97) (1-0.97)] x 1- [(1-0.97) (1-0.97)] x 0.97

= 0.9991 x 0.9991 x 0.9991 x 0.97 = 0.97

New reliability= 0.97

The reliability of third back up component= 0.97

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Hence, if designers want to improve the reliability by adding a back-up component of same
reliability, they should add the component with reliability of 0.97.

Question 2

a. At what weekly demand for food product 1 would Papaye be indifferent at siting the
machine for product 1 in Accra or Kumasi?

Answer:

Given Accra FC= 500,000 Accra VC= 4 per unit Accra Raw Material= 7 per unit
And Kumasi FC= 700,000 Kumasi VC= 5 per Unit Kumasi Raw Material= 4 per unit
Let units demand = x
Therefore, at TR= TC, we have
500,000+ 4x+ 7x =700,000+ 5x+ 4x
11x-9x = 200,000
Thus x= 100,000
At a weekly demand of 100,000 units
b. Which city should the machine for food product 1 be located if total weekly demand for
food product 1 is expected to be more than that of your answer to question (i) above?
Give reasons for your choice
Answer

The machine should be located in Accra if total weekly demand is expected to be more than
100,000. This is because fixed cost in Accra is lower than that of Kumasi. Thus Papaye operates
at the same demand but at a lower fixed cost.

c. At what weekly demand for food product 2 would Papaye be indifferent at siting the
machine for food product 2 in Accra or Kumasi?

Answer

Given Accra FC= 400,000 Accra VC= 7 per unit Accra Raw Material= 5 per unit

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And Kumasi FC= 800,000 Kumasi VC= 4 per Unit Kumasi Raw Material= 3 per unit
Let units demand = x
Therefore, at TR= TC, we have
400,000+ 7x+ 5x =800,000+ 4x+ 3x
12x-7x = 400,000
Thus x= 80,000
At a weekly demand of 80,000 units

d. Which city should the machine for food product 2 be located if total weekly demand for
food product 2 is expected to be 60000? Give reasons for your choice?

Answer

If total weekly demand is expected to be 60,000, Papaye must locate the machine at Accra where
total cost is less (1,120,000) as compared to Kumasi (1,220,000). Thus the firm will enjoy less
cost and higher economies of scale.

e. If both machines have to be located in one city and if demand for food product 1 is
50,000 and 90,000 and demand for food product 2 is 40,000 and 65,000 in Accra and
Kumasi respectively, which city should the machine be located?

Answer

Total Cost for Accra = 1,930,000

Product 1 Product 2
Fixed Cost 500000 400,000
Variable Cost 4 (50,000)= 200,000 7 (40,000)= 280,000
Raw Material Cost 7 (50,000)= 350,000 5 ( 40,000)= 200,000
Total Cost 1,050,000 880,000

Total Cost for Kumasi = 2,790,000

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 Product 1 Product 2
Fixed Cost 700000 800,000
Variable Cost 5 (90,000)= 450,000 4 (65,000)= 280,000
Raw Material Cost 4 (90,000)= 360,000 3 (65,000)= 200,000
Total Cost 1,510,000 1,280,000

Given the difference in cost the lower cost will be if the machine is located in Accra and thus the
machine should be located in Accra.

f. Suppose Papaye feels transportation cost is significant and wants to include it in the
analysis for question (e). The table below gives the unit transportation cost for both food
products from one city to the other. Which city should both machines be sited?

Answer

The transportation cost for Product 1 and Product 2 is the same and given equal revenue, the firm
will make profits if the machine is located in Accra; owing to Accra having the lesser total cost.

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