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Content

TOPIC

PAGES

1.1INTRODUCTION OF ORGANIZATION

3-6

2.0 PORTER FIVE FORCE ANALYSIS

2.1 SWOT ANALYSIS
2.2 EVALUATION OF SUBWAYS STRATEGIC
STRENGTHS AND WEAKNESSES

7-25

3.0 CONCLUSION

26

4.0 REFERENCE

27

5.0 COURSEWORK

19-21

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1.0 Introduction

In 1965, Fred Deluca had just graduated from high school in Bridgeport, Connecticut,
USA. Like many young adults his age, he had dreams of attending college. Although
he was a hard-working, competent and dependable young man, the $1.25-per-hour he
earned working at the local hardware store wouldnt be enough to finance his
education.

Subway prides itself in being a healthy fast food chain offering a variety of
sandwiches and subs. Founded in summer of 1965, by Fred Deluca and investor Dr.
Buck. As a growth strategy, and in effort to increase profits, they embarked on the
idea of franchising their business
The vision of Subway restaurants is want to be the no 1 Quick Serving Restaurant
(QSR) franchise in the world, while delivering fresh, delicious sandwiches and an
exceptional experience.

There will also a mission for every Subway restaurants all over the world. The
mission is delight every customer so that they want to tell their friends- with
great value through fresh ,delicious made to-order sandwiches and an
exceptional experience.

Every organization has its goals that they wanted to achieve. This is to make sure they
can become a standard and high performance or quality restaurants among all the
competitors. Subways restaurants also have its own goals which are build their
business relationship by serving each other. For instance, their customers, their
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communities and much as they do within their families.

The staff of Subway restaurants always challenge themselves each other to succeed
through teamwork, against shared goals and to be accountable for their
responsibilities.

The Subway restaurants strategic intend to formulating a unique value proposition,

targeting an underserved customer segment, structuring an aggressive franchising
model and expanding internationally.

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There will be some strategic analysis of Subway restaurants which are growth
strategies and porters Generic Strategies.

The growth strategies are all about considering ways to grow, there are four possible
product-market combinations. Subway expands with its existing products to new
markets (Market development). This happens through the franchisees to whom
Subway offers an easy concept. Subway is not looking for new markets or places to
open restaurants, the franchisee contacts Subway.

Porters Generic Strategies is all about a differentiation strategy calls for the
development of a good product or service that offers unique attributes that are valued
by customers. Subway does not focus on just one segment; it has a broad target scope.
Furthermore, the advantage of Subway is the product uniqueness. The customer can
select from a range of sandwiches and customize them. The model below shows
Subways position.

Discouraged, Fred decided to ask Dr. Peter Buck, an old family friend, for some
advice. The two had known each other for years and Fred half expected Dr. Buck to
loan him the money for college after telling him of his plans to study to become a
medical doctor. Instead, Dr. Buck gave Fred an idea that would change his life and the
lives of people around the world.
By lunchtime on the first day Fred and Petes submarine shop was open, customers
were pouring in. From that day on the company continued to grow. Fred and Pete had
a goal of opening 32 submarine sandwich shops within 10 years. By 1974, eight years

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after they opened their first sandwich shop, Fred and Pete owned and operated sixteen
shops throughout the state of Connecticut, only halfway to their goal.

As Fred and Pete looked to grow the business, talk turned to franchising, an idea they
had previously dismissed as something only for the big guys. Determined to
succeed, Fred and Pete decided franchising was the key to achieving their goal. So
Fred met with his friend Brian Dixon and made him an offer he couldnt refuse. He
offered Brian a loan to buy one of their restaurants, but to sweeten the deal, Fred told
Brian that if he didnt like the business, he could return it and owe nothing.

Brian is known as the very first SUBWAY franchisee setting the new standard for
the SUBWAY business model. This enabled Pete and Fred to not only reach their
goal, but surpass it. Today, entering their 46th year of operation, SUBWAY restaurants
is the worlds largest submarine sandwich chain operates more units in the US,
Canada and Australia than McDonalds does. Countless awards and accolades have
been bestowed upon Fred DeLuca and the SUBWAY chain - the SUBWAY name and
its products have even appeared in numerous television and motion picture
productions. The SUBWAY franchise has come a long way from the modest sandwich
shop in Bridgeport, CT.

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2.0 The Five Forces that Shape Industry Competition

The Porter Five Force Analysis is all about the competition in the industry, potential
of new entrants into industry, power of suppliers, power of customers and threat of
substitute products. The name of forces is named after Michael E. Porter, this model
identifies and analyzes 5 competitive forces that shape every industry, and helps
determine an industry's weaknesses and strengths.

There is always a Threat of New Entrant in this market because of the low setting up
cost and no product differentiation in the specific fast food industry. As the UK fast
food market is concern there are lot of examples of new set up in that particular field.

Now a day due to current financial crises and low purchasing Power of Buyers
(Consumer) and their loyalty with brand in not much strong because consumers are
looking for something cheap instead of becoming brand loyal. So Subway must have
to manage the strong buyer's power in order to get more market share. In UK context
there is always a big Threat of Substitute as lot of convenience shops, mid-range
restaurants, precooked food and some of the health food shops are available in the
market, and they are providing substitutes of Subway to the consumers. Fast food
industry is facing a stiff competition as there are lots of fast food chains available for
consumer in other words more Competitive Rivalry. The example of Mc Donald's,
KFC, Burger king etc are the big competitors of Subway. They are competing each
other in term of price, quality, branch networking as overall demand of their products
is increasing.
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Overall the world market of fast food suppliers are concern Bargaining Power of
Supplier is more due to the alliances among the supplier are taking place in order to
get more market share and profit as more potential and demand of their products in
international market as far as the farming industry is concern.

Michael Porter came up with a framework called Porters five forces. Porter wanted
to clarify that an industry is being influenced by five different forces. They are rivalry,
buyer power, threat of entry, supplier power and threat of substitutes. This framework
helps companies understand the strength of current competitive situation and also the
strength of a position the company likes to move into.

The number of buyers has a huge effect on this one but also how powerful a buyer is.
In this kind of market situation the buyers are the ones who set the price.

It is important to a company to know how many competitors there are in the market.
If there are only few competitors, then you have a lot of power and vice versa, the
more competitors there are the less power you have. It also depends on what
competitors are offering to their customers. Customers do not come to you if they do
not get a good deal from you.

New companies are entering the market all the time. Every company should be able to
enter and exit the market whenever they want. In reality there are some factors which
can make the entering really hard, for example, the cost of entry vary from business to
business, the competition in the market and the government which creates barriers.
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In this model, substitute products or services refer to products or services in other

industries. Companies have to think about how easily their products or services can be
substituted. So in other words, companies owners have to look at also what their 14
competitors are doing and what other types of products or services customers could
buy from them instead.

Suppliers play a big role also. Production companies need raw materials and they get
them from suppliers. This involves a relationship between the buyer and the supplier.
If there are only few suppliers in the market, suppliers can sell their products at a high
price and buyers cannot do anything about it.

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The second competitive forces will be Potential of new entrants into industry which
are just same as intensity of rivalry within the industry. Why they are so afraid of the
new entrants into this industry. This is because If new entrants move into an industry
they will gain market share & rivalry will intensify. The position of existing firms is
stronger if there are barriers to entering the market. If barriers to entry are low then
the threat of new entrants will be high, and vice versa.

Barriers are will important to be known as they are vital in determining and knowing
the threat of new entrants. An industry can have one or more barriers. The following
are common examples of successful barriers.

The first successful barrier will be economies of scale available to existing firms. This
means that lower unit costs make it difficult for smaller newcomers to break into the
market and compete effectively.

The second successful barrier will be regulatory and legal restrictions. It states that
Each restriction can act as a barrier to entry.
E.g. patents provide the patent holder with protection, at least in the short run.

Moreover, the barriers which are successful also include access to suppliers and
distribution channels. A lack of access will make it difficult for newcomers to enter
the market

Next barrier will be product differentiation (including branding). Existing products

with strong USPs and/or brand increase customer loyalty and make it difficult for
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newcomers to gain market share.

In addition, barriers also include Investment cost which clearly shows that High cost
will deter entry. High capital requirements might mean that only large businesses can
compete.

Furthermore, retaliation by established products. The threat of price war will act to
discourage new entrants. But note that competition law outlaws actions like predatory
pricing. Last barriers will be customer switching cost.

There will be some of the reasons that make an industry easy or difficult to enter. We
will explain the reasons clearly and summarise the issues we should consider. The
reasons that make an industry easy to enter will be common technology, access to
distribution channels, low capital requirements, no need to have high capacity and
output. Lastly, Absence of strong brands and customer loyalty. All of these will the
reasons that will make an industry enter easily into a market and compete with others.

In turn, there will also reasons that make an industry difficult to enter which are
patented or proprietary know-how, well-established brands, restricted distribution
channels, high capital requirements and need to achieve economies of scale for
acceptable unit costs.

The third competitive forces will be power of suppliers. Suppliers exert power in the
industry be threatening to raise prices or to reduce quality. Powerful suppliers can
squeeze industry profitability if firms are unable to recover cost increases. If a firms
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suppliers have bargaining power they will Exercise that power, sell their products at a
higher price and squeeze industry profits.

We need to know that the suppliers are likely to be powerful if industry is dominated
by a few firms, suppliers products have few substitutes, buyer is not an important
customer to supplier, suppliers product is an important input to buyers product,
suppliers products are differentiated and suppliers products have high switching
costs.

The profit of supplier will be reduced if and only if the supplier forces up the price
paid for input. It follows that the more powerful the customer (buyer), the lower the
price that can be achieved by buying from them. By going through all of these,
suppliers will find themselves in a powerful position when there are no or few
substitute resources available, the customer is small and unimportant, there are only a
few large suppliers, the resource they supply is scarce, the supplier can threaten to
integrate vertically, the cost of switching to an alternative supplier is high and the
product is easy to distinguish and loyal customers are reluctant to switch.

Thus, what is the factors and how much power the supplier has is determined by
factors such as uniqueness of the input supplied. It states that if the resource is
essential to the buying firm and no close substitutes are available, suppliers are in a
powerful position.

Next factor is number and size of firms supplying the resources. A few large suppliers
can exert more power over market prices that many smaller suppliers each with a
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small market share.

Moreover, cost of switching to alternative sources is also one of the factors that
determine the power of supplier. A business may be locked in to using inputs from
particular suppliers e.g. if certain components or raw materials are designed into
their production processes. To change the supplier may mean changing a significant
part of production.

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The fourth competitive forces are bargaining power of customers (buyers)

Within a restaurant industry, the bargaining power of customers is very essential
aspect. This is because the prices should always be kept not higher than the
competitors prices. In this case customers power is strong as customer might set the
price. As soon as prices are increased way too much, the clients will leave our
restaurant and find another one. However, the idea of our business is that we are the
restaurant for students that provide food and drinks for quite reasonable prices. So this
power can be medium.
Powerful customers are able to exert pressure to drive down prices, or increase the
required quality for the same price, and therefore reduce profits in an industry. A great
example in the UK currently is the dominant grocery supermarkets which are able
exert great power over supply firms. There will be some of the factors which are
important in determining the bargaining power of customers.

The first factors will be The cost of switching. It is clearly states that customers that
are tied into using a suppliers products (e.g. key components) are less likely to switch
because there would be costs involved.

The second factor that is used in determining the power of customers is Number of
customers. It states obviously that the smaller the number of customers, the greater
their power.

Moreover, The threat of integrating backwards. It shows that If customers pose a

threat of integrating backwards they will enjoy increased power.
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Next, the factors also include their size of their orders. It explains that the larger the
volume, the greater the bargaining power of customers.

Eventually, the last once will be number of firms supplying the product. The smaller
the number of alternative suppliers, the less opportunity customers have for shopping
around.

The buyer groups are likely to be powerful if buyer has full information, buyers are
concentrated, purchase accounts for a significant fraction of suppliers sales, products
are undifferentiated, buyer presents a credible threat of backward integration and
buyers face few switching costs.

All of these clearly emphasize that buyers compete with the supplying industry by
bargaining down prices, forcing higher quality and playing firms off of each other. We
also need to know what is the time that customers tend to enjoy strong bargaining
power. It only occur when there are a few if them, they find it easy and inexpensive to
switch to alternative suppliers, they can choose from a wide range of supply firms, the
customer purchases a significant proportion of output of an industry and they possess
a credible backward integration threat that is they threaten to buy the producing firm
or its rivals.

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The last competitive forces will be threat of substitute products or services. A

substitute is a product that performs the same or similar function as another product.
Microeconomics teaches that the more substitutes a product has, the demand for the
product becomes more elastic. Elastic demand means increased consumer price
sensitivity which equates to less certainty of profits.

As there are a lot of other restaurants in the city and each of them offer their specific
kind of food, the threat of substitute products becomes very high. One of the main
solutions of decreasing the threat is to keep in touch with customer preferences and
offer wide range of products. If this solution is implemented successfully, the
restaurant can maintain a competitive advantage over rival firms and be able to keep
customers rather than lose them to substitute restaurants.

The existence of products outside of the realm of the common product boundaries
increases the propensity of customers to switch to alternatives. For example, tap water
might be considered a substitute for Coke, whereas Pepsi is a competitor's similar
product. Increased marketing for drinking tap water might "shrink the pie" for both
Coke and Pepsi, whereas increased Pepsi advertising would likely "grow the pie".

Substitute products are produced in a different industry but crucially satisfy the same
customer need. If there are many credible substitutes to a firms product, they will
limit the price that can be charged and will reduce industry profits.

So we need to look into the keys to evaluate substitute products are products with
improving price or performance tradeoffs relative to present industry products. For
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example, the electronic security systems in place of security guards and fax machines
in place of overnight mail delivery.

Several factors determine the degree of competitive rivalry; the main ones are The
power of buyers and the availability of substitutes. It shows that if buyers are strong
and/or if close substitutes are available, there will be more intense competitive rivalry.

Next, Product differentiation and brand loyalty. The greater the customer loyalty the
less intense the competition. The lower the degree of product differentiation the
greater the intensity of price competition.

Thirdly, Capacity utilisation. The existence of spare capacity will increase the
intensity of competition. Furthermore, Market size and growth prospects. Competition
is always most intense in stagnating markets. The cost structure of the industry.
Where fixed costs are a high percentage of costs then profits will be very dependent
on volume. As a result there will be intense competition over market shares.

The factors also include number of competitors in the market. Competitive rivalry
will be higher in an industry with many current and potential competitors. Lastly, Exit
barriers are also one of them. If it is difficult or expensive to exit an industry, firms
will remain thus adding to the intensity of competition.

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2.1 SWOT Analysis

A SWOT analysis is commonly used in marketing and business in general

as a method of identifying opposition for a new venture or strategy. Short
for Strengths, Weaknesses, Opportunities and Threats, this allows
professionals to identify all of the positive and negative elements that may
affect any new proposed actions.

A tool that identifies the strengths, weaknesses, opportunities and threats

of an organization. Specifically, SWOT is a basic, straightforward model
that assesses what an organization can and cannot do as well as its
potential opportunities and threats. The method of SWOT analysis is to
take the information from an environmental analysis and separate it into
internal (strengths and weaknesses) and external issues (opportunities
and threats). Once this is completed, SWOT analysis determines what may
assist the firm in accomplishing its objectives, and what obstacles must be
overcome or minimized to achieve desired results.

SWOT is meant to act primarily as an assessment technique, though its

lengthy record of success among many businesses makes it an invaluable
tool in project management.

The SWOT analysis enables companies to identify the positive and

negative influencing factors inside and outside of a company or
organization. Besides businesses, other organizations, in areas such as
community health and development and education have found much use
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in its guiding principles. The key role of SWOT is to help develop a full
awareness of all factors that may affect strategic planning and decision
making, a goal that can be applied to most any aspect of industry.

When using SWOT analysis, be realistic about the strengths and

weaknesses of your organization. Distinguish between where your
organization is today, and where it could be in the future. Also remember
to be specific by avoiding gray areas and always analyze in relation to the
competition. Finally, keep your SWOT analysis short and simple, and avoid
complexity and over-analysis since much of the information is subjective.
Thus, use it as a guide and not a prescription.
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Then, we want to use SWOT? SWOT is meant to be used during the

proposal stage of strategic planning. It acts as a precursor to any sort of
company action, which makes it appropriate for the following moments
which are refining and redirecting efforts mid-plan, exploring avenues for
new initiatives, identifying possible areas for change in a program and
making decisions about execution strategies for a new policy.

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Thus, let us look into the SWOT analysis of Subway restaurants.

Subway Restaurants is one of the leading submarine sandwich franchise having over
20,532 restaurants and brand recognition in more than seventy-two countries over the
world. Subway's main operations office is in Milford, Connecticut, and five regional
centers support Subway's growing international operations. The regional offices for
European franchises are located in Amsterdam, Netherlands. Australia and New
Zealand are supported from Brisbane, Australia; the Middle Eastern locations are
supported from offices located in Beirut, Lebanon; the Asian locations from
Singapore; India and the Latin America support center is in Miami, Florida. In the UK
and Ireland the company hopes to expand to 2,010 restaurants by some time in 2010.

Strength.
The company has been using some non-traditional channels for making its network
strong and the growth rate of the company has also been increasing year after year.

Subway has well established itself as a brand in the fast food industry and having
brand recognition all over the world. Due to its great strategies the company has
become the leading franchise in the United States in a very short period of time. The
company has even positioned itself in places like hospitals, churches, schools and
popular retail stores like Home Depot and Wal-Mart. This makes the start up cost of
franchises low. The strengths and weakness components of a marketing plan reflect an
evaluation of the firms internal situation. What are the things the firm does well, and
where are they below standard? The opportunities and threats reflect an assessment of
the external environment the firm faces, Reid (2010).

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As summary, Subway restaurants possess the strengths of great degree of subs

customization, low startup costs, largest fast food restaurant chain in the world by the
number of outlets. All restaurants are owned by franchisees, marketing and
promotional strategies, partnerships with Britain and American Heart Associations
and choice of healthier meals.

Weaknesses

Change is good in moderate amounts; however the company must be careful by not
believing that it must continually change its offerings in order to remain the market
leader. Too much change too soon can cause a company to lose favor with customers
and Subway has already shown signs of too much change, altering its menu multiple
times in the last five years.

The decoration and look of the franchises is said to be old an outdated. Another
problem with franchises is that the satisfaction level of the customers is not the same
across franchises and also some franchises perform very poor.

The dcor and the look of the franchises seems to be old and outdated. Service
commitment is not consistent from store to store. This could be related to staff as the
turnover rate of the employees is very high which explains why they lack motivation.
Other weaknesses include a small menu list, an increasing operational cost of
franchise etc.

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As a result, the weaknesses of Subway restaurants including too much control over
franchisees, interior design of the outlets often looks cheap, services are not consistent
from store to store and high employee turnover.

Opportunities
The company can invest more to expand its business in the international market and
also make improvements in its decoration and look to encourage dine-in. By
improving the customer service model the satisfaction for the customer can be
increased and also the loyal customer base will increase.

Subway industry is still growing steadily despite of its slowdown in the economy.
Subway can invest more to expand its business in the international market and also
make improvements in its decoration and look to encourage dine-in. Signs of growth
in the virgin market sector. People turning healthier consciously. By improving the
customer service model customer loyalty and satisfaction can be increased. The target
costumer market group being from middle to upper- middle class. Continue to revise
and refresh menu offerings.

The opportunities including introduction of drive-thru, increasing demand for

healthier food, changing customer habits and new customer groups and home meal
delivery.

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Threats
The company faces serious threats from some of the large fast food chains in the
world which include Yum brands like Wendys, KFC, McDonalds etc. These
restaurants are very old and have developed large loyal customer base over the years.

It had an easy entry into the industry being one the healthier fast food chains.
Economic downturn is one of the major threats caused because of the current
economic recession.
Sales of sandwiches are growing 15 percent annually, outpacing the 3 percent sales
growth rate for burgers and steaks.
This increase in sales of the sandwiches has been a result of decreases in consumer
interest in hamburgers and fries and increases in demand for healthier options.
Subway has a large loyal customer base which developed over the years.

The threats nowadays happened in Subway are lawsuit against Subway, Saturated fast
food markets in the developed economies, currency fluctuations, trend towards
healthy eating and local fast food restaurant chains.

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2.2 Evaluation of its strategic strengths and weaknesses

According to my evaluation to the Subway restaurants strategic strengths are choice
of healthier meals. Subway offers a range of low calorie, fresh and nutritious food,
which you cant find in other fast food stores, at least not to such an extent. This
Subway strength meets current trend of eating healthier food.

Secondly, largest fast food restaurant chain in the world by the number of
outlets. Currently the comapny operates 38,181 restaurants in 99 countries, more than
McDonalds or any other fast food chain operator.

All restaurants are owned by franchisees. Subway doesnt own any restaurants itself
so it experiences less risk and can focus its efforts on marketing and growing the
franchise.

Low startup costs. One of the reasons behind such a high growth rate of Subway
stores is the low startup costs. Subway stores are smaller and require less money for
leasehold improvements and equipment.

Great degree of subs customization. Customers always like to choose and the more
choices they can make about their purchase the more satisfied they are with it.
Subway is better than any other large fast food chain in providing the choice of meal
customization.

Marketing and promotional strategies. Subway employs superior marketing

techniques and promotional strategies to attract and grow their customer base. The
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most successful Subways promotional offer was to offer footlongs for only $5, which
became a new pricing standard of a sub.

Lastly, partnership with Britain and American Heart Associations. Subway has
received certificates from both organizations that it serves health meal options, which
is a great reward and differentiates the business from other fast food restaurants.

After this I also do some evaluation to its weaknesses which will explain clearly in the
following. Subway is too much control over franchisees. Despite the fact that Subway
fails to ensure consistent quality throughout the stores it exerts too much control over
its franchisees. This is done through the contracts that are more favourable to the
franchisor. An example of such high control is seizeing of franchisee restaurants if the
later one is struggling to keep them open.

Next, interior design of the outlets often looks cheap. Subway restaurants lack the
interior design and quality that would welcome everyone to stay and feel more
comfortable than in the competitors restaurants.

High employee turnover. Subway Sandwich Artists job is a low paid and a low skilled
job. It results in low performance and high employee turnover, which increases
training costs and add to overall costs of Subway.

Lastly, services are not consistent from store to store. The business struggles to ensure
consistent services quality throughout it stores and so a service in one store may
please a customer when another may fail to do that.
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3.0 Conclusion

I guess Subway pray Subway get a location in the middle of nowhere with highway
traffic? This is what I have in my neighborhood with Subway alone...I could drive
passed about a half dozen Subways on my way home off of BW8.
Everything I have heard about a Subway franchise is that they are very hard to
compete. Margins are tight and competition is very fierce, even among your own
franchisee's. Entrepreneur magazine online has a lot of franchise info. What do you
want to know? How much do you have to invest?

I think that Subway restaurants should introduce of drive-thru. McDonalds already

offer only drive-thru restaurants, which is a great opportunity for Subway to jump.
Subway can also make home meal delivery. Subway could exploit an opportunity of
delivering food to home and increase its reach to customers.

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4.0 Reference
1. http://www.strategicmanagementinsight.com/swot-analyses/subway-swot-analysis.
html
2. http://www.businessdictionary.com/definition/Porter-s-5-forces.html
3. http://www.docstoc.com/docs/142095589/subway-Porter-s-Five-forces-restauran
t---PPT-presentation
4. http://www.businessnewsdaily.com/4245-swot-analysis.html
5. http://akashpawar.wordpress.com/2011/11/28/my-swot-analysis-on-subway/

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5.0 COURSEWORK
NAME

: KOH YAN TING

NRIC

: 921017-01-5468

No H/P

: +60137941553

1) Transformation leaders have been able to command respect and to influence

strategy formulation and implementation because they tend to have THREE
key characteristics. Explain carefully each of them.
Programs A program is a statement of the activities or steps needed to accomplish a
single-use plan. It makes a strategy action oriented. It may involve restructuring the
corporation, changing the company's internal culture, or beginning a new research
effort. For example, Boeing's strategy to regain industry leadership with its proposed
787 Dreamliner meant that the company had to increase its manufacturing efficiency
in order to keep the price low. To significantly cut costs, management decided to
implement a series of programs:

Outsource approximately 70% of manufacturing

Reduce final assembly time to three clays (compared to 20 for its 737 plane) by

having suppliers build completed plane sections.*

Use new, lightweight composite materials in place of aluminum to reduce

inspection time.

Resolve poor relations with labor unions caused by downsizing and

outsourcing.
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Another example is a set of programs used by automaker BMW to achieve its

objective of increasing production efficiency by 5% each year: (a) shorten new model
development time from 60 to 30 months, (b) reduce preproduction time from a year to
no more than five months, and (c) build at least two vehicles in each plant so that
production can shift among models depending upon demand.
Budgets A budget is a statement of a corporation's programs in terms of dollars.
Used in planning and control, a budget lists the detailed cost of each program. Many
corporations demand a certain percentage return on investment, often called a "hurdle
rate," before management will approve a new program. This ensures that the new
program will significantly add to the corporation's profit performance and thus build
shareholder value. The budget thus not only serves as a detailed plan of the new
strategy in action, it also specifies through pro forma financial statements the
expected impact on the firm's financial future. For example, General Motors budgeted
$4.3 billion to update and expand its Cadillac line of automobiles. With this money,
the company was able to increase the number of models from five to nine and to offer
more powerful engines, sportier handling, and edgier styling.

The company reversed its declining market share by appealing to a younger market.
(The average Cadillac buyer in 2000 was 67 years old.) Another example is the $8
billion budget that General Electric established to invest in new jet engine technology
for regional-jet airplanes. Management decided that an anticipated growth in regional
jets should be the company's target market. The program paid off when GE won a $3
billion contract to provide jet engines for China's new fleet of 500 regional jets in time
for the 2008 Beijing Olympics.
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Procedures, sometimes termed Standard Operating Procedures (SOP), are a system

of sequential steps or techniques that describe in detail how a particular task or job is
to be done. They typically detail the various activities that must be carried out in order
to complete the corporation's program. For example, when the home improvement
retailer Home Depot noted that sales were lagging because its stores were full of
clogged aisles, long checkout times, and too few salespeople, management changed
its procedures for restocking shelves and pricing the products. Instead of requiring its
employees to do these activities at the same time they were working with customers,
management moved these activities to when the stores were closed at night.
Employees were then able to focus on increasing customer sales during the day. Both
UPS and FedEx put such an emphasis on consistent, quality service that both
companies have strict rules for employee behavior, ranging from how a driver dresses
to how keys are held when approaching a customer's door.

2) Please descried FOUR responsibilities of business.

1. Economic responsibilities of a business organization's management are to
produce goods and services of value to society so that the firm may repay its
creditors and shareholders.
2. Legal responsibilities are defined by governments in laws that management is
expected to obey. For example, U.S. business firms are required to hire and
promote people based on their credentials rather than to discriminate on nonjob-related characteristics such as race, gender, or religion.
3. Ethical responsibilities of an organization's management are to follow the
generally held beliefs about behavior in a society. For example, society
generally expects firms to work with the employees and the community in
planning for layoffs, even though no law may require this. The affected people
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can get very upset if an organization's management fails to act according to

generally prevailing ethical values.
4. Discretionary responsibilities are the purely voluntary obligations a corporation
assumes. Examples are philanthropic contributions, training the hard-core
unemployed, and providing day-care centers. The difference between ethical
and discretionary responsibilities is that few people expect an organization to
fulfill discretionary responsibilities, whereas many expect an organization to
fulfill ethical ones.

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