Rajarata University of Sri Lanka, Mihintale

Post-graduate Diploma in Management (PGDM) Leading to Master of Business Administration (MBA)

Group 5
Name Perera ULAB S.Liyanage Sisira K. Edirippullige S.Sivapirashanth K.Kulananthini E.M.R.B.Ekanayake Registration Number RJT/PGDM/2011/31 RJT/PGDM/2011/25 RJT/PGDM/2011/24 RJT/PGDM/2011/37 RJT/PGDM/2011/23 RJT/PGDM/2011/81

Group Assignment on Network Marketing - December 2011

Abstract
Success in any endeavor requires careful preparation and planning. Without proper planning and preparation, failure is almost guaranteed. In this report, Chapter 1 to 6 aims to analyze about planning, levels of planning and its importance in detail.

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Table of Contents
Abstract Table of Contents List of Figures List of Acronyms Chapter 01 - Introduction 1.1 Background 1.2 What is Planning 1.3 Why Planning is important 1.4 Levels of Planning Chapter 02 Strategic Planning 2.1 Introduction 2.2 Strategic Planning Process Chapter 03 Project Planning 3.1 Introduction 3.2 Process Description Chapter 04 Manufacturing Planning 4.1 Introduction 4.2 Just In Time Chapter 05 Human Resource Planning 5.1 Introduction 5.2 Objectives of Human Resource Planning 5.3 Process of Human Resource Planning 5.4 Benefits of Human Resource Planning Chapter 06 Financial Aspects of Planning 6.1 Background 6.2 Financial Planning iii ii iii iv v 01 01 02 02 03 05 05 05 10 10 11 14 14 15 17 17 17 18 19 20 20 21

Chapter 07 Conclusion References

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List of Figures
Figure 1.1: Four function of Management Figure 1.2: Levels of Planning Figure 2.1: Strategic Planning Process Figure 2.2: SWOT Analysis 02 04 06 07

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List of Acronyms
BMI CEO CFO CIMA EDS HR JIT MIS SWOT Berendina Microfinance Institute Chief Executive Officer Chief Finance Officer Chartered Institute of Management Accountant Entrepreneur Development Service Human Resource Just In Time Management Information System Strength, Weak, Opportunity and Threat

Chapter 1 Network Economy

1.1 Introduction
The network economy is the emerging economic order within the information society. The name stems from a key attribute - products and services are created and value is added through social networks operating on large or global scales. This is in sharp contrast to industrial-era economies, in which ownership of physical or intellectual property stems from its development by a single enterprise. Business models for capturing ownership rights for value embedded in products and services created by social networks are being explored. The network economy may be viewed from a number of perspectives: transition from the industrial economy, digital and information infrastructure, global scale, value networks, and intellectual property rights. From a transitional point of view, Malone and Laubacher (1998) indicate that the Information Revolution has changed the nature of business activity. Because information can be shared instantly and inexpensively on a global scale, the value of centralized decision making and expensive bureaucracies is greatly diminished. Brand (1999) points out that commerce is being accelerated by the digital and network revolutions and that the role of commerce is to both exploit and absorb these shocks. Some effort must focus on developing new infrastructure while other activity will emphasize governance and evolving culture. Rifkin (2000) notes that real estate has become a business burden in network-based markets. From an infrastructure perspective, Tapscott (1996) compares information networks of the new economy to highways and the power grid of the industrial economy. He suggests that no country can succeed without state-of-the-art electronic infrastructure. Schwartz (1999) writes that in the future, large companies will manage their purchasing, invoicing, document exchange, and logistics through global networks that connect a billion computing devices.

At global scales, Tapscott (1996) indicates that companies can provide 24-hour service as customer requests are transferred from one time zone to another without customers being aware that the work is being done on the other side of the world. Boyett and Boyett (2001) point out that the larger the network, the greater its value and desirability. In a networked economy, success begets more success. Kelly (1998) states that in a network economy, value is created and shared by all members of a network rather than by individual companies and that economies of scale stem from the size of the network - not the enterprise. Similarly, because value flows from connectivity, Boyett and Boyett (2001) point out that an open system is preferable to a closed system because the former typically have more nodes. They also indicate that such networks are blurring the boundaries between a company and its environment. A network economy raises important issues with respect to intellectual property. Shapiro and Varian (1999) explain that once a first copy of information has been produced, producing additional copies costs virtually nothing. Rifkin (2000) proposes that as markets make way for networks, ownership is being replaced by access rights because ownership becomes increasingly marginal to business success and economic progress.

1.2 Why Network Economy Industries based on network economics were given a boost by the Industrial Revolution and the rise of a national economy. As economic activity became larger and more impersonal, it became necessary to form networks in order efficiently to supply certain kinds of goods and services. The railroads are an example of an early network industry. A station, track, and rolling stock obviously are of no use unless they connect to other stations. The more stations that are connected, the more valuable the railroad becomes to the owners and consumers located along its path. To a consumer, it thus becomes important that other consumers have access to the railroad from other locations. This not only gives the first consumer more places to go, it also makes the railroad more profitable and able to provide better services to the first 2

consumer. These network economics were later evidenced in electricity, telegraph, telephones, and other industries where consumers valued products partly on the basis of how many other consumers purchased the same product. The more consumers who are connected to the network, the more valuable the network becomes to each consumer. Network industries are the central nervous system of the Twenty-First Century economy. The most valuable commodity in this economy has become information, and the economics of networks applies to almost all information products and services. Information can be consumed by more than one person. Most importantly, the total social value of information increases as it is shared with more consumers. Consumers of computers and software programs, cellular phones, faxes, and Internet services all have more valuable products as the use of the products by others increases. Whether we call this an "information economy" or a "network economy," the implication is the same-network economics accounts for an increasingly larger share of the economy and is the driving force behind much of the innovation and technological change. Network externalities, along with lock-in costs caused by capital expenses and training costs for many high technology network industries, may make network market power easier to accumulate and more durable than is the case in other industries. When networks compete, the positive demand side externalities associated with a network makes the market susceptible to "tipping," whereby consumers gravitate to the apparent winner. Expectations also play a critical role. The rush of consumers to embrace the winning technology in a standards war is fueled not only as a result of a desire to purchase the best products, but also because of the consumers' expectations about the purchases of other consumers and the desire not to be left behind os stranded. As a consequence, many network markets are dominated by a single firm or, more likely, by a group of firms that have jointly agreed on interface standards. Thus, antitrust must balance the potential pro-competitive efficiencies associated with network economics with the potential anticompetitive problems identified with competitor collaboration and market dominance. Economic complexity reflects and reinforces interdependency and, as a result, compatibility standards are crucial for industries subject to network economics. These industries typically consist of a complex set of complementary products and services 3

such as computers and peripheral equipment, software operating systems and applications, communications networks and sending and receiving products. Compatibility (or interoperability) with the network and all its components is crucial for the manufacturers of all of these products. It is also crucial for consumers if they are to receive the full benefits of the network externalities. For instance, in our earlier railroad example, consumers and shippers could receive the full benefit of a national railroad system only if all railroads used the same gauge track. Without this intersystem compatibility, passengers and cargo would have to change trains in order to use the tracks of another company. Lack of compatibility in a network industry leads to inefficient production and consumption. Of course, one firm, under the right circumstances, could operate an entire, internally compatible, network, and guarantee production and operational efficiency. There have been examples of this. At one time, AT&T operated the only long distance telephone network in the United States and produced most, if not all, of the equipment that connected to it. A proprietary, monopoly network raises additional issues, including potential market power abuse, lack of variety for consumers, and innovation incentives. However, most networks consist of several manufacturers supplying complementary products that must interconnect in order for the network to function efficiently.

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Chapter 2 Network Organization

2.1 Introduction
Network marketing organizations, or NMOs, are retail selling channels that use independent distributors not only to buy and resell product at retail, but also to recruit new distributors into a growing network over time. Commissions and markups on personal sales volumes, and net commissions on the personal sales volumes of down lines, are the methods of compensation commonly used to motivate NMO distributors. Companies like Amway, Mary Kay, NuSkin, or Shaklee are examples of an increasingly popular form of retail distribution channel: the network marketing organization or NMO Although direct-selling organizations have historically used standard direct sales forces to distribute their products, today 70% of direct-sales revenues are generated by network marketing organizations and business units. In 1995, that amounted to US$11.6 billion in annual sales Direct Selling Association. rUSA, 1995 . These companies have grown significantly not just in the United States, but throughout the world. Independent distributors play two key roles in NMOs: they sell product, and they recruit new distributors. The NMOs compensation plan structure can have a profound effect on how distributors time is spent, and therefore plays a critical role in the companys overall growth and success through time. In this paper, we define what NMOs are, how they are operated, and how they use compensation to incentivize their distributor salespeople. We then develop and discuss a model of NMO network growth that shows how compensation and other network characteristics affect growth and profitability of the NMO distributor and the network as a whole. We use original data collected from NMOs to illustrate how the model can be used to calibrate sales performance and make predictions about future performance of an NMO network. Managing the productivity of retail salespeople has been a focus of many different authors. One stream of marketing research has contrasted the use of independent-agent sales forces with that of company-employee sales forces Anderson, 1985; Churchill et al., 1985; Weiss and Anderson, 1992 .Such comparisons have supported the claim that some marketing environments are better suited for independent agents, while others are better suited for employee salespeople. However, these approaches group all independent-agent sales forces under a single theoretical umbrella. The purpose of this 5

research is to understand a distinct approach to managing independent retail salespeople: the network marketing organization. NMOs differ from other retail selling channels in several important ways. We define NMOs as those organizations that depend heavily or exclusively on personal selling, and that reward sales agents for a .buying products, b selling products, and c finding .other agents to buy and sell products. NMOs have several distinctive characteristics: 1. They are typically lean organizations, using independent distributors or reps to sell their products, rather than hiring and managing a large employee sales force. 2. Most NMOs do not advertise or have a retail storefront presence. This makes retail sales force motivation a crucial component of business success in this form of channel. 3. Distributors in an NMO do not receive a salary, as many other retail salespeople do; their pay depends on the commissions and retail markups they can generate. Thus, the system is very heavily performance-oriented. 4. NMOs offer an effective menu of compensation opportunities, similar to the menuof-contracts concept discussed in Lal and Staelin 1986 . An .NMO distributor can either sell retail product or can recruit and manage other distributors. This effectively gives the NMO distributor the opportunity to work on the task that best suits her ability. These distinctive characteristics of NMOs suggest the need for a deeper understanding of how they work, what motivates their distributors to perform in various ways, and the implications of these actions for network sales, growth, and profitability over time

Chapter 3 Role of Marketers in Network Organization

3.1 Introduction

References

Boyett, Joseph H. And Jimmie T. Boyett. 2001. The Guru Guide to the Knowledge Economy. John Wiley& Sons. pp. 46, 47 Brand, Stewart. The Clock of the Long Now. Basic Books. p. 37 Kelly, Kevin. 1998. New Rules for the Wired Economy. p. 26 Malone, Thomas W. And Robert J. Laubacher. 1998. The Dawn of the E-Lance Economy, in: Harvard Business Review (Sept. 1998) Rifkin, Jeremy. 2000. The Age of Access. Penguin Putnam. p. 4, 5, 35

Schwartz, Evan I. 1999. Digital Darwinism. Broadway Books. p. 7 Shapiro, Carl and Hal R. Varian. 1999. Harvard Business School Press. p. 21 Tapscott, Donald. 1996. The Digital Economy. McGraw-Hill. p. 15, 65