What were the distinctive features of the Manchester school of anthropology?

What were the distinctive features of the Manchester school of anthropology?

Structural-functionalism, which dominated British social anthropology for much of the twentieth century, interpreted society in terms of its institutions. Institutions provided society with its structure and worked together to keep society, a bounded unit, in a state of equilibrium.

A person’s role or position in the structure determined their behaviour. In the early 1950s, criticisms of the structural-functionalist approach began to emerge from the Manchester school of anthropology, a group of anthropologists involved with the anthropology department at Manchester University. The Manchester school reacted against the obsession with formal institutions and the structure they supposedly produced.

Many felt it was time to move away from the search for ideal types and focus on the much-neglected individual and how he/she coped in a system full of contradictions and inconsistencies. The Manchester school developed a distinctive approach which focused on the role of conflict in society, acknowledged the importance of the wider context (particularly the impact of colonialism), shed light on the issue of multiple identities through their studies of urban and rural communities, and advanced a new analytical model; namely social network analysis. Although the school is distinct in certain ways, its continued reliance on the structural-functionalist paradigm must be realised.

In contrast to structural-functionalists, the Manchester school did not see social equilibrium as “a simple affair, resulting from the neat integration of groups or norms. On the contrary it emerges through the balancing of oppositions in a dialectical process” [Kuper 1973, 139]. In other words, conflict is an inherent part of society but certain mechanisms exist to ease the tensions and maintain an equilibrium. Ritual, according to Max Gluckman, was one such mechanism.

He analysed “rituals of rebellion” in southern African societies and argued that “whatever the ostensible purpose of the ceremonies, a most striking feature of their organization is the way in which they openly express social tensions” [Gluckman 1963, 112]. One such ceremony occurred in Swaziland. The dominant cleavage in the society was between the king and his subjects.

During the ceremony various groups formed cross-cutting ties which undermined and reduced the severity of the dominant cleavage and the king’s subjects were given the opportunity to voice their hatred towards him. “This ceremony is…a stressing of conflict, a statement of rebellion and rivalry against the king, with periodical affirmations of unity with the king” [Gluckman 1963, 125]. One could infer that such a ritual could totally disrupt a society based on the domination of the ruled by the ruler.

Crucially however, the people are rebelling specifically against the king, and not against the institution of kingship; “the rebellious ritual occurs within an established and unchallenged social order” [Gluckman 1963, 126-27]. In sum Gluckman explains,

The acceptance of the established order as right and good, and even sacred, seems to allow unbridled excess, very rituals of rebellion, for the order itself keeps this rebellion within bounds. Hence to act the conflicts, whether directly or by inversion or in other symbolic form, emphasizes the social cohesion within which the conflict exists [Gluckman 1963, 127]

The ritual reaffirms and perpetuates the social order.

Gluckman’s fieldwork in Zululand and Swaziland established conflict as an unavoidable aspect for analysis in the study of society. However, he has been criticized by many for continuing to use a structural-functionalist paradigm. His studies address the issue of conflict but always in terms of how it is contained by mediating mechanisms (such as ritual) which reaffirm the social order. Kuper explains that this

emphasis on the maintenance of equilibrium grew out of his study of white-ruled Zululand, ‘which despite its many unresolved and irresoluble conflicts, “worked”’, obliging him to consider ‘how social systems could contain the deep conflicts which are present in all of them’ [Kuper 1973, 141].

In other words, Gluckman concentrated on repetitive (as opposed to changing) social systems in which “changes occur not by alterations in the order of offices, but by changes in the persons occupying those offices” [Gluckman 1963, 128]. This, Kuper argues, is “the most vulnerable feature of Gluckman’s theory” [Kuper 1973, 140]. Although it may shed light on small-scale, non-centralized communities, it ignores conflicts “in which the contending parties no longer share the basic values upon which the legitimacy of the social system rests” [Swartz 1966, 34].

From the viewpoint of the sociology of knowledge, it is no accident that this alteration of analytical focus from structure to process has developed during a period in which the formerly colonial territories of Asia, Africa, and the Pacific have been undergoing far-reaching political changes that have culminated in independence [Swartz 1966, 3]

In other words, with many countries engaged in the struggle for their independence, anthropologists working in the 1950s and 1960s finally accepted that “the total political situation should be taken into account” [Kuper 1973, 142]. As the Manchester school anthropologists carried out most of their work in British Central Africa they focussed particularly on the impact of colonialism and capitalism in the societies they studied. Gluckman argued for the recognition of “a Central African Society of heterogeneous culture-groups of Europeans and Africans” [Kuper 1973, 141].

The point of articulation between imperial and indigenous cultures was epitomized in the position of the headman or elected elder, an office institutionalised by the British. He was seen as an “inter-calary figure”, caught between the demands of the state and the demands of his people [Kuper 1973, 143]. As Epstein’s classic study of Politics in an Urban African Community shows, when Africans rioted against the British in response to an increase in taxes in 1935, the elected elders were also attacked and forced to take shelter with the colonial masters [Kuper 1973, 146]. Such studies shed light on the flaws of the colonial system and the social problems it had caused, topics almost entirely avoided by previous anthropologists.

The Manchester school also focused their attention towards urban and not just rural localities. Through recognition of the urban as a valid and necessary unit of study, the school brought the issues of multiple identities and situational selection to the fore. The process of urbanization in colonial Africa markedly increased the number of identities people associated with themselves. “Sometimes a man might side with Bemba against non-Bemba; at other times with clerks against underground workers; and then again line up with fellow Africans against the white mine authority or the government” [Kuper 1973, 146-47].

In other words, people responded to this identity dilemma by choosing to use or ally with different identities, depending on the social situation; this technique is known as situational selection. In the Kalela Dance Mitchell argues that the same group of people can have very different relationships depending on whether they are in a tribal or urban setting. Thus, “ethnic identity is both situational and negotiated by actors amongst each other, and any continuity is possible in principle but not guaranteed” [Rogers 1995, 23].

In 1954 Barnes published his study of a Norwegian Parish and introduced the concept of the social network as an analytical tool [Mitchell 1969, 5]. “Basically, network analysis is very simple: it asks questions about who is linked to whom, the nature of that linkage, and how the nature of the linkage affects behaviour” [Boissevain 1979, 393]. Social network analysis studied the relationships of interacting people in actual situations.

The individual, instead of structures or institutions, was the starting point. This allowed anthropologists to “concern (themselves) with individuals using social roles rather than with roles using individuals, and with the crossing and manipulation rather than the acceptance of institutional boundaries” [Rogers 1995, 20]. In contrast to the structural-functionalist approach which viewed a person’s role in the structure as determining their behaviour, social network analysis considered how individuals adopt and modify the rules to further their own interests and “use network linkages in order to achieve desired ends” [Mitchell 1969, 38].

Network analysis was found to be particularly useful for studies of larger scale communities. As Mitchell argues, this is because of the “large number of single-stranded relationships in them, therefore institutional integration is relatively weak” [Mitchell 1969, 48]. In other words, in bigger, more complex communities people have fewer overlapping relations; using an institutional approach is simply not sufficient for such societies. Also, “social network analysis facilitates the tracing of the connections between locality and wider contexts”, an important factor in an approach so concerned with the “total” situation [Rogers 1995, 18].

An interesting aspect of social network analysis is its application of mathematical methods to anthropological study. Mitchell argues that the “use of graph theory and probability mathematics provides an intriguing method of erecting model networks with which empirical networks can be compared” [Mitchell 1969, 34]. This “openness to methodological innovation” was a key feature of the Manchester school but the school also widely accepted that statistical methods should be used as an aid, and not form the basis of anthropological analysis [Kuper 1973, 142].

There are numerous problems with social network analysis. “The study of personal networks requires meticulous and systematic detailed recording of data on social interaction for a fairly large group of people, a feat which few fieldworkers accomplish successfully” [Mitchell 1969, 11]. Social network analysis is simply too time-consuming and detailed for it to be a viable analytical model in many situations.

Also, although the level of abstraction is not as great as it is in the structural-functionalist approach, the anthropologist must still identify the limits or extent of a network, and select the individual or group at the centre of it. The isolation of one part of the network is “based on the fieldworker’s judgement of what links are significant in explaining the behaviour of the people with whom he is concerned” [Mitchell 1969, 13-14]. Just as structural-functionalists “found” structures in society, the Manchester school “found” networks.

However, the important factor to keep in mind with regard to social network analysis is that it was always intended as a complement to structural-functional analysis. As Mitchell outlines, the “notion of social networks is complementary to and not a substitute for conventional frameworks of analysis” [Mitchell 1969, 8].

In conclusion, it is clear that the Manchester school was distinctive for several reasons. Firstly, it was an action-oriented approach which described the social system as it actually was, full of conflicts and contradictions. Cleavages and tensions were dealt with through various redressive mechanisms. Secondly, it rejected the view of society as a bounded unit and acknowledged the influence of a wider context in all situations; the role of colonialism in causing social problems in Africa was highlighted.

In addition, the Manchester school addressed both urban and rural localities and in doing so furthered anthropology’s understanding of multiple identities and the necessary application of situational selection. Finally, the school advanced the use of social network analysis, applying mathematical methods to the study of culture and bringing the individual and his/her interactions with other actors in actual settings to the centre of study.

Despite these advances, the Manchester school continued to function within a structural-functionalist paradigm. This is shown, for example, by the fact that conflict was studied only in relation to equilibrium; the school did not account for social change or transformation. Also, although they emphasised the impact and inequalities of the colonial system, the Manchester anthropologists did not provide a general theoretical approach for the colonial situation.

Finally, its analytical model was designed as a complement to structural-functionalist modes of analysis. The Manchester school is characterised by several distinct features however, overall it “represents more of a shift of emphasis than a complete departure from pre-war structuralism” [Kuper 1973, 148].


Boissevain, J. 1979. Network analysis: a reappraisal, Current Anthropology 20: 392-394.

Gluckman, M. 1963. Order and rebellion in tribal Africa. London: Cohen & West.

Hannerz, U. 1992. The global ecumene as a network of networks, in A. Kuper (ed.) Conceptualising society. London: Routledge.

Kuper, A. 1973. Anthropology and anthropologists: The modern British school. London: Routledge.

Mitchell, J.C. 1969. Social networks in urban situations. Manchester: Manchester University Press.

Rogers, A. & S. Vertovec. 1995. The urban context: ethnicity, social networks and situational analysis. Oxford: Berg.

Swartz, M., V. Turner & A. Tuden. 1966. Political anthropology. Chicago: Aldine Publishing Co.

Question: What was the reaction of British anthropologists to Lévi-Strauss’s work?

Question: What was the reaction of British anthropologists to Lévi-Strauss’s work?

Claude Lévi-Strauss (1908) was and is the pope of structuralism, to quote Marcel Hénaff. (1998:2) As my account of his contribution to the shaping of this ‘method’ or ‘tool’ – as he himself insisted on calling it (Kuper 1996:175, Hénaff 1998:6) – later in this essay illustrates, that is something that can hardly be disputed. It is not so self-evident, however, what the overall importance of his work for social anthropology was, and how well-received his ideas were at the time of their emergence. In this essay, I will focus on the latter question in the context of Britain, in particular with reference to Edmund Leach (1910-1989).

To come to an answer to this question, I will first briefly describe the British anthropological landscape before the introduction of Lévi-Strauss’s concept of structuralism. Then I will give an outline of Lévi-Strauss’s ideas and his applications thereof, and assess of every aspect of Lévi-Strauss’s work to what extent it was valued, adopted and applied by British anthropologists such as Leach.

It is hereby necessary that I pay attention to the positive reactions as well as the substantial criticism Lévi-Strauss received from British anthropologists. Finally, by summarizing previously made points, I will hopefully be able to assess whether the reaction of Leach and others to Lévi-Strauss’s structuralism and the ideas it brought forward was predominantly positive or negative and what the overall impact of Lévi-Strauss on Leach’s anthropology was.

Needless to say, Lévi-Strauss was not the first French theorist whose ideas would have noticeable influence in British anthropology. In the first half of the 20th century, after the ‘fall’ of Frazer’s evolutionism that aimed to compare the details of human culture on a worldwide scale, Durkheim’s sociological theories were a major inspiration for one of the central figures in British social anthropology: Radcliffe-Brown. (Leach 1970:7)

His focus was on coherence within groups in (primitive) societies; put very simply, the dominant view was that all institutions and ‘aspects of cosmology’ such as religion served primarily to maintain the group structure, by functioning as tools for the recreation of appropriate sentiments and the enforcement of norms. (Kuper 1996:160) Radcliffe-Brown’s anthropology was clearly naturalist, in the sense that Radcliffe-Brown and his followers tended to assume that the associations and oppositions which people seized upon were somehow presented to them by their environment. (Ibid:170)

Another important aspect of British anthropology, introduced by its ‘founding father’, Malinowski, was the fact that it was thoroughly empiricist. The belief reigned that theories had to be distilled from empirical facts obtained through fieldwork. (Ibid:170) Malinowski and those in his tradition can be classified as functionalists, for the purpose of their research was to show how a community functioned as a social system, and how its individual members lived their lives. (Leach 1970:7)

Lévi-Strauss was not the first anthropologist to be concerned with structure either. In fact, the Oxford school in the 1940’s, led by Radcliffe-Brown, were already looking into the explicit code of social behaviour. However, they did not pay much attention to ‘psychological problems’, that is to say, processes of thought, which was a result of their sociological orientation characterized by neglect of the tradition of Tylor and the culture concept. (Kuper 1996:159-160)

It is worth noting that Lévi-Strauss entered anthropology from philosophy, for this explains the choice of many of his focal points. (Hénaff 1998:2) Lévi-Strauss, too, was inspired by Durkheim – particularly by his later work on a model of society built up of segments integrated by force of mechanical or organic solidarity – as well as by Mauss’s work on exchange, yet he came to different conclusions than Radcliffe-Brown and other British anthropologists, as we will see. (Kuper 1996:160,162)

Other sources of inspiration for Lévi-Strauss were American cultural anthropologists from the tradition of Boas, as well as trends in psycho-analysis (notably Freud), mathematics and communication. (Leach 1967:XVI) But the most determinative influence on his work came from Roman Jakobson and his De Saussure-inspired linguistic theory, based on the distinction between ‘parole’ (code, utterances) and ‘langue’ (message, grammar). (Kuper 1996:160, Leach 1970:45-46)

In the following section of my essay I will give an outline of the conclusions Lévi-Strauss came to through his research inspired by the abovementioned. I will first explain the goal of his work and his definitions of and views on certain concepts, and then discuss how he applied his method of structuralist analysis to the major themes in his work (in chronological order): kinship, primary classification, and myth.

At the same time, I will shed light on the reactions of British anthropologists to these ideas, with specific reference to Leach. The interest of British social anthropologists in structuralism arose in the 1950s and 1960. British imperialism was falling into decay, and partly because of these circumstances British anthropology became more open to new, foreign ideas. (Kuper 1996:161)

The goal of Lévi-Strauss’s anthropology was a fundamentally different one from that of functionalists. His ultimate concern was to understand social relations by uncovering the social structure and, in that way, to establish facts which are true about ‘the human mind’. To achieve this, he reasoned, one should use models. (Hénaff 1998:14, Leach 1970:7)

“In anthropology as in linguistics […], it is not comparison that supports generalization, but the other way around. If, as we believe to be the case, the unconscious activity of the mind consists in imposing forms upon content, and if these forms are fundamentally the same for all minds – ancient and modern, primitive and civilized […] – it is necessary and sufficient to grasp the unconscious structure underlying each institution and each custom, in order to obtain a principle of interpretation valid for other institutions and other customs, provided of course that the analysis is carried far enough.”

(Lévi-Strauss 1963:21)

In order to understand his work, it is important to determine what Lévi-Strauss understood when using the term ‘social structure’. He went further than Radcliffe-Brown, who defined social structure as the set of social relations organized in a system, by arguing that a structure was in fact a model of which social relations are just the “raw materials” and that therefore “social structure can, by no means, be reduced to the ensemble of the social relations to be described in a given society”. (Hénaff 1998:13-14)

According to Lévi-Strauss, a structure was conceivable only where there was a sufficient degree of internal motivation (as opposed to arbitrariness). Therefore, certain objects only were receptive to the structural approach; their nature had to be closed and finite, and their function had to be to differentiate and order positions and statuses and to link groups through individuals. Lévi-Strauss focused primarily on primitive societies, for their forms of organization were stable and tending toward stability, and their activities limited and integrated. (Ibid:8-9)

This groundwork of structuralism became a source of inspiration and guidance for various social anthropologists in Britain, such as Douglas, Needham, and most notably Leach, who Kuper described as “the most enthusiastic and original of the British social anthropologists who experimented with structuralism” and who was responsible for extending its range of applications. (Kuper 1996:173) Lévi-Strauss revived their interest in the study of systems of thought and encouraged them to apply linguistic methods onto their anthropological research, as I will illustrate when discussing individual themes in Lévi-Strauss’s work.

Leach and other British structuralists adopted his notion of an ‘underlying grammar’, that was based upon a series of binary oppositions which were related to form a system. (Ibid:172) Moreover, Leach always praised Lévi-Strauss for causing innovation in anthropology, in the sense that the latter was responsible for applying an original method to categories of orthodox ethnography and directing anthropologists’ attention towards problems that earlier British anthropologists scarcely considered. (Leach 1967:XVI-XVII)

However, this is not to say that Leach was a ‘slavish imitator’ of Lévi-Strauss. (Leach 1967:XV) In fact, he challenged or in some cases even set aside some of the very foundations of Lévi-Strauss’s approach. (Hénaff 1998:70)

First of all, the goal of Leach’s research was different from Lévi-Strauss’s. Leach did not aim to identify psychological universals, but rather to elucidate particular social systems. (Kuper 1996:167) This different viewpoint on the purpose of structuralist analysis was caused by Leach’s non-belief in the universality of the mind; he saw it as Lévi-Strauss’s own ‘invention’, meant to create a philosophical extension of ethnological results. (Hénaff 1998:113)

Besides, Leach considered the linguistic model Lévi-Strauss employed too simplistic for the purpose of reaching into ‘the human mind’. (Leach 1970:112) Rather than displaying the structure of the human mind, Lévi-Strauss had “ended up by telling us something about the structure of aesthetic perception.” (Ibid:113) Through ‘verbal juggling’, as Leach called it, Lévi-Strauss tried to convince his readers of this theory that was generalized and paradoxical, for what is universally true must be natural while Lévi-Strauss held the humanity of man to be non-natural by definition (as I will explain in the section on primary classification). (Ibid:82,112) Leach, for one, never came to understand Lévi-Strauss’s notion of the mind fully. (Hénaff 1998:262)

But perhaps the most important point of criticism from Leach and other structuralists and critics of Lévi-Strauss was that the initial model – revolving around ‘universally true, basic meaningful principles’ – which Lévi-Strauss relied on was in fact a product of the observer’s own prejudiced presuppositions and rarely corresponded closely to an ethnographic reality. (Leach 1970:19,110)

This point is related to the different stances on empiricism that Lévi-Strauss and most contemporaneous Anglo-American anthropologists held. Lévi-Strauss did value and indeed conduct observation, but as he believed in an underlying social structure and universality of the human mind, he saw ethnographic facts as displays of a theoretical model at work; mere examples of what is possible. (Ibid:42) As Hénaff put it:

“In fact, he asked anthropology to proceed just like any science of observation: to be very empirical and meticulous regarding data gathering and very conceptual regarding the theorization of the set of such data.” (Hénaff 1998:15)

Not surprisingly, this position caused significant resistance among British social anthropologists, even those who viewed structuralism positively. According to Leach, among others, it led to Lévi-Strauss treating his topics too theoretically and systematically and ignoring time, space, emotion and taboo throughout his research. (Leach 1970:87,60) In other words, he criticised Lévi-Strauss’s reductionism.

Lévi-Strauss generally provided too little ethnographical evidence, and if he did, he seemed to select this ethnographical evidence to fit his theories. (Ibid:87,90,98,117) A consequence of this is that the contrary is difficult to demonstrate, and therefore Lévi-Strauss’s theories can not be critically tested. (Ibid:50,117)

Kinship was the first object that Lévi-Strauss regarded receptive to the structural approach, and this is the field where the influence of Mauss was most perceptible.

Lévi-Strauss came to the conclusion that reciprocity was the key for understanding kinship. He went as far as to say that marriage was the primary exchange system and that the system of exchanges of women formed the basis for the organization of all societies with any ideology of unilineal descent. (Ibid:104) A central position in his theory about kinship was occupied by the incest taboo, which provided certain prohibitions and in ‘simple’ kinship systems also a positive marriage rule as to who one can/cannot/should marry.

In the case of the latter he drew an additional distinction between generalized and restricted exchange, and created a third ‘bastard form’: delayed reciprocity, which is basically a generalized exchange system where the next rather than the same generation returns a woman. Lévi-Strauss identified the problem that generalized exchange was speculative and led to differences between groups in terms of their ‘richness in wives’ despite its egalitarian and integrative nature, an idea that Leach agreed with. (Kuper 1996:162-164)

While studying kinship, Lévi-Strauss assumed that both the marriage rules and the actual marriage choices were more or less independent refractions of the single underlying, unconscious grammar of reciprocity and opposition. Therefore, he believed that the way to discover this grammar was either through an analysis of the people’s model, or of the statistical distribution of marriage choices, with a preference for the first method because of the influence political, economic and demographic factors have in practice.

Lévi-Strauss was convinced that analysis of simple kinship systems could also illuminate complex kinship systems, for his research had shown that even in the absence of explicit rules a pattern of choices could be discovered. (Kuper 1996:164-165)

Leach and his students adopted Lévi-Strauss’s view of society as a system of communication in which women were the ‘message’. He made Lévi-Strauss’s analysis more specific by defining the units that exchanged women: local groups of adult males recruited by descent. (Kuper 1996:166-167) Leach did however reveal ambiguities in Lévi-Strauss’s ideas about kinship: Lévi-Strauss’s confusion of ‘marriage’ and ‘exogamy’, the unclear meaning of ‘elementary structures’ and the mistaken presumption that unilineal descent systems were universal. (Leach 1970:102-105) Most importantly, Leach argued against Lévi-Strauss by pointing out that forms of exchange were adapted to political and economic circumstances. (Kuper 1996:167)

In the 1960s, after having published several books on kinship systems, Lévi-Strauss himself too noticed that kinship was too embedded in social action to provide a sure guide to mental processes, which is why he shifted his scope to ‘purer expressions of social thought’ that did not deal with objects: primary classification and myth. (Ibid:169)

In his works La Pensée Sauvage and Le Totémisme aujourd’hui, among others, Lévi-Strauss studied the way in which the social and natural environment was ordered by verbal categories. The human mind, he argued, imposed patterns on its world by classifying objects using terms that were arbitrary, yet the relationships between these terms had a more universal character. In this way, our process of thought created a set of binary oppositions that formed a system that could be applied to other kinds of relationships, for example between social groups. (Ibid:169-170)

The most important oppositions in the structural conceptual system, and therefore in Lévi-Strauss’s work, were Culture/Nature and – closely related – Humanity/Animality. (Ibid:172, Leach 1970:36) Totemism, the application of transformations of the animal level categories to the social classification of human beings, is a method for members of a society to distinguish their fellow humans according to their mutual social status. (Leach 1970:39-40)

Lévi-Strauss saw distinguishing between ‘two poles’ as necessary in the analysis of primitive thought and manifestations thereof, such as myth, language, colours, and foodstuffs and their modes of preparation:

“Where Barthes opposes system and syntagm, the corresponding contrasts in Lévi-Strauss are metaphor and metonym or sometimes paradigmatic series and syntagmatic chain […]. Although the jargon is exasperating the principles are simple. As Jakobson put it, metaphor (system, paradigm) relies on the recognition of similarity, and metonymy (syntagm) on the recognition of contiguity.” (Ibid:48)

The final conclusion Lévi-Strauss came to on the topic of the human mind, was that its ‘algebra’ could be represented as a rectangular matrix that could be read horizontally and vertically, and that this principle was universal.(Ibid:52)

Lévi-Strauss’s works on primary classification belonged to his most Durkheimian, and they therefore became the ‘entry’ for many British social anthropologists to structuralism. (Kuper 1996:169) As I have made clear earlier, British structuralists were extremely critical of Lévi-Strauss’s use of mathematical models.

Despite the fact that he did not take all of Lévi-Strauss’ applications of structuralist analysis in the field of primary classification seriously (as was the case with Lévi-Strauss’s study on food preparation), Leach applied his less reductionist version of structuralist analysis in ‘new’ fields, for example on animals.

Leach, as well as Douglas, had a particular interest in anomaly, and the taboos originating from it. Douglas was more critical than Leach on this point: she rejected Lévi-Strauss’s system of categories of thought for it failed to take into account the emotive force of symbolic action, and she also suggested the addition of a third term to binary oppositions. (Ibid:173)

More or less simultaneously with studying primary classification, Lévi-Strauss started looking into myth. According to Lévi-Strauss, the aim of myths was to provide logical models capable of resolving some of the contradictions and problems people faced in their lives. (Ibid:172) Many of the myths he analysed had by that time already become divorced from their religious context, but in Lévi-Strauss’s eyes this did not make them any less valid for they still possessed their essential structural characteristics. (Leach 1970:56)

Put very simply, Lévi-Strauss believed that the real message of myth was contained in a system of relationships (often binary oppositions) with which the myth concerned itself. (Kuper 1996:172) To identify these relationships, the myth should be broken up into incidents. (Leach 1970:62) Lévi-Strauss already referred to the importance of taking all versions of one myth into account in order to compare them. He saw the mythology of a given society as a whole as a ‘system’, and each individual story as a syntagm of that system. (Ibid:67-69)

Leach developed this latter notion further. According to him, the existence of multiple myths was a matter of ‘redundancy in communication’ and an intrinsic and necessary feature of mythic tradition, for it ensured that the message, determining the myth’s social and political value by being a system of concepts and categories in terms of which a claim for power or status may be made, got through.

The combination of several versions of one myth formed a structured system of categories organised in local relations of identification, opposition and mediation, which blurred the otherwise stark paradoxes and mysteries that arose. Therefore myth had a cognitive function. Only structuralist analysis could reveal abovementioned system, Leach argued, and thus discover the real message of a myth. (Hugh-Jones and Laidlaw 2000:14-15)

While clearly using his method, Leach criticized Lévi-Strauss’s own research on myth for using sources that ‘normal’ people could not consult, and for considering predominantly myths about animals endowed with human attributes, thereby supporting Lévi-Strauss’s – from Rousseau derived – thesis that the Humanity/Animality (or Culture/Nature) opposition was a primary concern in human thought. (Ibid:15, Leach 1967:IX)

Finally, Leach disagreed with Lévi-Strauss’s belief that structuralist analysis could not be applied to the traditions of the world traditions as it was ‘sacred history’ rather than myth. Leach proved his point by conducting structuralist analysis on the Bible. (Hugh-Jones and Laidlaw 2000:16)

Now I have described both the praise and criticism of Leach and some of his fellow British anthropologists that Lévi-Strauss’s structuralist analysis and his applications thereof received, the moment has come to return to the central question of this essay: what was the reaction of British anthropologists, specifically Leach, to Lévi-Strauss’s work?

As I have shown, Lévi-Strauss’s structuralism was a departure from the functionalism and empiricism that reigned British anthropology in the middle of the 20th century. The reductionism and the supposed universality of the human mind that Lévi-Strauss advocated were generally rejected, and his cavalier use of ethnographic evidence was disapproved of.

Leach definitely was a fierce critic of the errors in Lévi-Strauss’s analysis, but at the same time he considered the ‘study of fallacies’ rewarding, and the complexity of Lévi-Strauss’s work revealing. (Leach 1970:111,118) Moreover, he and most other British ‘reviewers’ of Lévi-Strauss’s work could not deny that Lévi-Strauss had made significant theoretical observations and was responsible for creating a ‘new anthropology’.

Leach, like Douglas and Needham, drew a great deal of inspiration from Lévi-Strauss structuralism as abovementioned examples from the fields of myth, primary classification and to a lesser extent kinship have demonstrated. By taking both positive and negative aspects of Lévi-Strauss’s method into account, Leach developed a less generalized, more empirical form of structuralist analysis, with a more realistic goal in mind, which he used come to improved conclusions on topics Lévi-Strauss had already looked into as well as to study other phenomena.

“He has provided us with a new set of hypotheses about familiar materials. We can look again at what we thought was understood and begin to gain entirely new insights. It is not a question of Lévi-Strauss being right or Lévi-Strauss being wrong; it is more like literary or dramatic criticism. Faced with the challenge of a new point of view one is suddenly able to see the familiar in quite a different way and to understand something which was previously invisible.” (Leach 1967:XVIII)


Hénaff, M. 1998. “Introduction: Lévi-Strauss and Structuralism”, “Structures of Kinship”, “Unconscious Categories and the Universality of the Mind” and “Notes”. In Claude Lévi-Strauss and the Making of Structural Anthropology, 1-21. Minneapolis: University of Minnesota Press.

Hugh-Jones, S. and Laidlaw, J. 2000. “On Scholastic

Corporate Governance Arrangements for Tesco

Corporate Governance Arrangements for Tesco

Essay Question: Research and evaluate the corporate governance arrangements for Tesco PLC

Tesco Plc, one of the largest food and beverages retailers in the world is a non-cyclical company that has seen enormous investment from around the globe including Warren Buffet’s parent firm Berkshire Hathaway. On grounds of the company’s established strategy and mature business model it is a recommended investment for the client.

The report:

  • Defines Corporate Governance
  • Discusses Tesco’s governance structure
  • Value drivers for corporate governance

Corporate Governance:

The fundamental pillar as to how corporations are run day to day and all stakeholder interests (shareholders, management, suppliers etc) are taken into consideration is referred to as “Corporate Governance”. The term encompasses the framework for internal controls that a company has in place to help management and those in charge of running the company to act in the best interests of the shareholders (CFA Institute, 2013).

Principles relevant to Corporate Governance that achieve maximum shareholder wealth are attributed to three fundamentals (CFA Institute, 2013):

  1. Ability of shareholders to voice their opinions and concerns in regard to running of the company with minimum hassle; and
  2. The management responsible for running the company acts in an ethical as well as an independent capacity towards all stakeholders of the company so as to ensure the most efficient running of the corporation
  3. Consistent high quality financial reporting so as to ensure investors are receiving all relevant information in a timely and verifiable manner that eventually results in maximum profitable allocation of resources and capital.

Tesco PLC Structure of Governance

Tesco’s operations around the globe have allowed it to develop a strong and fair framework for running the company across all the markets it operates in. The Board of Directors incorporating the Chairman, the Chief-Executive alongside Non-Executive Directors who provide independent appraisal of the vision of the company whilst adding insight to the strategy lies at the forefront of governance (Tesco, 2014). Furthermore, a senior Independent Director is also present on the Board to ensure all conflicts amongst management and shareholders are resolved in the interests of the shareholders which eventually prevents any “agency problems” or front running by the management in regard to the shareholder investments.

The specialised tasks of running the company have called for segregations of major duties to respective committees in the corporation. At present Tesco Plc supports its vision with the help of five committees (Tesco, 2014).

The Tesco Committee

Tesco PLC Board Committees

The major drivers of each committee alongside its evolvement over the years are summarised below.

The Audit Committee: The committee is tasked to ensure that the risk management principles for the company are effective and are consistently updated to keep risk management of Tesco in line with its strategy (Tesco, 2014). Furthermore, interim audits and financial disclosures are verifiable and accurately presented to any person who demands knowledge of them.

The Audit committee is also responsible for recommending the appointment of an independent external auditor for the yearly audit and conducting inquiries into management in regard to any investigative matter it deems fit (Tesco, 2014). Over the years the committee has hired external legal counsel to advice on matters that have raised concern.

“Corporate Governance” Critique for Tesco

  • Presence of knowledgeable financial experts to help the operating environment of the company
  • External auditors appointed through shareholder participation and not by management decision
  • Adherence report in regard to compliance with the UK Governance Code
  • Continuous training of personnel on the committee to remain updated on matters of accountancy and finance

The Remuneration Committee: The Remunerations committee is primarily responsible for determining the compensation agreements of senior management as well as analyse structure of compensations that needs to be extended out to Executive members so as to retain the most competent and diligent executive management for overseeing the company (Tesco, 2014).

The committee sets out the incentive fee specifications for senior management as well as deliberates on the aptness of expenses that can be claimed by management so as to focus on long term profitability and not short term goals (Tesco, 2014).

“Corporate Governance” Critique for Tesco

  • Disclosures regarding share scheme payments to management are discussed in the Annual Reports or any other public document
  • “Clawback” provisions are present to discourage management from participating in short term profitability at the expense of long term ones
  • Use of external counsels and consultants to ensure no conflict arises in regard to compensation between management and the committee
  • Outlining philosophy for compensation to management and shareholders so as to assess compensation in “Best case” and “Worst case” situations

The Corporate Responsibility Committee: The committee was established in 2012 and incorporates the principles of the Companies Act 2006 to help govern its scope of operation (Tesco, 2014). The committee ensures Tesco acts in a sustainable manner to benefit the communities and environment. Moreover, it considers impact of corporate actions by Tesco or any of its subsidiaries on the ethical culture present across all its markets of operation.

“Corporate Governance” Critique for Tesco

  • Consistent and timely updates on ethical stances of Tesco throughout its financial year and implications of such actions on the communities
  • Updating investor and consumer beliefs in regard to sustainable business model and sourcing of operations for Tesco Plc
  • Develop strong communication channels to ensure investors are aware of business model and the company is living up to its reputation

The Nominations Committee: The Nominations committee lies at the heart of the company. It is tasked primarily with all matters relevant to management. Acting in accordance with the Companies Act 2006, the committee ensures that executives on the board possess relevant skill to discharge duties, project a vision for the achievement of goals and the balance required between executive and the non-executive directors so as to maintain independence within the organisation (Tesco, 2014). Furthermore, the committee deals with regular appraisal of management so as to make sure the leadership quality of the board is not compromised.

Since its development the committee has also taken up the responsibility to ensure that equitable nomination procedures are drawn and implemented on a firm wide basis as well as a smooth transition mechanism is prevalent for passing over of responsibility when managerial personnel change.

“Corporate Governance” Critique for Tesco

  • Presence of independent members ensure shareholder interests are at the forefront of discussion
  • Linking management performance to compensation by means of regular appraisals helps Tesco ensure that it is extending out the most cost-effective expertise at every level

The Disclosures Committee: The committee not only makes sure that consistency prevails in financial statements making them easily verifiable but also scrutinizes the annual reports to ensure that accounting estimates or policies are not inappropriate for treatment of various matters (including financial and operating leases) (Tesco, 2014). The committee also deals with incorporating a framework within the firm to handle “material nonpublic information” and how it is to be disclosed.

“Corporate Governance” Critique for Tesco

  • Helps ensure effective risk management with regard to insider information and assessing best course of action to dealing with speculations in the market
  • Enhancing investor confidence by making sure that notes to the financial statements are comparable over periods of time

The Corporate Governance framework at the Executive Management level is limited to the Board, the Board’s composition and the committees formed to review their respective matters. To deal with corporate governance on a business strategy level Tesco ensures that each division possesses its own strategic plan to enhance performance and help achieve the company’s vision. The committees can be thought of as being responsible for a distinct business segment of the company and at the moment are made up of the following (Tesco, 2014):

  • Compliance Committee
  • Multichannel Committee
  • People Matters Group
  • Property Strategy Committee
  • Social Responsibility Committee
  • Technology Committee
  • Commercial Committee

Given the nature of the work of such committees the overall oversight responsibility lies with the Chief Executive of the company. These add value by ensuring the laying down of a strategy for fulfillment of objectives.

A brief critical outline for other minor stakeholders is also provided below. However, corporate governance should be more closely linked with management, the Board and shareholders. (CFA Institute, 2013).


Tesco’s “Clubcard” rewards programmes and the “Finest Product” range helps the mature company retain its trusted image. Customers see such aspects as the most value efficient means for satisfying their needs. A store format from hypermarkets to corner stores ensures that each store type caters to the unique needs of the community it is housed in. Tesco’s ability to house a multichannel leadership under one roof helps keep barriers to new entrants high and protect market share in the UK.


Tesco places immense importance on the skill and betterment of its employees. The company trained more than 250,000 employees last year in light of turning around the company. The employees are not only encouraged to suggest improvements in stores or company policies through Tesco’s feedback approach but are also made to feel as an intangible asset of the company by continuous investment in their betterment.


Legislation has a huge impact on how Tesco conducts its businesses around the globe. The impact is further magnified when the company’s policies are in the spotlight. Anti-competitive and employment legislation have affected Tesco the most over the years, whether in developing or developed markets (Tesco, 2014). For a better public image and to comply with local legislation Tesco actively hires from the local community where new stores are opened. Furthermore, Tesco actively participates in sustainability projects where its huge hypermarket stores open up so as to benefit the community.


Tesco’s significant market share allows it to obtain favorable terms from its suppliers from a monetary point of view whereas special teams such as the agricultural team within the corporation help make sure that the company obtains products of utmost quality from its suppliers (Tesco, 2014). Moreover, the “protector line” initiative by Tesco under which any wrongdoing on part of the supplier can be raised by the suppliers’ employees on behalf of Tesco would enable Tesco to improve its operations (Tesco, 2014).

Having analysed the broad corporate governance framework prevalent at Tesco, improvements that can be instituted to reflect better corporate publicity and reputation are related to three main aspects of the company. The table below illustrates methods for strengthening the prevalent model.

The Board
  • Election policy of the Board members should be with staggered whilst keeping a majority of independent members at all times thus making sure that shareholders’ interests are paramount
  • Related party transactions or any conflict of interest arising from people serving on the Board should be disclosed in all interim reports and annual reports
  • The board should meet without the presence of the management so as to prevent any over riddance of independence
  • Little or no barriers to communication with investors or shareholders should be prevalent
  • Establish a Code of Ethics to dictate corporate culture of the firm
  • Increased transparency of options, their exercise period and fees paid out to management for their services rendered (currently amounts disclosed in Financial Statements)
  • Choosing the optimal “peer group” to benchmark performance so as to allow for the most meaningful comparison
  • The use of company assets and property should be limited to circumstances as determined by shareholders and the usage as such should be disclosed at the Annual General Meeting
  • Use of different share classes with different voting powers are fully known to the shareholder
  • Whether the company allows for shareholders to cast their vote in absence (proxy voting)
  • Procedure for raising concerns at the Annual General Meeting
  • Procedures that need approval from the shareholders prior to implementation by the management ( such as defenses in takeovers)

Recommendation Summary

The complex and ever-changing nature of Corporate Governance does not allow for a limited set of principles that govern the matters. The interpretation of the framework for the corporate governance lies with the collaborate interaction of the shareholders and the management.

Given Tesco’s strong framework to delegate matters of public interest and scrutiny to committees independent of the Board and delegating internal strategy vision to segments within the corporation, Tesco successfully ensures that all stakeholder interests are looked after at all times.

The continuous updating of the foundations that form the Corporate Governance framework allows the company to retain its strong customer base and investor confidence. The internal review and revamping of the company’s strategic committees after the “Horse-meat scandal” ensure that the company strives to deliver the very best of responsibility at all levels. Given the responsibilities of various committees of the Board and a “Corporate Code of Ethics” within the firm it is safe to conclude that the company has established an effective corporate governance framework.

Reference List

CFA Institute (2013). Corporate Finance & Portfolio Management. USA: Wiley.

Tesco PLC [2014] Annual Report [Online] Available from www.Tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf


Gray, I. & Manson, S. (2011). The Audit Process. 5th ed. USA: South Western – Cengage Learning.

Hillier, D., Ross, S. & Westerfield, R. (2010). Corporate Finance. 1st European Edition UK: McGraw-Hill Higher Education

Robinson, T., Greuning,H., Henry,E. & Broihahn, M. (2009). International Financial Statement Analysis. USA: John Wiley & Sons Inc

Seal, W., Garrison, R. & Noreen, E. (2009). Management Accounting. UK: McGraw Hill Higher Education

Target Costing & Lifecycle Costing Systems Comparison

Target Costing & Lifecycle Costing System


Letscommunicate Ltd produces mobile phones for sale in supermarkets. In today’s competitive market of mobile phones with short product life cycles, it is important for mobile phone producers to develop and market products that not only meets the customers demand for features at a certain price level but also generate the desired profits. This essay analyses the benefits and limitations of using target costing and life-cycle costing systems over the existing costing and performance measures used by the company. The current techniques used by the company are useful for keeping costs under control but they do not provide an indication of either the maximum costs allowable for defined product features or profits over the total life of a product.

Target costing

Target costing is a method to determine the cost at which a product with specified parameters must be produced to generate the required rate of return. It involves cost analysis during the developmental phase as well to keep the overall costs below the threshold. The cost control techniques currently used by the company are useful in managing costs during production stage. However, moving cost management efforts from the production stage to the product development stage translates into higher profits because of lower costs . This is particularly useful for companies producing mobile phones for supermarkets because supermarkets drive tougher bargains.

The benefits of target costing are higher if specific targets for costs and product features are established earlier in the product development cycle . Cost analysis in earlier stages of the product development may indicate whether it is feasible to produce a mobile phone that not only meet customers’ expectations of price and quality but also generates the desired returns for Letscommunicate Ltd. Also, modifications to the product in the initial development stages cost less and will increase the company’s profit and ability to compete better.

However, the target costing concept will take lower priority if Letscommunicate were to focus on meeting fast time-to-market demands because of shorter time to launch a mobile phone . It is also difficult to forecast price in the future due to rapid technology developments in mobile phones and changes in customer preferences .

Life-cycle costing systems

The competitive nature of the mobile sector means that mobile producers have to not only manage with lower profit margins and shorter product life but also spend a significant amount on developing new products and features. This means that costing methods like absorption costing systems that only look at production costs are less useful because they neglect research and development costs in evaluating profitability of a product. Life-cycle costing systems overcome this drawback as they evaluate costing from the research and development phase through to the eventual conclusion of a product’s life. This approach is useful in determining the overall profits from a product like a mobile phone that has high development costs and a short product life due to new products being launched constantly by competitors.

The major challenge of using the life-cycle costing system is that it would be difficult for Letscommunicate to estimate full life-cycles of a mobile phone in a rapidly changing environment and increasing competition.


Target costing overcomes some of the drawbacks of the current costing and performance techniques used by Letscommunicate as it focuses on maximum allowable costs during the development phase so that the company can generate the required returns. Life-cycle costing is useful as it will incorporate high development costs and short product life in determining the feasibility of a product.

Management Accounting Systems

Management Accounting Systems Essay

Executive Summary

The company’s profits are falling and there is a build-up of inventory within the production process. This report considers three management systems which could rectify the situation. Considering theory of constraints, just in time and programme evaluation and review technique, the report recommends that more information regarding the cause of the problems is undertaken, and a suitable programme of revaluation of the business processes is undertaken.


The role of management accounting in the organisation has become so much more that the reporting of the score to managers (Hansen, Mouritsen 2006). In the wake of the decline of Western Manufacturing and the relevance crisis of management accounting to modern business as outlined by Kaplan and Johnson in ‘Relevance Lost’, the traditional cost accounting approach has been largely replaced by alternative methodologies (Kee, Schmidt 2000). The role of the management accounting in the modern firm is not only to report the score, but to seek to influence the score by using techniques and theoretical approaches to improve the business processes. As such it is important for managers to understand the use and usefulness of a variety of alternatives to traditional accounting approaches, especially traditional cost accounting and look to introduce other techniques which may have practical advantages for the firm (Dugdale, Jones 1998). There is no one size fits all approach which will work in any case and the application of cost accounting can and will always provide key information about how the business is doing in terms of its goals. Indeed many of the newer techniques focus on particular applications within industry and each of them has something to offer the firm in terms of improving the business processes (Plenert 1993). This report considers three approaches in the context of practical application to a range of common problems, problems which may be responsible for the inventory build-up of the firm in question and its declining profits. The approaches are the Theory of Constraints (TOC) and the attendant logic of Throughput Accounting (TA), Just in Tim Inventory Management (JIT) and wider implications to ‘Lean’ manufacturing methodologies and the Program Evaluation and Review Technique framework (PERT). The report outlines the main features of these methodologies and the advantages and limitations of them with specific reference to their usefulness in a variety of practical situations. The report concludes that each of the methodologies has something to offer and that any management decision must be based on the goals and objectives of the company and its strategic direction.

Theory of Constraints and Throughput Accounting

Developed by E.M. Goldratt as a response to the criticisms of traditional cost accounting, the TOC states that the traditional variable costs of Cost Accounting do not apply, or rather, they apply with less rigour in a modern management situation (Bragg 2007). In the past Labour was seen as a totally variable cost, workers would work to the management’s discretion and short time and layoffs were dictated by the level of production need. Goldratt argued that this was no longer the case as changes to society and legislation had meant that the workforce was more of a fixed cost for the organisation (Wei, Liu et al. 2002). The TOC states that even though modern managers are still evaluated by labour use, such efficiencies can lead to decisions which harm the organisation rather than help optimise production. This criticism led Goldratt to develop the TOC as an alternative system, identifying ‘constraint’ as a decision relevant concept in the service or production process (Watson, Blackstone et al. 2007).

The central idea to TOC and TA is that each organisation has a specific goal (or a set of specific goals) which can be effected by decision making, better decision making leads to better completion of the goals (Linhares 2009). If one takes the normative assumption of a profit orientated organisation as the maximisation of the owner’s wealth, then the ‘goal unit’ will be the ‘throughput contribution’ (TC) which is similar to the ‘total contribution’ marginal costing (Hansen, Mouritsen 2006). The difference in TA is that ‘throughput contribution’ is defined in the TOC as Sales (S), less total variable cost (TVC) which is he cost of raw materials (not labour). This is placed in the context of two further conceptual mechanisms, Investment (I), which refers to money tied up in the system in terms of inventory and work in progress, as well as with machinery and buildings and the like, the second is Operating Expense (OE) which is the money spent by the system on generating goal units, but not the cost of raw materials, so items such as utilities and wages (Davies, Mabin et al. 2005).

This delineation of the costs of production and services allows the processes to be viewed in terms of a number of optimization questions. Typically firms need to ask themselves how throughput (TC) can be increased, how Investment (I) can be reduced and how Operating Expense (OE) can be reduced. These questions in turn will affect the Net Profit, Return on Investment, Productivity and Investment.

Therefore it can be argued that the maximisation of throughput contribution is key to the maximisation of all of the above key performance indicators. The firm can seek to maximise TC by optimising a number of aspects of the production processes. There are five common steps associated with this process;

  • Identify the system constraints
  • Exploit the system constraints
  • Subordinate everything else to the decisions made
  • Elevate the system’s constraints
  • Restart the process if a constraint has been broken

The following example illustrates the process.

Company A has two workers and produces two products (Workers, A,B, Products X & Y). Product Y Requires ten minutes of Worker A’s time, and product X requires fifteen minutes. Potential demand for X is 100 units, for Y is 50 units. If the total time available to worker A is 2000 minutes per week Worker A is not a constraint as the total time to manufacture both products is equal to the total available time (15 minutes x 100, 10 minutes x 50 = 2000 minutes). Worker B also works on the two products but takes 15 minutes on both products (15 minutes x 100, 15 minutes x 50 = 2250), assuming that Worker B has the same maximum time available (2000 minutes) there is a constraint around Worker B. Thus the constraint has been identified.
Step two seeks to exploit the constraint. Concentrating on Worker B as this is where the constraint occur, the exploitation of the constraint means the company (according to its goal of maximising wealth) needs to make a decision based on how to allocate production. To do this the managers need to know what the Throughput Contribution is for each unit. Assume that TC for product X is £75 per unit and for product Y it is £120 per unit. The constraint here is time, measured in units of a minute, therefore the TC per unit of constraint is found by dividing the TC by the time taken with each worker, at the point of constraint this is as follows (X, 75/15 = £5, Y, 120/15 = £8.33), as there are only 2000 minutes available the TOC suggests that all 50 units of product Y should be produced with a total time taken of (50 x 15 = 750, TC = £8.33 x 750 = £6247.5) leaving 1250 minutes to produce product X (TC 1250 x £5 = £6250). Net profit will therefore be (6247.5 + 6250 = £12497.5). In this example this is how the TOC makes all other considerations subordinate to this decision.

TOC does have its problems, it makes many of the normative assumptions about the behaviour of costs that traditional cost accounting does, and largely ignores costs of changing the activities of many of the business processes to suit a particular set of circumstances (Rand 2000). Yet it is a powerful decision making tool and one which, if used properly can alter the success of a manufacturing process in terms of the goal of maximising the wealth of the company .

Just In Time (JIT)

JIT Inventory Management is one of a set of ‘Lean’ manufacturing methodologies which has grown out of the Japanese Approach to management accounting (Abdul-Nour, Lambert et al. 1998). In particular much of modern JIT management is based on the Kanban system of Inventory management which is a part of the Toyota Production System (TPS) which is famous the world over for its efficiency and speed to market with new products (Houghton, Portougal 1997). JIT as a part of a Lean system relies upon the pull of the market rather than the push of production targets and generally states that investment in inventory, both in terms of raw materials and work in progress, also finished goods, represents a waste to the company (White, Prybutok 2001). JIT requires the accurate organisation of the production process in terms of both processes and components of production and finds a minimum level of stock holding at every level of the process. The original Kanban system was based around a set of two cards which accompanied an individual component through the production process. At each point where a component was removed from stock to be used in a process of manufacturing one of the cards would be returned to the previous process to alert that process that another was required. This meant that without the aid of sophisticated computers the TPS managed to cut its value of stock in the factory to a fraction of what it had been, requiring less investment of working capital, lower overheads in terms of storage and warehousing, and less risk of over production of any components or of finished goods (Abdul-Nour, Lambert et al. 1998).

JIT is a system which has largely been adopted in many of the larger production facilities which have adopted ‘Lean’ technology. These range from most car manufacturers to manufacturers of high technology. But there is growing evidence that it may be very useful in terms of the smaller manufacturer, and even the service industry, especially as the cost of raw materials is rising in the face of increased demand for core materials (Abdul-Nour, Lambert et al. 1998, Khan, Sarker 2002).

JIT is difficult to implement and requires considerable investment in the production processes (Hansen, Mouritsen 2006, Houghton, Portougal 1997). It is impossible to implement JIT unless there has been a programme of business process redesign to allow such minimum stock levels to be held, and this can present a large investment cost in the firm which may or may not ultimately benefit from such an inventory management programme. JIT requires the firm to invest heavily in partnerships with suppliers as well and to evaluate the supply chain from almost every angle to prevent a total collapse of the production system (David, Eben-Chaime 2003). This is because there is little room for error in the process, if demand is poorly predicted and is higher than expected then the firm will run out of the raw materials of production and may lose custom (Kelle, Al-khateeb et al. 2003). If lower than predicted the firm will not have the capacity to store inventory (die to process redesign). Further if suppliers fail to deliver for any reason the process will come to an abrupt halt. JIT therefore requires a significant amount of managerial information from both the external market and the internal processes to get right and there have been many cases of difficult implementation, especially in smaller companies (Abdul-Nour, Lambert et al. 1998).

Notwithstanding this there is a lot of evidence that with more and sophisticated modelling techniques from increasingly advanced technology, JIT systems are getting easier to implement (White, Prybutok 2001, Yasin, Small et al. 1997). Therefore as long as the systems are set up correctly there are major advantages in reducing the waste of inventory throughout the process of manufacturing. Because of its requirements, and making everything subordinate to the level of inventory, it is not applicable for JIT systems to be used in conjunction with the Theory of Constraints, as managers are unable to subordinate all decisions within the production process to a ‘bottleneck’. Therefore some would argue that JIT systems are less flexible, or certainly allow less flexibility that TOC does (Yasin, Small et al. 1997).

Programme Evaluation and Review Technique (PERT)

Put simply a PERT map is a model of complex processes which occur to facilitate an outcome (Castro, Gómez et al. 2008). The PERT framework is very similar and often used in conjunction with a critical pathway diagram which shows the key processes involved in such an outcome (Mummolo 1997). PERT modelling makes a number of assumptions and has many conventions. In drafting a PERT chart the processes will be numbered in tens, to allow for further additions as the model grows. Further the model assumes that there is a linear relationship between the processes and therefore a number of key relationships (critical pathways) are determined (Cox 1995). These are often termed predecessor events and successor events. The PERT model deals with time in a number of ways giving an optimistic time and a pessimistic time for the completion of a process. It allows managers to view a project, task or process in a way which will help to maximise the efficiency of such a task in terms of a number of variables (Shipley, de Korvin et al. 1997).

Implementation of PERT requires a significant investment of time and expertise and so can have an impact on the costs of an activity, which must be weighed with the advantages or benefits such analysis brings to the process redesign (Azaron, Katagiri et al. 2006). Often PERT is a useful way to implement ‘Lean’ techniques of production as it allows the mapping of existing processes to look for ‘slack’ in the system. But its complexity can also be a disadvantage in terms of the time it takes to complete and the risk of errors in the model having unintended consequences to any new or redesigned process (Azaron, Katagiri et al. 2006).

PERT is most useful at outlining the dependencies of a process and the identification of the critical pathways which affect the outcomes of a process. Further the methodology allows for the identification of the benefits of early, late and slack starts or a process (Cox 1995). It is also a way of organising a large and complex amount of information I a way which is relatively easy to understand by non-specialist managers, and as such allows the input of many areas of speciality in the redesign process, some of which may not be heard in terms of purely operations or accounting systems such as JIT and TOC.

Yet PERT can have a number of significant disadvantages when used. First and foremost is the possibility of thousands of critical and interrelated aspect of a singly process (Mummolo 1997). The time taken to map out all of them can be considerable and even if they are all mapped out the subtle interrelationships are often difficult to place into such a restrictive framework. It is a given that in real life the process will not always work in the way in which it is modelled, and small changes across a few key aspects can vastly change the outcomes and behaviours of many of the assumptions behind PERT analysis. PERT is very useful in terms of initial investigation of a process or event, but it takes both art and science to appreciate how something will work in the real world situations of manufacturing or service industries. In this respect PERT should be seen only as an aid to understanding and not a ‘right’ answer (Castro, Gómez et al. 2008).


The three managerial tools which have been outlined in this report are all powerful providers of decision relevant information. Further all three allow the management to view not only the outcomes at the current time, but also to make significant changes to the processes of production or provision of services which can dramatically improve performance. The case given points to both poor profits and returns on investment and poor inventory management as problems for the company, as such it is important before any decisions are made about the implementation of new management practices, as to why these are occurring. If the drop in profits are due to a slackening of demand, a change to JIT and the attendant redesign of the business along ‘Lean’ philosophy may be significantly advantageous, as it will allow tight control over inventory and allow the company to respond to the needs of the market more effectively. By removing overproduction and inventory as wastes to the business, profits would be expected to recover, as long as the business is still a going concern (Hansen, Mouritsen 2006).

If, however, the company still has similar levels of demand for its products then the company will need to investigate where the problems in the existing processes are. TOC would be one way of looking at this problem, so too would JIT. It is felt if the levels of demand are broadly similar it may well be worth the management of the company undertaking some analysis of the business processes with a view to coming to a decision about the suitability of either TOC or JIT, but it must be appreciated that each of these approaches carry some significant costs and risk if the analysis is not well thought out. PERT analysis will map out the internal process and identify the various problems with slack and time, but it does not look in much detail at costs. Other methodologies the company may like to consider as a part of any process redesign are the Activity Based approaches to costing, management and budgeting, these fit well with JIT management, but not so well with TOC. TOC has significant limitations because it subordinates everything to the constraint, and as new constraints appear the process has to be restarted from scratch. This criticism also gives it the flexibility that the other systems mentioned herein do not possess. This report recommends that managers identify the reason for the falling profits, and look to find out why inventory is building up (are these a symptom of slack demand, or of inefficiencies within the business). Based on these findings a decision as to what further systems are needed can be made.


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Archer’s Organic Foods plc – Investment appraisals of two farms

Archer’s Organic Foods plc – Investment appraisals of two farms

I. Introduction

Archer’s Organic Foods plc is a producer and distributor of organic foods. The company is looking to expand the business by acquiring a farm in the North of England. This report analyses the financial viability of two farms by using a number of investment appraisal methods. The two farms differ in their initial investments, sales and costs. The freehold of option 1 farm will be acquired at the beginning of the project. The farm in option 2 will be taken on a 10-year lease with deposit and annual rent payments. The report makes a recommendation on the final selection of a farm by evaluating the results, strengths and weaknesses of four investment appraisal methods.

The four investment appraisal methods used in this report are the Accounting Rate of Return (ARR), payback period, Net Present Value (NPV) and Internal Rate of Return (IRR). The results of the four investment appraisal methods may not be similar because of differences in their approaches and calculations. Hence, it is beneficial to use more than one investment appraisal method and understand the benefits and limitations of each method before making a final decision.

II. Investment appraisal methods

The four investment appraisal methods can be classified into two main categories. The ARR and payback period are non-discounting methods whereas the NPV and IRR are discounting methods. The ARR method measures the accounting profit rate by dividing the average income by the average investment (Hansen and Mowen, 2007, p. 568). The method is simple to use but has major limitations. It ignores the time value of money which is a major drawback in case of projects with long lives. Also, a benchmark rate is required for comparison.

The payback period calculates the time required to recover initial investment from the operating cash flows of a project (Brigham and Houston, 2007, p. 373). Shorter payback period projects are preferred as they generate cash equal to initial investment in a shorter duration and this can be viewed as a proxy of risk.

However, the payback period method ignores the time value of money (Kinney & Raiborn, 2011, p. 655). It also ignores the cash flows after the payback period which could result in a selection of a project that adds less value.

The NPV method calculates the net value of a project by discounting the cash flows at a rate which reflects the risks of those cash flows. The discounting of the future cash flows is a major advantage of the NPV method over the non-discounting methods. This is very important for valuing the two alternatives as cash flows are spread over 10 years.

The drawback of the NPV method is that it assumes constant gearing to maintain same cost of capital. This rarely happens as cash inflows over the period change the gearing. A company will have to issue debt regularly to maintain same gearing (Delaney, 2008, p. 37). This is difficult to do due to administrative issues and costs. It is also not easy to calculate cost of capital that is used for discounting cash flows (Howe, 1992, p. 34). Finally, the NPV method is not useful on its own when a company faces capital rationing. The profitability index may have to be used along with the NPV to evaluate investments in a capital rationing scenario.

IRR method also discounts the future cash flows and gives the cost of capital at which the NPV would be zero. This gives an idea about the margin of safety that is available in terms of possible decline in the rate of return before it equals cost of capital. The limitation of the IRR method is that it can give two IRRs for same set of cash flows if the pattern of cash inflows and outflows reverses more than once during the life of a project (Brigham and Daves, 2009, p. 421). It also assumes that cash inflows during the life of a project will be reinvested at the IRR which may not be true as the firm may not have similar opportunities to invest in.

The investment appraisal methods have their pros and cons and it is useful to use more than one method to get a better picture.

III. Results of investment analysis

The first option is the freehold acquisition of a farm at £1,500,000. The calculations and results of the investment appraisal methods of option 1 are shown in appendix I. It is assumed that the farm will be sold for £1,500,000 at the end of 10 years. It implies that the average investment over the period will be £1,500,000.

ARR = Average profit / Average investment = £313,000 / £1,500,000 = 20.83%

The cumulative cash flows turn positive for the first time in year 6.
Payback period = 5 + (245,000/360,000) = 5.68 years.

The NPV of option 1 is £739,000 and the IRR is 19.43%.

The second option is to lease a farm for 10 years. A down payment of £300,000 will be made at the beginning of the 10-year period. It is assumed that the down payment will be returned at the end of 10 years. The average investment will be £300,000. The calculations and results of the investment appraisal methods of option 2 are shown in appendix II.

ARR = Average profit / Average investment = £190,000 / £300,000 = 63.33%

The cash flows are adjusted to reflect the fact that annual rents will be paid in advance. The rent for year 1 will be paid at the beginning and hence shown in year 0. The rent for year 10 will be paid at the end of year 9 and hence £150,000 cash is added back to the profits of year 10.

The cumulative cash flows turn positive for the first time in year 5.
Payback period = 4 + (160,000/190,000) = 4.84 years.

The NPV of option 2 is £623,000 and the IRR is 27.48%.

IV. Analysis of results

The ARR of option 1 is 20.83%. There is no benchmark available for comparison but it is significantly more than the cost of capital of 12% and hence the ARR method approves investment in option 1. The payback period is 5.68 years. Though the payback period is significantly lower than the 10-year life of the project, it does not meet the 5-year cut-off period set by the finance director. Hence, the investment in option 1 is not approved under the payback period method.

The NPV of option 1 is very high and positive £739,000. Purchase of the farm will increase the net value of the firm by £739,000 over a period of 10 years and hence the investment is approved under the NPV method. Finally, the IRR of 19.43% is also higher than the cost of capital of 12% which again approves the purchase of firm.

The ARR of option 2 is 63.33% which is substantially higher than the cost of capital of 12% and hence the ARR method approves investment in option 2. The payback period is 4.84 years and it meets the 5-year cut-off period set by the finance director. The investment in option 2 is also approved under the payback period method.

The NPV of option 2 is positive £623,000. Option 2 is also approved under the NPV method. Finally, the IRR of 27.48% is also higher than the cost of capital of 12% which again approves the purchase of firm.

Option 2 is preferred over option 1 by the ARR, payback period and IRR methods. However, the option 1 is preferred over option 2 by the NPV method because the NPV of option 1 is more than that of option 2.

The difference results under the various investment appraisal methods are not unexpected. The ARR and payback period methods do not discount the future cash flows. This is a major drawback in this case as cash flows are spread over a long life of 10 years. Also, the cost of capital is a high 12% and not discounting the cash flows does not reflect the risk of the investment. In view of the above arguments, the results of the ARR and payback period methods should be viewed with caution.

The NPV method favours option 1 as its NPV is £116,000 higher than the NPV of option 2. However, option 1 uses higher initial investment and this is reflected in its IRR which is lower than that of option 2.

The company should opt for option 1 as it adds the maximum net value to shareholders. However, if funding is restricted than option 1 should be preferred because it adds higher net value per unit of investment. The net value per unit investment is £2.08 for option 2 as compared to £0.49 for option 1.

In addition to the above analysis, the investment decision should take into account few other but important points into consideration. Firstly, in the analysis of option 1, it was assumed that the farm will be sold for £1,500,000 after 10 years. However, the prices of land and farms have increased in the recent years. The table below shows the sensitivity of the NPV to the changes in price of the farm.

An annual farm price inflation of 6% over a 10-year period would substantially increase the NPV to £1,121,000. This is a significant jump. Even if the annual farm price inflation is -2%, the NPV is still positive. On the other hand, the changes in farm prices would not have any impact on the NPV of option 2. The possible significant benefit from purchase of a farm should also be included in final decision making.

Secondly, the evaluations are also sensitive to changes in cash flows. Projections are rarely met in practice (Arya et al., 1988, p. 499). It is difficult to accurately predict cash flows over a 10-year period because of a number of factors. The demand may change due to economic-wide changes. The costs of raw materials and labour may rise faster than anticipated. Adverse weather may also play havoc on the production. Hence, it is beneficial to do a sensitivity analysis of cash flows. It is assumed that the variable costs will move in direct proportion to the changes in revenues. The tables below show the sensitivity of the NPVs to changes in sales and variable costs.

The above tables show that option 2 is more sensitive to the changes in sales and variable costs. At 80% of the base case sales and variables costs, the NPV of option 1 is significant positive but that of option 2 is marginally positive. The option 2 will turn into a negative NPV investment if actual cash flows are just less than 80% of the projected cash flows.

Thirdly, the NPV is also sensitive to changes in the cost of capital. The tables below show the sensitivity of the NPVs of two options to changes in the cost of capital. Option 1 is more sensitive to changes in the cost of capital. The company should analyse the likely increases in the cost of capital over 10 years before making a final decision.

In addition to the above-discussed points, the company should also analyse some of the key non-financial matters to ensure that the investment will yield positive results. It should analyse whether there would be local demand for organic foods in case of each option. Organic foods are sold at a premium to inorganic foods. The buying power of consumers is linked to the general overall economic conditions. The UK economy is passing through a tough phase with consumers concerned about government cuts in public expenditure. This may make it difficult for the company to sell its produce in the local region.

The company should also consider the resources that would be involved in effective monitoring of the farm in the North as opposed to current operations in the South. Monitoring and control is important for success of an investment and long-distance could hamper it.

V. Conclusions

The results of four investment appraisal methods did not match and there is no unanimous choice. Option 2 is preferred on the basis of the ARR, payback period and IRR methods. Option 1 is the preferred option because of its higher NPV and the possibility to gain from an increase in farm prices.

The NPVs of two options are also sensitive to a number of factors like cost of capital and changes in sales and variable costs. The NPV of option 2 is more sensitive to changes in cash flows whereas the NPV of option 1 is more sensitive to changes in the cost of capital.

VI. Recommendations

The recommended option is option 1 because of its higher NPV and also the potential to reap even higher benefits due to increase in value of farm over 10 years. If the project does not meet sales expectations, the company will have the option to sell the farm and exit early in option 1. On the other hand, the company will end up paying lease rent for 10 years in option 2.


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Brigham, E.F., and Houston, J.F., 2007. Fundamentals of financial management. 11 edn, Thomson Higher Education.

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Kinney, M.R., & Raiborn, C.A., 2011. Cost Accounting – Foundations and Evolutions. 8 edn, South-Western Cengage Learning, Mason.

Caterpillar’s International Strategy

Caterpillar’s International Strategy

The domain of international business theory contains an overwhelming array of perspectives and dimensions. International business (IB) definitions and assumptions are as diverse and ambiguous as their sources. Approaches to IB have established the fundamental perspectives as being global or organisational, but the content of these areas are immense. The development of the global approach, or more correctly labelled as ‘macro’ (Rugman and Hodgetts 2000. pp. 24), has recently evolved in the 1990’s as a result of the mixed organisational orientated approaches, otherwise labelled as ‘micro’. This discussion takes the form of analysing Caterpillar in the international business arena by highlighting issues and theories that relate initially to the wider macro environment, then specifically towards Caterpillar as an organisation.

The selected definition of IB for the basis of this discussion has been taken from an opening statement. This being ‘transactions taking place across national boarders’ (Rugman and Hodgetts 2000 pp. 5). This simple statement is considered sufficient to incorporate its entirety, however the recognition of the multi dimensional perspectives and their interrelatedness needs to be comprehended. The aim of this discussion is to explain the international strategy of Caterpillar by using its context as a platform for applying relevant literature.

Caterpillar history

For clarity reasons it is considered necessary to offer a brief introduction to Caterpillar. They have been established in the construction equipment industry for over 75 years and recorded $20.45 billion turnover in 2001 (annual report 2001). Their main products are divided as machinery with 58% of sales, engines with 33%, and financial products with 9%. The mission statement of Caterpillar is to ‘be the global leader in customer value’; this clearly indicates the attention to a high quality of service as being their competitive edge. This service is integrated through a sophisticated network of 1840 locations across all six continents, of these; Caterpillar has foreign direct investment (FDI) in 255 locations. The corporate strategy for the future is to bolster their leadership in the market through initiatives labelled by Data monitor (2003) and the annual report (2001) as being ‘profitable growth, championing continuous quality improvement, aggressively reducing costs, and developing an integrated e-business’. In attempting to understand the reality of Caterpillar’s strategy, theories are applied to offer explanations behind the corporate publishing’s.
The critical success factors associated with Caterpillar are primarily their h3 brand; this is then supported by network and service capabilities that represent reliability and consistency. Caterpillar is also renowned for product innovation; they have continually innovated which has contributed to the brand and reputation. The international market responds to positive brand vales because the nature of the industry requires trust and relationships.

The macro factors present are unlimited in the current dynamic world but the important perspectives are structured as political, economic, technological and social. The elements of these perspectives are selected according to the importance for Caterpillar; therefore they are discussed in this context with reference to relevant literature.

The political climate is continuously being developed and negotiated amongst the nationalities that exercise power. The current instabilities are dominated by the differences in opinion over the Palestine conflict and the Iraqi situation. As Caterpillar is active across the globe, its operations would need to be sensitively applied so that the local governments are appreciated. The situation of Caterpillar is slightly precarious due to the fact that in political terms, the Americans are seen as the bullying nation, which is a mentality that ideally Caterpillar would like to distance themselves from. On the other hand, the American political objective may provide an opportunity as reconstruction and other Caterpillar products may experience an increase in demand as a result of the speculated war (eg. tank engines and construction products). This circumstance for Caterpillar represents a relation’s nightmare because in the home country it would need to communicate support in line with the public opinion, and in the host countries it may benefit from addressing the local perspective. E.g. the activities in China would be adjusted as to address the sensitive issues to ensure sustainability, rather than inhibiting ill feelings from enforcing the ‘American way’. Global political situations are important to Caterpillar because they could gain first mover advantage by moving into recently opened markets such as China.

The extent that a region is privatised or Lasses-faire is of interest to Caterpillar because it would aid the process of negotiating a relationship. It would be beneficial for Caterpillar to tailor management to either foreign governments or foreign organisations.

IB massively influences the macroeconomic environment. The recent conception is that IB is predominately concentrated around three regions rather than integrating the world. This can be seen through the development of trade blocs that encourages IB amongst its members. The most significant research into this economic environment highlights the triad perspective as being dominant. The triad perspective as explained by Rugman (2001) states that the world economy and FDI is based around Europe, America and Japan, this also extends to FDI clusters, namely Eastern Europe, Latin America and the Pacific rim, that are supported by the dominant triad member. The evolution of this economic environment has matured into a three way economic power base that contributes significantly to the adopted international strategy. The conclusions drawn from Rugman’s (2001) research appear to dismiss the argument of a global strategy because an organisation like Caterpillar would only have to accommodate the triad perspectives as opposed to incorporating worldwide responsiveness.

The analysis of the macroeconomic environment also includes a consideration of the currency markets, and in particular the value of the US dollar against Caterpillars large foreign investments. Caterpillar’s largest FDI is in Japan; therefore the continual decline in the economy influenced the strategic decision to operate financially in the Japanese market instead of exposing themselves to exchange rate risk. In theoretical terms this strategic decision is known as ‘currency diversification’ (Rugman & Hogetts 2000 pp. 203). On the other hand Caterpillar has a favourable impact from the sales in other currencies, primarily trading with Euros and the Australian Dollar against the weaker US Dollar.

The macro social issues relevant to Caterpillar are identified as originating from the animosity felt by the east towards the west. These issues include the resistance of the east in adopting the ‘western way’, this then extends into the business sector where an international business strategy involves a high degree of managing through different social contexts. This is supported by Gesteland (1999 pp. 27) who demonstrates the concept of ‘deal first or relationship first’. A relevant example of this in terms of Caterpillar is highlighted by Peppas (2002. pp. 52), which suggests that ‘differences were found in terms of attitude towards a code of ethics’. Caterpillar places a heavy bias towards its ‘code of conduct’, but is this sufficient to address social issues in international business. At present these publications are not enough, as pointed out by Mokhiber and Weissman (2002 pp. 12). This opinion labelled Caterpillar as a ‘bad apple’ because its ‘D-9 bulldozer is used by Israeli military to carry out its programme of ‘home destruction’, this is directly inconsistent with the ‘code of conduct’ (2000 pp. 2) which states that it ‘uses our strength and resources to improve, and in some cases rebuild, the lives of our neighbours’.

Another important social issue involves the rate of investment into the developing world. The recent trend has been to transfer manufacturing to developing countries, which has stimulated construction and booming economies. This suggests that the international market place is dynamic and evolving, which should influence Caterpillar to adapt in emerging markets and control in mature ones. This idea is also interrelated with the triad perspective, it could be advised that Caterpillar enter the clusters with triad adapted strategies, then encourage segmented alterations in response to market conditions. With this idea incorporated within the strategy, it would combine the economies of scale benefits through behind the scenes standardisation, and benefit from local responsiveness by empowering each of the triad bases.

The technological environment is particularly significant for Caterpillar to consider. Not only does Caterpillar have to continually improve the current products but it would also be beneficial to innovate new products to overcome original construction problems. This is highlighting the need to be more advanced than the competition, when Caterpillar enters a market it must ensure that the product offerings are compatible with the geological and business needs. For example track driven vehicles are more appropriate than tyres for working on loose sand. Caterpillar must also undertake a broad view of technological developments in order to identify issues such as alternative power, through to advantages identified in the logistical operation. A recent technological innovation has been the Advanced Combustion Emission Reduction Technology (ACERT); in short this is a more environmentally friendly engine. Along with product development and product innovation, Caterpillar must also be aware of opportunities to diversify. The most recent example of this is where Caterpillar introduced financial products to encourage a struggling economy to buy Caterpillar products.

Caterpillar’s international strategy operates within an environment that is affected by the macro factors. These factors are recognised in a global context and are normally uncontrollable; therefore their management involves negotiations rather than influencing and controlling. The strategic decisions that affect the effectiveness of Caterpillar are mainly catered towards the micro level factors. Meaning the micro level factors are at work within wider macro issues. The discussion here extends to the most important micro factors that Caterpillar must consider when structuring their international strategy. The factors in brief are competition, structure and logistics, culture, and marketing. Each of these factors is discussed using relevant theories in the context of Caterpillar and its environment.

Competition within the construction equipment industry (CEI) can be described using the industry life cycle and the five forces analysis (Porter 1985). The CEI is arguably beginning to mature internationally because the competition has been shaken down to leave only 27 organisations that are considered major competitors across all product areas (Datamontior 2003 pp. 13). This information excludes the financial products because these are largely dependent on the machines and engines. Due to the maturing nature of the industry, it implies that the customers will be repeat customers as opposed to new. This increases the value of the relationship and importance of having a h3 brand. Caterpillar’s position is one of leadership through product quality and support servicing; this directly builds the good perception of Caterpillar in the minds of the customers.

The components of the five forces model (Porter 1985) illustrate the competitive environment of the CEI. The rivalry amongst existing firms reflects the increasingly internationalised nature of the market. The basis of competition is held in the ability to offer a broad range of equipment, and build confidence through meeting changing needs. The strategy employed by Caterpillar involves creating extra value by offering an extensive range with a supporting service that provides an excuse for premium prices. The main competitors for the heavy equipment market include Komatsu Ltd, Kubota Corporation and Mitsubishi Heavy Industries Ltd. These are the most powerful competitors whose strategy also includes creating value and charging premium prices. It is noted that two triad areas, namely Japan and the US, predominantly contest the makeup of this market. Although it is conceded that European competitors are significant in the industries architecture. To some extent, the internationalisation of the industry has provided a situation that can arguably be labelled as an oligopoly (Grant 2002 pp. 71), meaning there are a few organisations that are powerful enough to be deemed sustainable. Again this is more evidence that the industry is maturing, therefore influencing Caterpillars strategic decisions.

The other main product of Caterpillar is their engine. The main competitors within this industry are identified, amongst others, as Rolls Royce, Ford Motor Company and Hino Motors Ltd. These competitors are of similar size and employ a strategy of offering reliability and supporting services. However it is noted that Ford and Hino Motors do cut costs and charge cheaper prices, but they still maintain the view of being the leaders. Again the geographical base of these organisations supports the triad perspective introduced by Rugman (2001). The basis of competition is the development of quality in terms of reliability and consistency; it is also an advantageous position to offer a wide range in products. Caterpillar currently offers around twenty different kinds of engine (Caterpillar Product Line 2002), there are also many variances that can be offered within these product ranges. Caterpillar is also recognised for its detailed service; an example of this is that they had temporary power established at ground zero hours after the September 11 events.

Rugman (2001) demonstrates organisational structure theory as a series of alternative options. This approach offers a clear indication of strategies available, however it is implied that the alternatives are one-way avenues, when in fact a holistic view of organisational structure would include the facility of a hybrid approach. A significant limitation to Rugmans (2001) approach is that it failed to recognise the decision maker’s predisposition. Whether an organisation is categorised as either ethnocentric, polycentric, regiocentric, or geocentric (Pearlmutter 2001, Rugman 2001) would influence the extent to which it could execute a structure. Can a totally integrated transnational network structure be effective if extreme ethnocentric directors excessively control it? The majority Caterpillar’s board of directors are American, but the board’s predisposition is known only by evidence in the company’s structure. Caterpillars operations include a dealer network that is claimed to be an important competitive advantage, the dealer network comprises of relationships with local outlets totally integrated with private locations involving large amounts of FDI. This is arguably grouped as a ‘transnational network structure’, but it obviously operates to an extent with governance from the home country. To maximise efficiencies and quality of service then the structure may need to consider the triad perspective mentioned earlier. The strategy could involve different approaches relating to sensitivity, but also incorporate the logistical economies of scale and scope.

In addition to the ‘transnational network structure, Caterpillar is pursuing alliances, most recently with Ford. The aim for this partnership is to develop supply chain software based on their experience in the vehicle parts market. The American perspective dominates this strategic decision concerning the structure of Caterpillar; therefore if the alliance proves profitable then they are likely to integrate it universally. However this perspective may not be profitable in other cultures, which suggests that different locations are equipped to decide what to integrate and how.

Current research by Miller and O’Leary (2002) evaluated the performance of Caterpillar factories. The conclusions supported the argument of common manufacturing recommendations, these being the trend of computerisation, multi skilling, and the encouragement of an emergent approach. This new factory architecture represents the absence of control, this may be beneficial in the developed American labour market, but this would not be advisable in bureaucratic cultures such as the Chinese. Further American research is provided by Rao, Scheller-wolf, and Tayur (2000), here they intended to make recommendations for the development of a rapid response supply chain for the compact equipment. These recommendations included background theories such as the network theory, inventory theory and simulation theory, to reason their novel features like the ‘duel nodes of supply’, which is to benefit dealer replenishment and customer demand in terms of service speed. The point stressed from such articles is that they are only valid to the specific environment, in terms of structuring internationally then these issues would need to be addressed in each geographical location, and this would be unique in each case. Therefore the construction of an international structure is dependent on the location it chooses.

Internally Caterpillar has developed a universal approach of how to operate. They have labelled this 6 Sigma. ‘6 Sigma is about success – about being better than we’ve ever been. It’s about getting there faster’ (www.caterpillar.com/about), the fact that Caterpillar implement this universally suggests that there is an ethnocentric orientation towards the international management.

The micro factor of international culture is a consideration that involves negotiation in order for an organisation to be efficient. Organisational culture on the international stage can be viewed as an extension from the four primary attitudes outlined earlier (Perlmutter 2001, Rugman 2001), these attitudes govern the perceptions of how a company organises its activities. Rugman’s (2001) ideas outline the important issues of culture as being language, religion, values and attitudes, manners and customs, material elements, aesthetics, education and social institutions. Although the attitudes of the organisations decision makers are catered for, it is felt that this is the starting point when evaluating an international culture. The unconscious attitude of decision makers will directly affect the extent to which they can implement a strategy such as ‘polycentric’. For a pure international strategy, not only do the cultural differences need to be understood, but also the drivers that influence the culture. This opinion is supported by research undertaken by Gulbro and Herbig (1999), this conclusion states that ‘firms must be better prepared, must improve their knowledge of the other side and its culture’. This implies that cultural management is a process of negotiations rather than the encouragement of a ‘one best way’ approach. Gulbro and Herbig (1999) emphasised the need for organisations to learn from studies that show how different cultures are, therefore this would provide the resources to negotiate effectively the desired business activities. Research into Australian construction companies in Malaysia by McGrath-Champ and Carter (2001 pp. 20) found that ‘HR policies and corporate culture are used as marketing devices, not solely for management strategy’. The theory formed from this research highlighted the fact that IB in developing economies needs to provide better insights into the role of the domestic market. It is argued that international business ‘is not simply driven by cost or quality but the success the transactions it has within a host country’ (McGrath-Champ and Carter 2001 pp.). Caterpillar’s use of internal and external marketing attempts to communicate culturally consistent messages. Caterpillar regularly produces documents and articles such as the ‘code of conduct’, ‘corporate support programs’, a magazine, and network and product information. This is evidence that Caterpillar attempts to interact with stakeholders such as the communities, customers, dealers and employees.

Another suggestion that Caterpillar manages culture effectively is the resolution of the six-year strike with the United Auto Workers (UAW). However it must be highlighted that it wasn’t effective management that created the dispute, or dragged it along for six years, but since its settlement Caterpillar has recorded increasing profits year on year. However an argued reason for this maybe the weak dollar and h3 growth abroad, therefore these markets are in earlier in their life cycles which would suggests that problems may arise in the future. Hopefully experience shall instruct Caterpillar to observe the problems at an early stage. Ba Banutu-Gomez (2002) provides an indication of how to manage culture in developing countries. His recommendation implies that the management of international culture ‘requires a h3 commitment to a high standard of conduct. Managing in this kind of situation requires being able to design and implement a bottom up system, which involves a two-way exchange’. (Ba Banutu-Gomez 2002 pp.39).

Similar to Rugmans (2001) highlighted issues; Hofstede (1991) identified four dimensions of work related cultural differences, namely ‘power distance, uncertainty avoidance, individualism\collectivism, and masculinity\femininity’. This research is an extensive piece based on questionnaires; it provides validity in terms of its thoroughness and its aim is to ‘help managers to identify how to create global competitiveness from diversity’ (Hoeklin 1994).

Caterpillar’s cultural situation involves the problematic issue of combining the culturally diverse network into an efficient information sharing system. The documentation to signify cultural attention is at a thin level; the vast majority of the corporate marketing is of a very directive nature. For example ‘we are placing renewed emphasis on becoming a continual learning organisation at Caterpillar, using 6 sigma as the way we work’ (Annual Report 2001 pp. 5). The 6 sigma itself is a continuous improvement programme designed by Americans to implement internationally, this obviously does not recognise the needs to negotiate and exchange for maximum productivity and innovation, instead of enforcing a single way.

The microenvironment involving marketing tactics is fairly consistent throughout its international markets. The products that are offered are broadly the same apart from simple language adaptations and alike. The important international marketing issue is the content of the supporting service; this would need to communicate in a way that is consistent with local perceptions. The constant problem for Caterpillar is learning what to communicate and where, therefore it is obvious that it should adopt a ‘polycentric’ approach as identified earlier. For implementing such a strategy techniques such as Yip and Masden’s (1996) ‘Global account management’ have been proclaimed. Benefits associated with this technique include:

  • Establishing links across regions that carry over time to build institutional relationships
  • Good service leading to reputable benefits that can be transferred to new strategic regions or industries. (Yip and Marsden 1996 pp. 38)

There is evidence of this within Caterpillars strategy because firstly, they produce ‘supplier communications guidelines’. This maybe against cultural theory but nevertheless they are an attempt to establish a link within regions. The strength of the Caterpillar brand has been utilised by extending it to products associated with the core brand values, such as heavy footwear, clothing and watches. This strategy is confirmed with Chernatory, Halliburton, Bernath (1995 pp.20), where their approach ‘argued that international branding should be based on the core essence of the brand, in terms of its added values and positioning’. However it must be recognised that the associated values may need to be refined when marketing in more sensitive markets.

With the product being largely standardised and economies of scale being utilised, then the marketing and servicing operations need only to appreciate the local values, instead of marketing a differentiated product. Caterpillar largely promotes a consistent message of reliability, expertise and value for money; these are the underlying assumptions that are connected to the Caterpillar brand. Internal marketing could involve more negotiations through understanding local cultures, although this may unconsciously happen it does not get promoted through the documentation.

In summary Caterpillars international strategy has evolved within a market environment that demands reliability and dynamic customer requirements. Therefore their international strategy is a unique response that matches the capabilities with customer demands. The current direction of the strategy is to ‘recalibrate our focus’ (Annual Report 2001 pp.2), meaning to concentrate on successful products and either retain or achieve leadership. Caterpillar does, and should continue to innovate in terms of products and logistics to maintain opportunities for leadership. The brand values provide a critical advantage in supporting the services because the interrelated nature of this allows prosperity. Caterpillars brand management and marketing internationally is effective in communicating the values, but it has been hinted here that the fundamental values may be ideal for the American market, but not necessarily maximising in foreign markets. Caterpillar’s logistical network involves vast amounts of investment of money and time; therefore it poses as a significant barrier to entry. The critical aspects of this network are the working relationships. Caterpillar manages these by documenting the ideal personality of a networked company. However, it is concluded that Caterpillar has ethnocentric characteristics, which may be inefficient by suppressing the domestic firms. The structural design of Caterpillar resembles that of a transnational network company, this network covers a large proportion of the globe, but the development of the structure extends from a triad perspective due to early investments in Japan and Europe. A criticism of this suggestion is that Caterpillar have sufficient power to influence networked companies, therefore it could be argued that there is evidence so suggest that it undertakes a global area structure. This is based on the opinion that they have a bureaucratic nature, which works against the network structure fundamentals.

The competitive forces of the environment, namely the need for reliability and support service, would suggest that the network structure is more appropriate. Caterpillar’s ability to develop and produce products is a major advantage, but to create total dominance of the construction industry, their logistical network would need continual maintenance. The resulting recommendation is to encourage an emergent approach that encourages communication and business development within the network.

Critically appraise the circumstances where an impairment loss is deemed to have occurred

Critically appraise the circumstances where an impairment loss is deemed to have occurred


IAS 36 Impairment of assets published in 1998 and subsequently amended in 2004 and in 2008, seeks to ensure that an asset is not carried on the statement of financial position at a value that is greater that it’s recoverable amount. This paper aims to critically appraise the circumstances where an impairment loss is deemed to have occurred and explain when companies should perform an impairment review of assets, while discussing the effects of impairment decisions on the firm’s financial position and performance.

Previously there was little authoritative guidance on the accounting for asset impairments. The absence of explicit guidance for many assets permitted substantial discretion in terms of amounts and timing of write offs (Francis et al, 1996). Over time accounting standards have moved towards presenting more items at fair value on the Balance Sheet. In doing so IAS 36 tries to remove as much discretion as possible. The primary objective of IAS 36 Impairment of Assets is to ensure that an entity’s assets are carried at no more than their recoverable amount and the standard sets out the criteria for defining how the recoverable amount is determined. Entities are required to conduct impairment tests where there is an indication of impairment of an asset, with the exception of goodwill and certain intangible assets for which an annual impairment test is required. Intangible assets with an indefinite useful life, an intangible asset not yet available for use and acquired goodwill should all be measured annually whether or not there is any indication of impairment.

Impairment is deemed to occur when the carrying amount is higher than the recoverable amount (i.e. the value in use. the asset’s net selling price or the fair value as determined in accordance with IFRS 13). At the end of each reporting period an entity is required to assess whether there is any indication of impairment. If an indication of impairment is evident then the assets recoverable amount must be calculated [IAS 36.9]. An impairment loss is recognised where the recoverable amount is below the carrying amount [IAS 36.59]. The impairment loss should be immediately recognised, generally as an expense unless it relates to a revalued asset where the impairment loss is treated as a revaluation decrease [IAS 36.60]. In the case of goodwill, a cash-generating unit to which goodwill has been allocated shall be tested for impairment at least annually by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit: [IAS 36.90] In each situation, if the carrying amount of the unit exceeds the recoverable amount of the unit, the entity must recognise an impairment loss. This is a radical change in accounting for goodwill. Previously, International Accounting Standards required recognition of Goodwill subject to amortisation over its useful lifetime.

Indicators of impairment are set out in IAS 36 with a view to making the decision less subjective than previously was the case. Negative changes in technology, markets, economy and law could all have adverse impact on the value of an entity’s assets. Indicators of impairment could be as a result of internal or external sources. The market value of an asset may decline as a result of usage or the passage of time. Other external indicators of a decline in value could be the result of significant technological, market, economic, or legal changes which occur and have an adverse effect on the asset or entity. Market interest rates may impact the discount rate used in calculating the value in use of an asset and therefore decreasing its recoverable amount. Internal indicators of an impairment review could be the result of obsolete or physically damage assets, or if an asset is part of a restructure or held for sale, or where the economic performance of an asset is worse than expected.

Despite the standard being objectively set, it can be difficult in determining the measurement of value attributable in assessing impairment options. The timings and measurement of asset write-downs rely heavily on estimates. A number of features of impairment testing and measurement process make implementation a challenge. Triggering events to indicate impairment are many and vary greatly in significance and severity. Different valuation models are used and there is little conformity in the selection of discount rates. (Comiskey and Mulford, 2010). A difference in nature continues to exist between fair values disclosed by management. While the standard seeks to increase transparency and eliminate the subjectivity of accounting for impairments, the exercise for determining if an asset is impaired and by how much remains at management’s discretion. It was felt that previously management took advantage of the discretion afforded by accounting rules to manipulate earnings either by not recognising impairment when it has occurred or by recognising it only when it is advantages (to them) to do so (Francis et al, 1996). The standard now seeks to address this discretion by requiring annual impairment (Goodwill and intangibles) or impairment reviews to be carried out whenever there is an indication of impairment. Even still, there is an element of discretion afforded to the calculation of impairments and so management incentives to manage earnings can still play a part in any impairment decisions. These estimates might be managed to alter or avoid impairments, limiting the comparability across firms. A goodwill impairment loss, for example, is estimated in most cases from management’s projections of future cash flows (Z Li et al, 2011). This is problematic to the investors who are unable to see through these potential manipulations. Indeed, investors and analysts have the option to adjust, or indeed totally ignore, reported accounting numbers, therefore it is far less certain whether this reporting behaviour actually misleads users or reduces reliability and relevance (Lhaopadchan, 2010). Additionally, financial statements differ from the management accounts used by an entity and the effect of any impairment further widens a gap already existing between management information accounts used by the board and the financial statements audited and published.

Earnings manipulation is one such concern given the judgemental approach to the indication of and calculation of impairment. One of the most widely cited papers that investigate the effect of executive compensation plan on accounting choice is Healy (1985). Healy hypothesizes that managers have an economic incentive to manipulate earnings in order to increase their cash compensation, this being the case certain accounting standards allow for this more than others and IAS 36 still allows for an element of judgement in the calculation of impairments. Furthermore, papers have cited the nature behind recognition (or lack of recognition) of impairments and IAS 36 permits an impairment loss on a long lived asset to be reversed if the economic value of the asset recovers. This has been seen to have a direct impact on the practice of impairments whereby reversibility has a positive effect on a manager’s decision to record asset impairments. ‘Permitting reversals significantly increases the likelihood that a manager will record the impairment’ (Trottier 2013) thus highlighting the discretion that management can withhold towards the treatment of impairments.

Volatile financial markets and shifting economic conditions can impact the value of a company’s assets across the Balance Sheet. The recent global meltdown of financial markets was accompanied by highly publicised asset write-downs (Spear and Taylor 2011) and so the standard seeks to address the transparency of the financial statements by ensuring that impairments are directly reflected through the profit and loss account and statement of comprehensive income, disclosed by class of asset. It is not surprising that the most frequent write down activities took place during periods of economic recession confirming the strong relationship between asset write-downs and economic conditions. In 2013 the consolidated results of PSA Peugeot Citroen saw a €1,101 million impairment charge, mainly recognised with respect to the assets of the Automotive Division, primarily to reflect the deteriorating automobile markets and adverse exchange rate movements in Russia and Latin America. Additionally, in 2014 Vodafone’s end of year profits dropped after a £6.6bn impairment relating to the value of European operations whereby lower than expected cash flows were the result of a tougher macroeconomic environment and heavy price competition contributing to a total decline in revenues. Both investors and financial analysts revise their expectations downward on the announcement of an impairment loss. The negative impact of the loss serves as a leading indicator of a decline in the future profitability of an entity. (Z Li et al, 2011).


In conclusion, despite the presumed benefits associated with Fair Value accounting, it is shown that in practice managerial self-interests and earnings management concerns appear to motivate many impairment decisions (Lhaopadchan, 2010). IAS 36 goes further than any previous standard and subsequent amendments to eliminate any subjectivity involved in highlighting and calculating an impairment loss. While goodwill should be assessed annually for impairment other potentially impaired assets are only reviewed in detail for impairment if there is an indication of impairment, some of which are highlighted by the standard itself, however the indicator of impairment could go unidentified resulting in misleading financial statements. Additionally many calculations of impairment use management projections which could include error or contain an element of managerial self-interest and manipulation. Generally speaking the reaction of market participants to any impairment disclosed in the financial statements is of a negative nature with the exception of restructuring costs for which highlight future spend. While the standard seeks to provide a truer and fairer representation of asset value it should be noted with caution the subjective nature of any calculations. Even with an unqualified audit report on the financial statements the audit opinion on impairment is only as good as the information provided and made available to the external auditors.

Hence, it can be concluded that IAS 36 Impairment of assets has come far to contribute to improve the transparency of the financial statements by successfully determining when and how impairment reviews should be conducted, however there will remain an element of managerial judgement for which caution should be taken by all users of the financial statements.


‘Causes and effects of discretionary asset write-off’, Francis, J.. J. D. Hanna, and L. Vincent. Journal of Accounting Research Volume 34, 1996.

‘Goodwill, Triggering Events and Impairment Accounting’, Eugene E Comiskey; Charles W. Mulford. Managerial Finance, Volume 36 (9): 22 – August 10 2010

‘Causes and Consequences of Goodwill Impairment Losses’ Z Li et al. Review of Accounting Studies, Volume 16 (4) – Dec 1, 2011 – May 11 – 2010.

‘Fair Value Accounting and Intangible Assets.’ Lhaopadchan. Journal of Financial Regulation and Compliance, Volume 18 (2)

‘The Effect of Reversibility on a Manager’s Decision to Record Asset Impairments’, Trottier, Kim. Journal Accounting Perspectives , Volume 12 (1) – Mar 1, 2013

‘The Effect/Decisions of Bonus Schemes on Accounting Choices’, Healy, P M. Journal of Accounting and Economics Volume 7 (1), 1985

‘Asset Write Downs: Evidence from 2001-2008’, Spear, Nasser A; Taylor, Alexandra M. Australian Accounting Review, Volume 21 (1) – Mar 1, 2011


Walmart supply chain policy

Question description

Topic: Walmart supply chain policy

Paper requirements – Group to apply the key concepts learned in our course (from the text, articles and class presentations) to the selected topic by focusing and analysis of topics selected, security issues, risks in Supply Chain Management. Paper should evaluate the topic and key risk factors, issues described to evaluate alternative courses of action, interpreting data, evaluation of results of past actions, technology, budget and development of new strategies for approved organization chosen to research.

I. Introduction or Abstract

Describe the topics about the selected organization and will address in this paper.

II. Discussion

Select from the discussion paragraph topics the subject matter each student will research regarding the organization chosen. Focus on critical analysis summarizing the topic and how it applies at the respective organization. use 3rd person, do not copy material directly from an article, case study or company website. APA formatting is required throughout your paper.

III. Conclusion

Include a summary of the key points you identified in the paper.

IV. Reference(s) Separate Page

12pt one half page (single space)


Social Media Research Centre

Question description

Case study – Social Media Research Centre

During a meeting with his boss (David Wright), Bruce has been asked to establish a researcher centre. The research centre, which will commence operations in February 2018 first as an informal research group, should be established by June 2017. Alex’s decision to proceed with this major project is spurred by the fact that an associated organizational centre, which researches in a closely related area, has recently ceased operations. There is also a tremendous pressure from David’s senior executives to produce high quality research that is focused in nature. In fact one of David’s senior executives’ comments was that David’s Unit does not have a clear identity when it comes to its scholarly research output compared to the one in Australian National University. After several meetings with subject matter experts (consultants) and a rigorous analysis of the current trends in research in the area of information technology it has been decided that the most appropriate research area for the proposed research centre to focus on is social media. Fortunately several of David’s Unit staff are active researchers in this area. What made this direction even more attractive is that demand from Master and Doctoral students has been largely for programs in this area. David’s Unit also enjoys a very good relationship with an international expert Craig Bamworth in the social media area who has kindly agreed to offer his expertise to Bruce (the program manager).

One of the projects within the Social Media Research Centre larger project that Bruce has identified as important is the development of a web application for the proposed centre.

This application would include an internet website and section for members on the intranet. Bruce has appointed You as the manager of this project commencing work on 1 April 2017. Bruce’s team has conducted the feasibility study and financial analysis to confirm that project must go ahead and must commence as you join your role.

You must assist Bruce in preparing the project charter that need to be submitted within first week of May 2017 via a kick-off meeting to be held with all major stakeholders presenting and discussing the charter before they all signoff and approve charter.

This website should contain information about the major research projects, list of supervisors, Masters and PhD student projects, publications (conference and journal papers), and project reports. The application manager Sonia Reed should update all these details on the website using the intranet login. Members can also update their project details via their member account. It has also been identified by Bruce that displaying the information, program, recorded presentations and reports/publications of the events held in the area of social media research will help in promoting the centre. Sonia would collect this information from the events manager and update the information on the web application before, during and after the events as needed.

Your team must include appropriate experts to assess the application, network and database software and hardware needs to support this project.

Your manager, Bruce has given you guidance that the project needs to be completed within 8 months and that costs should be minimised wherever possible with given budget of AUD 50000.00

Case study – Social Media Research Centre

During a meeting with his boss (David Wright), Bruce has been asked to establish a researcher centre. The research centre, which will commence operations in February 2018 first as an informal research group, should be established by June 2017. Alex’s decision to proceed with this major project is spurred by the fact that an associated organizational centre, which researches in a closely related area, has recently ceased operations. There is also a tremendous pressure from David’s senior executives to produce high quality research that is focused in nature. In fact one of David’s senior executives’ comments was that David’s Unit does not have a clear identity when it comes to its scholarly research output compared to the one in Australian National University. After several meetings with subject matter experts (consultants) and a rigorous analysis of the current trends in research in the area of information technology it has been decided that the most appropriate research area for the proposed research centre to focus on is social media. Fortunately several of David’s Unit staff are active researchers in this area. What made this direction even more attractive is that demand from Master and Doctoral students has been largely for programs in this area. David’s Unit also enjoys a very good relationship with an international expert Craig Bamworth in the social media area who has kindly agreed to offer his expertise to Bruce (the program manager).

One of the projects within the Social Media Research Centre larger project that Bruce has identified as important is the development of a web application for the proposed centre.

This application would include an internet website and section for members on the intranet. Bruce has appointed You as the manager of this project commencing work on 1 April 2017. Bruce’s team has conducted the feasibility study and financial analysis to confirm that project must go ahead and must commence as you join your role.

You must assist Bruce in preparing the project charter that need to be submitted within first week of May 2017 via a kick-off meeting to be held with all major stakeholders presenting and discussing the charter before they all signoff and approve charter.

This website should contain information about the major research projects, list of supervisors, Masters and PhD student projects, publications (conference and journal papers), and project reports. The application manager Sonia Reed should update all these details on the website using the intranet login. Members can also update their project details via their member account. It has also been identified by Bruce that displaying the information, program, recorded presentations and reports/publications of the events held in the area of social media research will help in promoting the centre. Sonia would collect this information from the events manager and update the information on the web application before, during and after the events as needed.

Your team must include appropriate experts to assess the application, network and database software and hardware needs to support this project.

Your manager, Bruce has given you guidance that the project needs to be completed within 8 months and that costs should be minimised wherever possible with given budget of AUD 50000.00

Value: 25%

Due date: 19-May-2017

Return date: 09-Jun-2017

Submission method options

Alternative submission method


This assignment follows from the case study used in Assessment 2. For the same case study, complete the following tasks by creating the following:

  1. WBS first using indented format. (25 marks)
  2. Gantt chart-Take the WBS you have already developed. Define all of the activities that will be necessary to create each deliverable in your WBS. Create a schedule for your project. First create the schedule by hand using Post-it Notes, and then put the information into MS Project. Take screenshots of the schedule to be pasted in your word document that you are submitting. Be sure to include all of the summary rows (including the first row for the project title) and any key milestones. Make sure the critical path is easy to see.- 10 marks
  3. Create a time-phased budget for your example project using bottom-up estimating. To the extent your sponsor will supply rates for workers, use those. Approximate rates for ones you cannot get. Ask your sponsor how they treat indirect costs. Be sure to include direct labour costs for you and your team mates and add 20% for fringe. State all assumptions and constraints you have used when creating your budget. State how confident you are in your estimates and what would make you more confident. Give examples of known knowns and known unknowns on your project. Tell how you have budgeted for both of them plus how you have budgeted for unknown unknowns. (15 marks)
  4. Create a risk register ( 4 risks- 3 negative and 1 positive risk)for your example project. (20 marks)
  5. Quality Management Plan. (10 marks) It should include:
    A short statement that reflects your team’s philosophy or objective for ensuring that you deliver a quality system to your client. ( 4 marks)
    Develop and describe 3 quality issues related to this project that your project team could implement to ensure quality ( 6 marks)
  6. Closure checklist and project evaluation. (20 marks) :
    Develop a closure checklist that the project team will use to ensure that the project has been closed properly.
    Develop a project evaluation –outline and discuss how your project’s MOV will be evaluated.


This assessment task covers topics 5 to 9 and has been designed to ensure that you are engaging with the subject content on a regular basis. More specifically it seeks to assess your ability to:

    • demonstrate how a practicing project manager actually applies project management skills,
    • methods, techniques and tools ;
    • use an industry standard project management software tool (Microsoft Project);
    • apply project management skills, methods, techniques and tools to a real world problem typical of a project manager;

Marking criteria

Criteria FL P C D HD
Work Breakdown Structure (WBS)- 20 marks unclear attempt that is ambiguous / incomplete WBS is mentioned with some breakdown of Project Scope. WBS is structured, having detailed coverage for Project scope / Phase of project. WBS is well structured, having logical and complete coverage for Project Execution WBS is structured, having logical and complete coverage for Project Execution and integrated into Project Schedule and Resource Matrix.
Gantt Chart ( 10 marks) unclear attempt that is ambiguous / incomplete Gantt chart shows- some activities included, schedule created, summary rows shown, few /none milestones shown Gantt chart shows- some activities included, schedule created, summary rows shown, first row shows project title , total duration shown, some milestones shown, critical path shown Gantt chart shows- most activities included, schedule created, summary rows shown, first row shows project title , total duration shown, most milestones shown, critical path shown Gantt chart shows- all activities included, schedule created, summary rows shown, first row shows project title , total duration shown, all necessary milestones shown, critical path shown and easy to see
Budget ( 15 marks) unclear attempt that is ambiguous / incomplete Bottom-up estimating done, few assumptions and constraints you have used when creating your budget stated. Budget extracted from MS Project showing overall budget Bottom-up estimating done. some assumptions and constraints you have used when creating your budget stated. Examples of known knowns and known unknowns on your project given. Budget extracted from MS Project showing overall and breakdown for all summary tasks and resource Bottom-up estimating done. Direct labour costs for you and your team mates and 20% for fringe included. Most assumptions and constraints you have used when creating your budget stated. Confidence level for estimation stated. Examples of known knowns and known unknowns on your project given. Budget extracted from MS Project showing overall and breakdown for all summary tasks and resource Bottom-up estimating done. Direct labour costs for you and your team mates and 20% for fringe included. All assumptions and constraints you have used when creating your budget stated. Confidence level for estimation stated. Examples of known knowns and known unknowns on your project given with explanation. Budget extracted from MS Project showing overall and breakdown for all summary tasks and resource along with various costs
Risk Register ( 20 marks) unclear attempt that is ambiguous / incomplete Some values of

Risk register

are accurate and

Consistent, some items of the register complete.

Most values of

Risk register

are accurate and

Consistent, most items of the register complete.

All values of

Risk register

are accurate and

Consistent, all items of the register complete.

All values of

Risk register

are accurate and

consistent, all items of the register complete. Risks are relevant to the case study

A ClosureChecklist is produced alongside the development of a project evaluation.
(10 Marks)
The closure checklist has been used to close the
project, and the evaluation was documented
The closure checklist has been used to close the
project, and the evaluation was documented
The closure checklist has been used appropriately to
close the project, and the evaluation has been adequately documented.
The closure checklist is detailed, and has been used accurately to close the project. The evaluation has
been well documented
The closure checklist is detailed,and has been used accurately to close
the project. The evaluation is comprehensively and accurately documented.


Students are required to submit the range of documents describing their proposed project solution for the above tasks.

Work Breakdown Structure (WBS)

    • The first major section (1.0) should be project management and include the various project management deliverables such as charter, WBS, schedule, progress reports, etc.
    • Deliverables should match those in the charter.
    • Each item on the WBS should have a unique name. If there is possible confusion between two items add an extra adjective to differentiate them. For example, two items could be “first draft report” and “second draft report.”
    • Each line should be numbered with major sections being 1.0 then 2.0, etc.
    • Each major section should be broken down into between three and twelve subsidiary sections. If further breakdown is needed, more levels should be used.
    • All items on WBS are deliverables oriented (they are the “whats” of the project). Activities are defined as an outgrowth of the WBS and will appear in the schedule.
    • The WBS can be submitted in free-form, org-chart, or indented-outline format.
    • The WBS should appear to be complete with all interim and ending deliverables included.

Schedule / Gantt chart

    • The schedule should appear to be complete given the charter and WBS.
    • The schedule should appear to be reasonable without requiring heroics to complete on time.
    • Include WBS column to left of task name column.
    • Include overall project name as top row.
    • Have all summaries stated in noun only format (or adjective noun – but on present tense verbs).
    • Have all tasks (activities) stated in present tense verb-adjective-noun format.
    • Have all milestones stated in noun and past tense verb format.
    • All tasks should have dependencies shown – no loose ends.
    • Display Gantt portion of schedule as large as possible.
    • Show critical path in red (or distinctive hash marks if printer is only black).
    • Show arrows with dependencies.
    • Include no more than 40 lines per page – ensure it is large enough to read easily.
    • Include no more pages than necessary so there is little need to align multiple pages for reading unless it is a large schedule.

All referencing in the project material must be in accordance with the APA style guide. A guide to the APA style of referencing (the style now used by the Faculty of Business) is available at: http://student.csu.edu.au/study/referencing-at-csu