When investing, it is fundamental for the investor to make a comparison of various investment opportunities and determine which investment promises a higher return while ensuring that risks are as low as possible. The analysis sometimes requires a thorough examination of elements associated with types of investments. In this regard, it would be essential to take into consideration coupon rates, period of maturity and other features attached to both corporate bonds and municipal bonds. In this scenario, Beth Anaheim is attempting to consider choosing an investment opportunity. Corporate bonds are commonly subjected to federal taxes while municipal bonds are provided with tax exemptions (Stan, 2009).
The DES corporate bond, which is rated as A, would be offered at the corporate rate of 9% and would mature after a period of 7 years. It would be as well be subjected to a combined federal and state marginal tax rate of 30%. On the other hand, the FGR municipal bond rated as AAA would be offered at a coupon rate of 7% whilst its maturity period is 7 years, similar to that of DES corporate bond. With these figures and imperative explanation relating to the two bonds at hand, we would be in a position to give a justification of why municipal bonds stand a greater chance of providing Beth Anaheim with higher returns in addition to ensuring a low level of risks as compared to corporate bond (Wesalo, 2001).
In order to make this analysis more understandable, it would be necessary to come up with a formula that endeavors to compare returns at both corporate bond municipal bond levels. The formula is as stated below:
R (m) = R(c) [1-t]
Where:
R (m) = interest rate of municipal bond
R (c) = interest bond of corporate bond
t= tax rate
Let us now consider which coupon rate of the corporate bond is comparable to a coupon rate of 7% of a municipal bond.
R(c) =R (m)/ [1-t]
With this formula at hand, we should get the corporate bond coupon rate as:
R(c) =7/ [1-0.3]
R (c) =10%
This means that the holder of a municipal bond earning a coupon rate of 7% could only be equated to a holder of a corporate bond subjected to a coupon rate of 10%. It, therefore, means that with the availability of municipal bond, which is issued at a coupon rate of 7%, one should not accept any corporate bond offered at a coupon rate of less than 10% given that corporate bonds are subjected to combined federal and state marginal tax rates of 30% (Hubbard, 2007).
Given that the coupon rate of DES corporate bond is 9% and a combined federal and state marginal tax rate is 30%, it would be wise to choose tax-free municipal bond issued at the rate of 7% since it yields an interest rate compared to a corporate bond that could have been issued at the rate of 10%. This decision should be essential to undertake considering the two bonds have a similar maturity period of 7 years.
In addition, it is wise to understand the risks of default associated with the two bonds (Shan, McGuin, & Waller, 2007). It is generally recognized that municipal bonds are associated with low levels of defaulting risks as compared to other types of bonds such as municipal bonds. In the year 2007, the Standard & Poor 500 Index rated municipal bonds of AAA rating with a defaulting chance of 0.0% while corporate bonds of A rating were stated to have a defaulting rate of 2.9%. It, therefore, becomes vital for Beth Anaheim to prefer FGR municipal bond as his investment opportunity as opposed to choosing DES corporate bond (Anand, 2007).
References
Anand, S. (2007). Optimizing Corporate Portfolio Management: Aligning Investment Proposals with Organizational Strategy. New York, NY: Wiley.
Hubbard, D. (2007). How to Measure Anything: Finding the Value of Intangibles in Business. New York, NY: John Wiley & Sons.
Shan, R., McGuin, P., & Waller, J. (2007). Project Portfolio Management: Leading the Corporate Vision. Basingstoke: Palgrave Macmillan.
Stan, R. (2009). Louisiana Joins Build America Bond Parade with $121 Million. Wall Street Journal, 3(1).
Wesalo, T. (2001). The Fundamentals of Municipal Bonds: The Bond Market Association. New York, NY: John Wiley and Sons.
Trading bonds is a complex and risky job that requires knowledge of the nuances of the market and the rules of interactions in it. However, most of the patterns are available and well known to bond portfolio managers and the general public; thus, anyone can master them. This paper will consider such basic concepts as premium risk, bond duration, and rate anticipation swap strategy to understand the specifics of their application in practice.
The most appropriate and logical approach to investing is to minimize the risks of losing income due to changes in stock rates and prices. However, many stocks carry high risks, but companies need to sell them to make a profit. At the same time, investors can take these risks to get a return and make a profit on them if the purchase is successful. Common stocks carry high risks, especially if they belong to new and little-known companies; thus, they have higher chances of investment loss, since they are limited liability financial instruments (CFA Institute, 2018).
In addition, in the case of bankruptcy of a company, the owners of common stocks have the right to receive their property last after the owners of proffered and other shares (CFA Institute, 2018). For this reason, investors require the risk premium for common stock, that is, income over what they could earn from risk-free investment (CFA Institute, 2018). Thus, common stocks must have a risk premium to boost investor interest and make them buy these stocks.
Furthermore, short-term and long-term bonds have different sensitivity to changes in interest rates, and, accordingly, price, which forms in inverse proportion to the interest rate, increases or decreases. This sensitivity of bonds to small changes in interest rates is a measure of duration that is stated in years (Wiley, 2017). This measure is related to the maturity of bonds and portfolio management strategies since they are interconnected.
There are different types of duration measures, which imply different relationships between bonds interests rates and the likelihood of their price changes. Modified duration assumes a direct measure of the relationship between changes in bond yields and percentage changes in bond prices (CFA Institute, 2018). In doing so, it gives an approximate estimate of the percentage change, considering the full price.
At the same time, effective duration estimates the change in bond price depending on the benchmark yield curve (CFA Institute, 2018). In other words, it determines the price reaction to changes in the benchmark yield but not the bonds yield. This duration is similar to the modified one but more flexible, which makes it possible to make calculations if the bonds have an embedded option (CFA Institute, 2018). Other measurement durations differ in the period and approach to assessing changes.
Furthermore, duration and maturity are similar measures that are related; however, they have different calculation processes. Maturity determines the date when the principal of the bond with interest is repaid, which is usually set at issue day and does not change (Tucker, 2015). However, the time of maturity changes as the point of reaching the date gets closer. For example, the maturity of a 5-year bond is five years, but four years after its issue, there is only one year left until its maturity. At the same time, the maturity of bonds, their coupons rate, and yield affect the calculations of duration (Willey, 2017). Consequently, the shorter the time of maturity, the less the duration and impact of interest rate changes on bond prices.
Moreover, factors such as coupon rate and yield to maturity affect duration. The coupon rate, which is the yield that a bond issuer pays on the date of issue, has an inversely proportional effect on duration (Jensen & Jones, 2019). In other words, the higher the coupon rate, the less the bonds duration and its sensitivity to changes in interest rate. Yield to maturity, which is defined as the total expected return of a bond if it is held to maturity, is also inversely proportional to duration (Jensen & Jones, 2019). Thus, these factors affect the duration and price sensitivity of bonds.
All of these factors demonstrate that duration has a significant impact on bond portfolio management as managers consider this measure while making decisions about selling or buying bonds. Rate anticipation swap is one of the active strategies based on predicting future interest rates according to duration (Johnson, 2017). The main management method in such an approach is the exchange of long-term and short-term stocks, depending on changes in interest rates. Since bond prices change in inverse proportion to interest rates, the managers task is to maximize profits or minimize losses due to their changes.
Long-term stocks are more sensitive to rate changes, and while a 1% rise or fall in rates for short-term rates shifts their value by 1%, for long-term stocks the price can change by 10% (Johnson, 2017). Therefore, the rate anticipation swap strategy is based on the bond portfolio manager predicting future changes and buying or selling stocks to maximize profits. However, such an approach is risky as it depends on the managers ability to forecast changes, and if he or she lacks experience, such an operation can lead to even greater losses.
Nevertheless, the strategy orientation only on duration has its drawbacks, since it does not take into account the credit quality of bonds or their strategy. In other words, the duration will not matter if the company that issued the bonds goes bankrupt or is fraudulent, and investors lose their money. This feature is extremely important for bonds with a lower trust rate, for example, bonds of new and little-known companies. In addition, the average duration of bonds within a portfolio can change as the maturity time changes as well as interest rates. Therefore, the manager needs to constantly monitor and evaluate the average duration to minimize risks and invest in profitable areas, as well as consider other factors related to bonds profitability.
In conclusion, a study of these concepts demonstrates that they are related and have a significant impact on the success of bond portfolio management. The premium risk concept explains why investors buy stocks that are risky and how they reduce the chances of losing profits and earning from common stocks. The theory of duration is directly related to the rate anticipation swap strategy as it is central to forecasting changes in the price of bonds. At the same time, managing a portfolio based only on its duration is risky because it does not take into account other important factors affecting the price of stocks, and also mostly relies on the managers ability to predict changes in interest rates.
References
CFA Institute. (2018). CFA program curriculum 2019 level III volumes 1-6. Willey.
Jensen, G., & Jones, C. (2019). Investments: Analysis and management (14th ed.). Willey.
Johnson, R.S.(2017). Derivatives markets and analysis. Willey.
Monetary actions refer to the steps that are taken by the Fed to ensure stability in the economy and the achievement of other macroeconomic objectives. The actions range from open market operations to bank rates and reserve requirements for a commercial bank. The Fed needs to administer its objective through the commercial banks, and as such, the actions should focus on ensuring and promoting economic growth. The current monetary action is to regulate reserve requirements.
The rationale for taking the action is based on the economic outlook of the United States indicates that private sector investment in technology is on a decline with tourism increasing during the summer. Therefore, the GDP of the country is reflecting an improvement in the various sectors of the economy. Fed responds to the situation prevailing in the economy through monetary actions that respond to the circumstances. The increase in the currency-deposit ratio implies that money is being withdrawn from the banking system reducing the amount of money available to banks to lend out. The populace view bank deposits in sub crisis to be risky. This is because banks are likely to fall during such a crisis. Therefore, money creation by banks through money multiplier is limited, hence a fall in the money supply (Mishkin, 2010).
An increase in the reserve-deposit ratio is negatively related to money multiplier and money supply. The reason is that it will lead to a reduction of money available to banks to lend. The banks in times of sub crisis view money lending as a risky adventure. This is because a considerable number of borrowers are likely to default their debt. During such times, banks prefer holding a high reserve-deposit ratio since they believe it is much safer. The main effect of the two changes will be on the monetary base (MB), this is because of MB= Currency (Money held by the households) plus Reserves (money held by banks). The increase in currency-deposit and the reserve-deposit ratio will mean a decline in the monetary base. The money supply is given, thus, by monetary base multiplied with the money multiplier.
The sub-prime crisis will lead to a reduction in the money supply in the economy. Therefore, a reduction in the money supply will result in a decline in output and a rise in interest rate. The economy through the Fed changes the amount of money in circulation in the economy. When the amount of money supply is shifted, the economys equilibrium interest is changed. In this case, a contraction in the money supply will create a left shift of the LM curve, hence a rise in the interest rate. The effect of the increase in interest rate is witnessed by the declining investment rates by the private sector. The result of a sub-prime crisis is the declining rate of capital formation. The private investors look at bank loans as risky and expensive, therefore, as a result, they cannot borrow a huge sum of money due to high interest.
The economys Gross Domestic Product will decline due to declining investment and low pace of government spending. The fed is controlling the amount of money available for banks to lend out. The economy will have minimal net export that results in reduced output. The economy faces the problem of the low money supply during a sub-prime crisis. The problem of the low money supply is associated with a low growth rate due to reduced investment because of high-interest rates. The impact of high inflation is also experienced during such a situation. The effects of a crisis can be solved by putting in place a monetary policy (Mishkin, 2010).
The effect of reduced money supply can be tackled by the monetary policy. Tools of monetary policy such as open market operations, reduced discount rates, and reduced reserve requirements will lower the rate of interest of the economy. The government through open market operations will sell securities such as treasury bonds and bills to the populace. This implies that the money held by the public can be reduced. As a result, banks will have money to advance to banks at a lower rate so that investment options can be taken. As a result, a high investment rate will boost economic growth.
The expansionary monetary policy has a positive effect on the challenges that an economy is going through in a sub-prime crisis. The challenges include a low growth rate and skyrocketing interest rates. The policy will reduce the interest rate which a recipe for increased capital investment, hence an improvement in economic growth. The use of discretionary monetary policy is suitable for the reserve bank in control of the prevailing economic crisis. The result of a sub-prime crisis is ballooning inflation rates; the households find it difficult to meet their daily needs. To reduce the high inflation rates, which are closely related to the deficiencies within the financial sector, is to adopt monetary policies that are geared towards reducing the interest rates and stability of commodity prices (U.S. Bureau of Economic Analysis, 2012).
The monetary actions have accomplished the intended effect with; the unemployment rate declining from the rate of 9% in 2010 to 8.3% in the year 2012, due to an increase in job opportunities. Interest rates falling as evident by the increase in borrowing by the private investors; as well as, an indication of improvement in the growth of GDP as evidence that in 2011, the growth rate was 3.7% then improved to 4.7% in 2012.
References
Mishkin, F. S. (2010). The economics of money, banking & financial markets (9. ed. (and the 2. ed. of the business ed.). Boston: Addison-Wesley.
U.S. Bureau of Economic Analysis (BEA). (n.d.). U.S. Bureau of Economic Analysis (BEA). Web.
The Federal Emergency Management Agency (FEMA) is a part of the Department of Homeland Security (DHS). The organization is responsible for protecting the population from natural disasters, preparing for them, and mitigating potential consequences. The agency also helps citizens to recover from the devastating impact of indent, including human-made. FEMA manages all types of incidents, including terrorist acts, through federal programs. The organization collaborates and interacts with many partners to limit the devastating impact of disasters on the population.
Emergency management involves a vast number of stakeholders, both private and public. In particular, for FEMA, stakeholders are various government agencies and divisions, non-profit organizations, private enterprises, community organizations, and local and federal emergency departments (Medicine National Academies of Sciences, 2020). Citizens are one of the main FEMA stakeholders, which is why the DHS Annual Financial Report provides information on the funds spent on various programs (U. S. Department of Performance of Homeland Security, 2020b). In particular, it lists nine areas of FEMA activities, including preparing the population for various incidents. It is also reported that compared to 2017-2018, the cost of the measures taken decreased to $ 18.8 billion (U. S. Department of Performance of Homeland Security, 2020a). Thus, the report informs the stakeholders about the implemented programs and financial approaches to the realization of measures. The organization also provides a detailed description of budget resources and costs for specific operations, as well as investments. The value of the report for the organization lies in the comprehensive information not only about the sources and purposes of financing but also about agencies interaction with other structures.
FEMA financial report is included in DHSs annual report, which helps to understand the agencys role in the department. Government agencies are accountable to the public for ensuring the completeness, comprehensiveness, and integrity of financial reports (OECD, 2017). The openness of information for the public is necessary since Congress funds the federal governments domestic general disaster relief programs (Congressional Research Service, 2020). Therefore, FEMA is funded by citizens for their safety, which empowers them to understand how the budget is spent. It is the responsibility of government agencies to accurately and truthfully inform the public about resource allocation and its concrete results.
Medicine National Academies of Sciences. (2020). Strengthening post-hurricane supply chain resilience: Observations from hurricanes Harvey, Irma, and Maria. National Academies Press.
Unemployment takes place when a person that is inactive searches for a job is unable to find it. The concept is often used for measuring the health of an economy, with the unemployment rate being the most prominent indicator that is evaluated regularly. The unemployment rate is calculated by dividing the number of unemployed people divided by the number of individuals who have a job. Spain was chosen as a subject of research because the country has undergone some significant developments in unemployment.
Nature of Unemployment
The Spanish economy has been subjected to significant challenges in terms of the development pace. For a decade, it was developing rapidly until the 2008 recession, which slowed down the economy. With such fluctuations came the issue of unemployment that was based on several important factors. First, the nature of unemployment in Spain was significantly based on bricks and mortar as the focus of the economy. For example, between 2000 and 2009, the country accounted for 30% of all new construction buildings in the EU even though its economy generated 10% of the total GDP of the EU. This is linked to the fact that when Spain adopted the euro as currency and 1999, the interest rates were on a low level and thus allowed to view the property as a positive investment.
With the collapse of the construction sector, which was overtaken by other areas of the economy, the country witnessed a record of joblessness (Cebr 2013). The jobs in the construction sector, which were created very quickly, evaporated at the same rapid rate. Between 2002 and 2007 when the sector was booming, the total number of jobholders, including those on temporary contracts, increased by 4.1 million, which is a significant rise compared to any other EU country as the number was three times higher than the number of jobs created in the preceding sixteen years (Chislett 2014). Since the recession of 2008, more than three million jobs have been lost, with around half of them being in the construction and related industries.
Another characteristic behind the nature of unemployment in Spain is linked to rigid labor market laws. In the first quarter of 2019, the unemployment rate in Spain increased to 14.7% from 14.45% in the previous period (see Figure 2) (Trading Economics 2019). According to Trading Economics (2019) statistics, the highest unemployment rate is recorded in the region of Extremadura (22.5%), followed by Andalucía (21.1%), and Canarias (21%).
The Spanish labor market is considered dysfunctional because even at the peak of economic development in 2007, the unemployment rate was 8%, which is high when compared with such countries as the US. At the end of hiring, the labor market laws were flexible, with significant use of temporary contracts. At the firing end, however, severance payments were much higher when compared to other countries. Such legislation enabled employers to be reluctant regarding putting workers on permanent contracts. In 2012, the Popular Party passed the legislation that lowered the costs of dismissal and therefore gave companies more leverage in collective wage bargaining associated with unions and the management.
Youth unemployment is a pressing issue in Spain that has gotten worse during the crisis. The 32.6% level of youth unemployment that was registered in 2019 is a shocking statistic that indicates that the issue requires immediate addressing (Statista 2019). Connections between youth unemployment and the effectiveness of educations are imperative to mention due to the links between education-related decisions and the development of the labor market. For example, the country has high rates of early school leaving, which is calculated as the percentage of the population aged between 18 and 24 that did not get secondary education and that has not participated in any additional training to become a specialist. Spain is a third-rated country with the highest early school leaving rate, which has a significant influence on job attainment.
The fact that many young people are leaving school early makes it complicated for them to transition to the work environment and, as a result, experience frequent repercussions in their professional careers. In addition, the country does not invest enough in research and development only 1.22% of GDP, which is low compared to other countries (Trading Economics 2016). For example, France spends 2.23%, Germany spends 2.87%, while Sweden spends 3.26% of their GDPs (Trading Economics 2016). As a result of low investment into research and development, young professionals are more likely to leave the country in search of high-paying job opportunities (BBVA 2011). Also, due to early school leaving, there is a lack of expertise and training to facilitate research and development.
The issue of immigration should also be mentioned when it comes to discussing the nature of unemployment in Spain. At the moment, the government is working on establishing tougher laws on immigration with the purpose of avoiding pressure from mass arrivals at a time when immigration has become a relevant on an election year (Abellan 2019, para 4). Firm actions are needed because the country has been subjected to significant migratory pressure since Spain experienced a drastic increase in the inflow of immigrants compared to any other country in the EU. It is notable that the majority of them worked in the construction sector and therefore were subjected to massive job loss associated with the 2008 recession because of them signing temporary contracts. With the unemployment rate being higher among immigrants than among native Spaniards, some of the former started returning to their homeland in 2012, contributing to the population decline.
Alleviating Unemployment
Solving the perpetuate unemployment crisis in Spain, several steps that would address different aspects contributing to the problem. The consensus is that the government should start with reforming the banking sector and work on stabilizing its finances, thus regaining the populations trust in markets. Investment into productivity increasing, growth-enhancing, the creating of jobs, and improving competitiveness represent the core of efforts necessary to alleviate the burden of unemployment. To get the unemployed back to work, the economic structure of the country along with labor laws should be changed as soon as possible. The government is also expected to spend more money on infrastructure projects that support job opportunities for the population.
Addressing the education and training issue is among the steps to reduce the unemployment rate. The recommended solutions are expected to capture two aspects. First, the government should place more emphasis on helping students who at a particularly high risk of abandoning education (Ministry for Education and Employment 2014). The development of an early-warning system, as well as compulsory participation in classes of intensive support, is likely to improve the control over high-risk students. Meanwhile, it is also imperative to encourage the youth to remain within the educational system with the help of policies that support education appealing to both young people and their parents (BBVA 2011). Second, it is recommended to reincorporate the youth that has left schools early back into the educational system. This is possible through the creation of flexible educational programs. This will allow students to access the necessary training to prepare them for their professional careers despite them leaving the educational system early.
Significant changes in the labor market system and regulations guide the hiring and firing of employees. The use of temporary contracts must be highly regulated due to the need to prevent employers from hiring workers on a short-term basis and paying them unfair wages. Incentives for on-the-job training should be introduced to avoid the depreciation of worker skills and ensure that their value increases through the experience they receive during their employment. Increasing the role of employees in terms of training is a solution that can greatly benefit the issue of unemployment in Spain. On-the-job training is a solution that will be critical to ensuring the success of effective employment transformation programs, especially since most of the work should be started from scratch. The establishment of a system that implies the hiring based on a single contract for all workers can help to avoid complexities associated with the existence of multiple types of contracts. Also, such a system will simplify the recruitment process and allow the entry of highly qualified workers and the youth that has multiple opportunities for becoming professionals in their chosen fields.
Immigration as a contributor to unemployment in Spain is expected to be addressed from two perspectives. On the one hand, with little training and the lack of demand for skilled professionals who want to earn more than average, there is a risk of them leaving the country. On the other hand, less-skilled workers will remain in Spain because of the greater demand for a cheap labor force. Both categories should be seen as potentially damaging to the economy of the country if no changes are implemented. As there is wide potential to be found in the country and the possibility of attracting talent from abroad, the government should focus on drastic reforms to regulate illegal immigration while also helping the low-skilled workers to gain the necessary level of expertise to contribute to the economy instead of being forced to leave.
Because the reduction of the unemployment rate is closely connected to monetary policies, the prospects of improving the issue are high. For the past twenty years, the inflation in Spain was below 2% that was achieved with the help of effective monetary policies, the integration of the euro as well as the successful agreement between unions, and social peace through the moderation of wages (De Zulueta 2019). It is possible to achieve a balance between unemployment rates and how the government approaches such issues as inflation. One can resolve the main issues that affect Spain through the introduction of cohesive regulations that would address the factors that contribute to unemployment. High and persistent unemployment rates cause social exclusion in the country and generate sections of income inequality among both the young and the old.
Conclusion
To conclude, Spain has the potential to reduce the unemployment rate, especially since it has already decreased significantly from 2016 (refer to Figure 2). Creating employment and eliminating the fear of losing jobs is seen as a significant force for shaping a society that is stable and achieves the established objectives. The proposal to address education, immigration, and labor laws issues is expected to establish a consensus in which the self-esteem of the nation is reinforced by positive governmental policies.
Reference List
Abellan, L 2019, With no EU policy forthcoming, Spain gets tougher on immigration, El Pais, Web.
The evolutionary scale of economic development globally fostered a prominent paradigm shift in the socio-cultural lifestyle among individuals. Bloodworth (2019) narrates one of the imminent issues across Rugeley based on the working standards in the Amazon warehouse. The researcher articulates that establishing an Amazon warehouse in Rugeley proved intensified issues than solutions to the local community. On the one hand, the corporate entity boosted regional economic activities due to the high traffic of at least 1,200 workers (Bloodworth, 2019). On the other hand, a profound controversy emerged from the lack of employment policies advocating for the hiring of domestic workers than the massive commissioning of foreigners. According to Bloodworth (2019), working in the Amazon warehouse is similar to living in prison based on the apt security measures and strict deadlines and targets. Industrialization led to the elevated demand for products at affordable costs attributing to the compromise of dynamic legitimate frameworks among employees.
Amazon established a warehouse in Rugeley as an international company to boost market expansion and acquisition. Bloodworth (2019), however, indicates that despite replacing extinct conventional industrial and manufacturing corporates in Britain, the organizational culture hinders workers satisfaction. During an interview, Norbert attests that it is challenging to attain a social identity in the Amazon spectrum, mainly due to the management relying on competence and productivity quotients from the employees (Bloodworth, 2019). Ideally, the institution aligns core objectives against the essence of improving human resource management as a differential perspective on operational performance. Although the Rugeley residents affirm that in the 80s and 90s, the manufacturing industry was the economy emblem, the business framework by Amazon contributed to an alteration of modern-day well-being regarding poor working conditions (Bloodworth, 2019). The firm offers an unsustainable model concerning improving living among the hired personnel based on the zero-hour contractual provision.
Deleterious Pay and Working Conditions
One of the profound constructs affirming poor working conditions in the Rugeley Amazon warehouse enshrines the lack of developing a social identity. Research indicates an interdependent relationship between career growth and self-realization (Min et al., 2019). More so, employees in Amazon encounter optimal challenges deriving value within the stations due to strictness on task completions (Visser, 2019). The institution establishes a damaging functional environmental condition for the counterpart during the engagements. Additionally, Bloodworth (2019) equates disciplinary measures with point scales representing wage reductions. The pay proves unfavorable due to miscalculation on time taken for security checks and majorly, while going for breaks. Bloodworth (2019) indicates that the 70% decline of payment disputes after 3 months results from the imposition of ¬1,200 cost to compensate the employment tribunal. Primarily, the system structures poise the human resource as tools of productivity hence the disregard for personal welfare. As a result, the amplified pernicious approach fosters a negative attitude among the laborers and on relationship building outlines with management (Altenreid, 2022). A healthy and well-performing organization features a high satisfactory index among the employees.
In a different spectrum, the Rugeley Amazon warehouse offers favorable pay to the laborers. Bloodworth (2019) postulates that despite the strict duty aspects among the crew members, it is challenging to attain security. One of the main reasons indicating a proficient insecurity overview encompasses the inadequacy of employability measures within the firm. The longevity to attain permanent working status to nine months profoundly impacts the counterparts ability to perform optimally relative to the productivity scale. Different scholar establishes that the value-based human resource management practice entails incorporating dynamic aspects of interdependence (Thelen, 2018). Therefore, the firm implements and advocates for a transactional leadership quotient. However, Rugeley Amazon warehouse focuses on the monopolization of the process through the discriminative regulatory concept on compensatory terms. As a result, the situation augments the diminishing returns among the breadwinners trickling down to the proficient social class margin.
Amazons operational model proves unsustainable due to the intolerant selection and recruitment process. Bloodworth (2019) acknowledge that adherence to airport security measures plays a crucial role in the reduced trust between the laborers and the managerial team. The researcher affirms the distractive overview by comparing the interview response rate among the staff members. At least 91% of the interviewees repudiate referring relatives and friends to the organization on account of poor wages and freedom during duty hours (Bloodworth, 2019). Fundamentally, the respondents deduce that balancing the low compensation factor and the longer time and intense labor within the warehouse is challenging.
The Contemporary Reality and Future of Work
Over the decades, technological advancement significantly contributed to competitive productivity worldwide. Bloodworth (2019) offers insight concerning the contemporary reality indicating that the automation process risks the loss of job opportunities among personnel. The conditional outlier in modern society enshrines improving machinery knowledge and skills, as a landscape remodeling (Young, 2019). Therefore, the researcher suggests that despite the heavy workload, it is recommended laborers attain expertise in operating computers (Bloodworth, 2019). On the one hand, the adaptation of computer systems threatens labor security among individuals in the dynamic production and manufacturing sectors. On the other hand, the outlook seeks to intensify employees capacity in the framework. Rugeley Amazon warehouse management seeks optimal profitability at the expense of workers devaluation as a contemporary reality.
The modernization of the global society as a village rendered the implementation of strategies enhancing capacity levels among personnel. An excellent example is the establishment of Amazon warehouses and the development of Uber. While Amazon employs laborers and physically supervises productivity essence, Uber focuses on the remodeling of the relationship between the management and the employees. Ideally, Uber drivers sign a contract with the company to utilize the brand while paying off commission from the revenue earned (Thelen, 2018). Although the initiative by Uber corporate attributed to increased employment and independence among the staff, the entity encounters profound issues based on litigations and lawsuits from customer complaints and the drivers well-being. Integrating technology within the workstation and process poses unprecedented opportunities, such as exploiting the emerging global village under the alignment of proficient interconnectivity.
After the COVID-19 pandemic onset, governments resolved to lock down the economies and restrict movement and interactions. Research depicts that despite the slowdown of the processes and loss of jobs, different firms incorporated effective and convenient solutions, mainly working from home (Spurk and Straub, 2020). Fortunately, managerial teams prompted employees remotely complete tasks, such as the decentralization of call centers. Therefore, a significant percentage of organizations reconstructed the resilience under the spectrum of diversifying the work culture and independence among the laborers. Contrary, Bloodworth (2019) reveals that Amazons organizational culture independently reflects a transactional outline, therefore, the staff focus on completing tasks for the minimal weekly pay-off. As a result, the company records high turnover rates due to the incoherence on welfare aspect towards the human resource, unlike the firms adjusting conditional outliers to assert individuals job security.
Limitations and Insights from Bloodworths Work
The exploration of Rugeley Amazon warehouse and the associative policies foster prominent insights on the contemporary reality and prospects on employment. Although Bloodworth (2019) discloses the key problems, mainly minimum wage, increasing cost of livelihood, and the demand for intensified productivity, the documentation poses distinctive limitations. It is recommended that Bloodworth adds a chapter regarding the exploitation of technology in the business practice in Rugeley. The investigation further associates the framework with the effective trickle-down essence to local communities. Bloodworth (2019) establishes that Amazon warehouse in Rugeley rendered minimal economic benefits to the domestic enterprise. It is vital to intensify the details on dynamic perspectives for Amazon companys contribution to boost Rugeleys regional providence, such as the introduction of corporate social responsibilities. The lack of effective hiring policies threatens the performance and engagement among laborers in a company.
The exploration of Amazons focus on improving trickle-down effect of accrued benefits regionally. Bloodworth (2019) fosters a profound insight concerning the importance of promoting equity and value exchange among the relevant stakeholders. However, the research by Bloodworth (2019) demonstrates a major limitation regarding workers compensation and the policy environment. It is contrary to the emergent issue based on Ubers operational guide. The core indicator of enhancing relevance of Bloodworths (2019) study involves comprehending the dynamism on employer-employee relationships. Ubers managerial challenge enshrines determining the limitation poised between the laborers and the institution. Carter (2018) agrees that harmonizing the opportunities between technology and the pool of skills boosts employees performance and interdependence with the administration akin to Ubers business model. In a different spectrum, Appleyard (2021) indicates that the company attains customer loyalty due to the vast insightful concept. Although Bloodworths literature renders the key employment issues, the limitations entail inadequacy on customer loyalty and entrepreneurial strategies to elevate Amazons competence level.
Conclusion
Consequently, future academic research that fosters prominent investigation on Bloodworths literature encompasses determining relationship between technology, corporate social responsibility, and human resource management. The scholarly materials uncover Bloodworths intent on the imminent maltreatment towards workers while ensuring an advancement on computerization and automation process. Therefore, it is recommended different researchers utilize utilitarianism conceptual framework to adjust interdependence between effective management practices in Rugeley Amazon warehouse and the vital sustainability effect on exploiting machinery resource to boost employees well-being and satisfy the profit margin attainment. Primarily, it is crucial to establish an organizational culture promoting value exchange among the personnel.
Reference List
Altenried, M. (2022) The digital factory: the human labor of automation. University of Chicago Press.
Appleyard, L. (2021). Admiral. Invest vs etoro 2021.
Bloodworth, J. (2019) Hired: undercover in low-wage Britain. London. Atlantic.
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The impact of the global recession and JCBs strategic initiatives on the accounting performance of the company
The global recession that started in 2008 had devastating impacts on many companies. Before the recession, JCB had witnessed rapid growth in its portfolio. The company achieved a historical increase in the volume of sales, profitability and market share. It recorded global sales of £2.14bn in 2007 with £120m after-tax profit. All of its continental segments recorded improved growth in units produced and sold. The onset of recession had a great impact on JCBs financial performance. The sales volumes succumbed to the recessionary effects in 2008 with a drop of around 13,000 units from 70,000 units recorded in 2007. This led to a drop in profit to £91m. However, the company started recording positive increases in profitability in 2009. The after-tax profit was £116m and £103m in 2009 and 2010 respectively. However, it recorded remarkable profitability from the year 2011 after the recessionary trends eased. JCB reported an aftertax profit of £176m in 2011, which was followed by a record of £212m in 2012 after the profits were taxed.
Secondly, JCB has pursued several strategic initiatives in the last ten years that have significant impacts on its financial and strategic performance. The company has undertaken these initiatives to increase its market share with a chief aim of enhancing shareholders value. For instance, its strategic initiatives began in 1999 after building the first overseas plant in Georgia, USA. Furthermore, the company launched its first new engines in 2003 to pursue internal growth and innovation strategies. To meet the increasing demand for heavy construction machinery, JCB announced plans to invest in a new factory in Uttoxeter, Staffordshire, as well as an additional development of a wide range of products. Also, the company continued its Asian expansion through several developments of plants in India and China.
The companys strategic initiatives have also involved expansion into Latin America. Recently, the company has built a manufacturing plant in Sao Paolo, Brazil. The strategic takeover of Vibromax Company in Germany in 2005, highlights the strategic objectives of JCB. In the same year, the JCB also overstepped its business norms and entered a $230m contract with the United States Army to supply high-speed excavation equipment. These initiatives underline JCBs attractive accounting statistics in recent years.
Company profitability has steadily increased from 2004 to 2012. The company recorded after tax-profit of £43m, £57m, £95m, and £120m in 2004, 2005, 2006 and 2007 respectively. This period coincides with JCBs strategic initiatives aimed at increasing market share and becoming more competitive at the global level. Despite the global recession effects, the company was able to record slightly significant profits in 2008 and 2009. Owing to its strong strategic initiatives of 2005, the company records showed high profits of £103m, £176m and £212m in 2010, 2011 and 2012 respectively.
From JCB accounting data we can calculate ratios to determine its profitability ratios to identify its efficiency. For instance, returns on assets and return on equity ratios can be calculated to determine JCB efficiency and shareholder value in 2012.
Returns on assets (ROA) = Annual net income ÷ Average Total Assets = 212,500,000 ÷ 826,100,000
ROA = 0.257*100 = 20%
From this ratio, it can be inferred that JCB is converting its investment into profits more efficiently. On the other hand, liquidity ratios can be used to determine the ability of JCB to pay its short term liabilities. The current ratio is used to calculate JCB liquidity
Current Ratio = Current assets ÷ Current liabilities= 925,800 ÷ 551,900= 1.677
From the above calculation, we can infer that JCB, as a liquid company, can meet its short term liabilities. On the other hand, the capital structure of JCB can be calculated using the debt-to-equity ratio
This shows that JCB is using debts to finance its strategic initiatives.
The benefits and drawbacks of the companys decision to remain a private limited company
About the case study provided, the JCB Company operates as a private organization. The companys shares are not traded in the stock exchange. This denies the organization an opportunity to improve its performance and gain a competitive advantage. From the case study, it is evident that the organization can currently be described as a blue-chip one because it enjoys a big portion of the market share. The JCB Company is considered to be among the top seven manufactures of construction and farm equipment in the world. It is the first one in Europe. Listing to this organization in the stock exchange will attract potential shareholders because the organization has a good brand image. The capital gained from the stock exchange can be channeled in the expansion of the organization, thus increasing its profit. However, there are several drawbacks associated with the registration of JCB in the stock exchange.
One of the drawbacks is a waste of time caused by the procedures involved in the registration. Furthermore, the capital raised through this method is given with the conditions regarding its use, thus limiting the organization on the use of the acquired capital. The organization will also have a lot of shareholders, thus reducing the earning per share of each shareholder, especially if shares are offered as ordinary ones. Lastly, some of the shares in the stock exchange allow shareholders to redeem them at any time. This can leave an organization in a financial crisis.
The Strategic Information Alignment framework for adding business value of the company
Information is an important tool in the creation of business value. There exist four ways of using the information in doing this. About Marchand (2000), companies that use the information to compete in markets require keen decisions while making choices (Marchand, 2000). This helps them develop capabilities in every axis of the SIA framework. The first way is to manage risks associated with a business. This is done through the evaluation of risks. Risk refers to the variation of the actual returns from the expected return. Evaluation of risks can be done using the standard deviation method or the coefficient of variation. The second way of using the information in the creation of value is through reducing costs. This involves the use of information to come up with innovation to ensure that products are friendly economically.
The third aspect is using the information in terms of the products and services that are offered to customers. When using this concept, companies need to develop close relationships with their customers. This enables them to learn and produce goods that meet their needs. For instance, the JCB Company can come up with strategies that ensure that customers are satisfied (Morabito, 2013). The fourth way of using information is by creating loyalty and making customers ready to offer new information. This is done by recognizing and rewarding customers. Thus, the JCB organization should undertake an initiative of rewarding potential customers. Customer loyalty enhances the retention of customers. This can also be achieved by lowering the price of their products, which will encourage consumers to stick to their products. In the JCB Company, this has already been achieved. The company consistently looks for ways of delivering products that are economical to the customers. The approach of using the information to create value is summarised in the pyramid below.
The approach of using the information to create value
The JBC Company can use this knowledge by implementing it to conquer other competitors that deal with the delivery of the same products. To conquer other organizations, the JBC Company needs to deliver the right products at the right time. This involves gathering information concerning what customers prefer and coming up with the products that meet their requirements.
The second way of utilizing information in adding value to services that customers receive is through offering products that lead to customer satisfaction. This involves setting up mechanisms that deal with customers efficiently. It also involves offering products that are economical and reliable (Sinha, 2008).
Beyond Budgeting Approach
The reasons to replace traditional budgeting as a performance control system
Traditional budgeting is a type of budgeting where commands come from top management to other levels of management (Dibb & Simkin, 2008). Budgeting is centralized with those at the executive level. The beyond approach budgeting has replaced traditional budgeting approach. Business executives motivate and coach decentralized teams that are closely linked with consumers and changes in markets. The traditional budgeting needs to be replaced because of the following reasons. The command and control approach of traditional budgeting is not effective in getting the best out of employees. A traditional scheme of budgeting approach is mostly focused on short term profits of an organization, rather than long term profits. Second, the operation of traditional budgeting can be said to be centralized to the top management who have the mandate of making decisions. Centralization of budgeting makes them (top-level managers) corrupt because of conflicts that arise between them and shareholders.
The last reason is that traditional budgeting has targets that are fixed. These fixed targets are then assigned to specified business units that are expected to deliver the results. Setting fixed targets does not take care of other factors that are likely to be experienced in the market. Such factors include unforeseen shifts in the economy, new competitors joining the market and the constantly changing market environment. As a result, performance analysis contributes to erroneous data and conclusions (Hope & Fraser, 2003).
The philosophy behind a Beyond Budgeting approach and its practical reflection within the JCB company
The beyond budgeting approach, which has replaced the traditional budgeting, is built on the philosophy that revolves around setting relative targets, having decentralized teams as well as empowering and coaching. Empowering and coaching ensure that there is a collaboration between members of an organization and its management (Dibb & Simkin, 2008). Employees are empowered in the delivery of value to the customers. This results in the achievement of organizational goals. Coaching ensures that individuals in an organization are competent. For instance, if this approach is applied in the JCB Company, it will improve its productivity. Empowered employees will be more productive and innovative. This will enable JCB to come up with products that meet customers demands in the market. The decentralization method of the beyond budgeting approach is an essential concept of the JCB organization because it has various branches across the world, hence the possibility to develop products that meet the needs of the customers in all regions. Each group will be allowed to interact with the customers and develop products according to customers specifications.
Furthermore, decentralization will ease the process of making decisions. Decisions will not have to wait for approval from the central headquarter, which may take longer. This will result in the delivery of products and services that are better than before. Customers will be satisfied and become loyal to the organization. The measurement of performance using beyond budgeting approach involves setting up relative targets. This involves the comparison of team performance according to the dynamic and essential performance indicators, such as peer performance, benchmarks, and best practices. The evaluation criteria used in performance evaluation are realistic, and this will make the JCB Company know the exact actions to take (Hope & Fraser, 2003).
Knowledge Management and Learning Organisation in providing a sustainable competitive advantage
Knowledge management is a multidiscipline approach aimed at achieving organizations goals, by making good use of knowledge within an organization. This notion revolves around the acquisition, creation, and sharing of knowledge within a company. It also involves the cultural and technical aspects that support the sharing of knowledge. There is value in knowledge management in an organization. Knowledge management encourages innovation because of the free flow of ideas within an organization. It also improves the decision-making process, enhances employee retention rates through recognition of the value of employees knowledge and rewards them for their competency. This, in turn, leads to the satisfaction of customers because organizations support a culture that encourages innovation among employees (Spender, 2006).
A learning organization is another concept that is related to the knowledge management concept. It refers to an organization that has the capability of changing its behavior as well as mindset, depending on situations at hand (Sveiby, 1997). This concept is in line with the beyond budgeting approach, which involves setting goals that vary and are not fixed. A learning organization restructures its initiatives whenever the previous attempt does not achieve desired outcomes. One such organization is Nokia. This organization manages to retain its big portion in the cellphone market through learning and changing with the technological world. Nokia is among the first manufacturers of handsets in the world. Initially, the Nokia Company manufactured phones that were only used for calling and texting. However, as time went by, there were drastic changes in the design of phones that the company manufactured. This was due to changes in customer preferences.
Other than communicating, customers wanted devices that had the capability of doing multiple activities, such as playing games and taking photos as well as connecting to the Internet. This called for the manufacture of smartphones. The company could have collapsed if it had never learned what customers needed. Through its policy of action learning, the Nokia Company has managed to remain in the cellphone industry. Other organizations, such as Motorola, have been acquired because of not learning the trends that are taking place in the cellphone market. Comparing these two concepts, a learning organization concept is the best one because it enables organizations to change with the market dynamism and ensures that organizations meet the needs of the customers. It also enables employees to become innovative as they aim to meet the changes that take place in the market (Lei, 2003).
List of references
Dibb, S & Simkin, L 2008, Marketing planning: A workbook for marketing managers. South-Western Cengage Learning, London.
Hope, J & Fraser, RC 2003, Beyond budgeting: how managers can break free from the annual performance trap. Harvard Business Press.
Lei, D 2003, Competition, cooperation and learning: the new dynamics of strategy and organization design for the innovation net, International Journal of Technology Management, 26(7), 694-716.
Marchand, DA 2000, Competing with information: A managers guide to creating business value with information content, Wiley, Chichester.
Morabito, V 2013, Business technology organization: Managing DIGITAL information technology for value creation Springer, the SIGMA approach, Heidelberg.
Sinha, PK 2008, Management control systems: A managerial emphasis, Excel Books, New Delhi.
Spender, JC, 2006, Getting value from knowledge management, The TQM Magazine, 18(3), 238-254.
Sveiby, KE 1997, The new organizational wealth: Managing and measuring knowledgebased assets, Berrett-Koehler, San Francisco.
Streamlined business processes and talent management are crucial to the success of any business. While good business processes are easy to acquire or design, the same does not apply to talent management. Difficulties in business operations cause overworking negation, and under-appreciation of talent, which can cause the exodus of the same talent at a great business cost. Many firms fail to handle talent management needs when they are in their fast-growing period. Consequently, they end up with a talent problem when they are too big to design effective systems without incurring substantial costs. Most businesses prioritize high-growth and fail to pay attention to sub-optimal opportunities like the talent processes.
When owners or managers of a business have no formal experience of dealing with organisational performance, they lack an understanding of how talent lapses limit or destroy the performance and the growth of the business they are building. At the same time, they rarely know what they should do. When the damage caused by talent lapses occurs, most business owners do not notice because the lapse hides behind an overwhelming success witnessed in various other aspects of the business. For example, when there is considerable sales growth and demand for expansion, a business will find individuals to fit the various roles without preparing those individuals for the roles assigned to them.
Design and the Introduction of Talent Management Programs
The essence of having talent tools or programs is to shift the management of talent from ad hoc strategies to well-calculated plans that take care of unforeseen challenges when they occur. Instead of dropping talent when business circumstances become hard, most organizations now realize that they can use adequate talent management programs to hold on to the redundant talent and make it available for future needs of the business. This saves the business the cost of recruiting new talent and training to align new talent capabilities with business demands (Wilska, 2015). One essence of talent management is to provide sustainable growth for organizations via empowerment. The main principles of talent management include governing talent management, advising firms to identify the right mix of talents, embracing communication, supporting and recognizing talent, and appreciating the talent accordingly.
Leaders of any organization must consider objective metrics when designing talent management programs. There are measures needed to evaluate talent and associate talent management with business opportunities. Most job descriptions go into a flux when businesses are experiencing high growth. Associated opportunities become blurry, and the business is unable to match talent with its required role. Nevertheless, companies still need to get the most out of their workforce. The only way to do so is through the identification and definition of clear goals. Moreover, companies must address arising issues, such as incentives in the form of compensation and career advancement. Failing to address these issues ensures that any prescribed programs for managing talent fail (Wilska, 2015). Questions worth asking at the design level of talent management systems would include the way the organization measures performance and whether all employees clearly understand the way they fit into the system.
Other than objective metrics, companies also have to consider the strategic alignment of talent. Instead of treating talent as an afterthought, they must place it at the forefront of their strategic objectives. Companies make a critical mistake when they fail to align talent strategies intimately with the overall strategic planning, yet they rely on people to execute. Consequently, it is appropriate for leaders to incorporate the views of HR, which entail putting talent as part of strategic planning. When this is done, talent management programs become useful tools for optimizing the overall performance of the organization.
The ability to manage talent successfully ensures that companies maximize the talent they have. Firms have benefited mostly when they include mentorship programs in the employee recruitment process (Gorrell & Hoover, 2009). Having senior managers and experienced executives develop relationships with employees who are just joining the firm at middle-level management levels, or subordinate employee levels help the firm to cultivate a close-knit relationship. Moreover, using rotational assignments, firms can ensure that high-potential employees receive enough exposure to different roles available in the organization. As they change roles, the overseers will also notice any compatibility with particular roles that the employees exhibit.
Talent programs can exist beyond the organization. For example, a partnership with a training institution can provide benefits to both the training facility and the organization to refine the existing talent and provide new talent that meets the needs of the employer. Nevertheless, additional factors must be considered for symbiotic relationships involving higher education institutions and commercial training firms to succeed.
First, companies must retain the power to identify key talent and retain it. After training and development, companies need to utilize the skills of their talent. An excellent way of achieving this is by ensuring that employees are engaged and satisfied. Companies have to look at issues, such as work-life balance, then address employee concerns beyond the wage compensation issues. Also, it is the companys task to find work that satisfies employees and to align that work with the most critical talent in the organization. Secondly, firms need well designed career-pathing programs.
When designing a career path from scratch, organizations will best be served if they follow the steps given below. First, they have to create a career roadmap. A career map shows the prototype career that an employee would follow. It includes sequential positions, roles, and stages. The organization can use a diagram so that it is easy to visualize where an employee will be at different progress points. Additional details to make the process successful include the number of employees that a particular job role may accommodate and the minimum threshold for the companys survival. The second step in the career path design is building position profiles. It entails deciding which qualifications best define a given job position. The profiles can include industry recommendations and firm-specific needs for a role. The third step involves the incorporation of training and development. Linking career paths to employee development through the prioritization of position profile characteristics is a major condition for step four. Many firms unknowingly embrace the fourth step in career path building when they provide developmental opportunities for talent. The fifth step in the career path design is to establish accountability. Firms and employees need to be responsible for the actions that are critical to the firms performance. The organization must provide checks and balances to make sure the goals of the talent management program are achieved; more so, the career path design.
Beyond talent identification and career paths, organizations must also question the motivations of talent. Leaders must inquire and find out where employees want to go in their career, and then look for ways that they can be of use to the organization. On its part, the organization has to consider its opportunities for improving the work-life balance for its employees and offering any work experience and training that its employees would need. Success comes when employers can align the interests of individual employees with the interests of the entire organization. As a result, employee engagement and performance enhancement are improved.
A splendid strategy to use in organizations is talent mapping. This is a formalized process of ensuring that the talent on hand and the future talent are known. Most importantly, firms must realize that the process of creating a comprehensive and value-generating talent function does not appear immediately (Chang & Chen, 2011). Salient opportunities appear only when talent, strategy, and operations planning are knotted. Rather than pick talent when most needed, organizations need to rely on a formula that allows them to start with the areas that are most crucial to organizational performance and then address the fundamental factors in this section. The process can move on to less important areas. However, firms should not neglect talent altogether when they set up an appropriate system.
An organization can enhance its ability to gain from the process by incorporating the six pillars of talent management as explained below (Jackson, Schuler, & Werner, 2012). This can be done by designing and introducing talent management programs that are based on the factors and concerns that this second part of the paper raises and the concepts discussed so far. An effective plan for talent management needs structure, method, and measures, all incorporated into one framework. With the appropriate framework, any organization will be able to find talent actions and solutions that meet its strategic needs (Baqutayan, 2014). The six talent pillars provide the required structure, method, and measure. The pillars are reward and recognition, business strategy alignment, organizational design, talent resourcing, learning and development, and organisational performance.
Before applying the six pillars, organizations must embrace their uniqueness and use leadership as the mechanisms to hold the pillars together, according to a building analogy. Talent is a determinant of strategy, which has already been mentioned earlier in this paper. Therefore, employees are in charge of executing business strategy. The second pillar, organisational design, deals with the processes that prevail in the business, which canvas its structure and chain of command. They include the quality systems and financial mechanisms employed by the business to achieve success. They affect decisions, collaboration endeavours, customer service delivery, employee commitment, and talent satisfaction (Jackson, 2012).
Talent resourcing is all about meeting the current and foreseen need employee needs (Hatum, 2010). An organization will achieve talent resourcing by making talent identification a part of its daily business practice (Dimba, 2010). Learning and development, which is another pillar of the talent management framework, allow firms to improve the output of individual employees. It requires the organization to consider evolving needs and challenges that it encounters and create ways to make sure talent can cope with them (Davis, 2007). Organizational performance goes beyond performance reviews and looks at the culture of the business and the traditions followed by the managers and employees in keeping commitments, respecting others, and obeying appropriate codes of conduct (Kehinde, 2012). Finally, attracting excellent talent and retaining talent is tied to rewarding and recognizing the efforts of the employees. The organisation must strive to become an enviable employer by finding the right employee compensation and recognition stimuli and incorporating them into its human resource policy.
Conclusion
Organizations have to embrace the fact that people can be crucial business differentiators. When designed and introduced correctly, talent management systems can attract, retain, and develop employees, such that they gain most from the organization and the organization achieves salient competencies for realizing its corporate goals. Part two of this paper sought to deduce the factors that organizations have to consider when dealing with design and introduction aspects of talent management. The section first provided an overview of talent management and then proceeded to describe the tools that are needed for managing talent. In describing the tools, the section also highlighted the factors that affect talent management programs and validated the use of the prescribed tools. Having offered a background understanding of talent management program constitutes organization challenges and how they interact with the suitability of the programs, the section ended with a description of the six pillars of talent management as a framework for summarizing the factors worth considering.
References
Baqutayan, S. (2014). Is talent management important? An overview of talent management and the way to optimize employee performance. Mediterranean Journal of Social Sciences. Web.
Chang, P.-C., & Chen, S.-J. (2011). Crossing the level of employees performance: HPWS, affective commitment, human capital, and employee job performance in professional service organizations. The International Journal of Human Resource Management, 22(4), 883-901.
Davis, T. (2007). Talent assessment. Aldershot, England: Gower.
Dimba, B. A. (2010). Strategic human resource management practices: effect on performance. African Journal of Economic and Management Studies, 1(2), 128-137.
Gorrell, P., & Hoover, J. (2009). The coaching connection. New York, NY: American Management Association.
Hatum, A. (2010). Next generation talent management. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.
Jackson, S. A. (2012). Managing human resources (11th ed.). Mason, OH: South-Western.
Jackson, S., Schuler, R., & Werner, S. (2012). Managing human resources (11th ed.). Mason, OH: South-Western Cengage Learning.
Kehinde, J. (2012). Talent management: Effect on organization performances. Journal of Management Research, 4(2). Web.
Wilska, E. (2015). Determinants of effective talent management. Journal of Positive Management, 5(4), 77-88. Web.
Risks are essential repercussions of different investments. Treasury bills are considered safer than other investments. Treasury bills are those long term bond investments that offer investors assets whose prices rarely fluctuate. Low risk entails low returns. That is why treasury bills provide the lowest average return when compared to other investments in the stocks of large corporations. Investors have to pay for safety and earn less. In other words risk taking is directly related to higher earnings. In general, investors are risk averse. Risky investments offer higher expected returns than less risky investments to induce people to invest in them. Put differently risk and return go hand in hand. That is why based on historical performances the following facts have been drawn:
Treasury bills, the least risky of financial assets, earned the lowest average rate of return.
Common Stocks, the most risky of financial assets, earned the highest average annual rate of return.
Bonds, which occupy a middling position on the risk dimension, earned a middling average annual return.
It is found that most investors believe in diversification of their investments in order to distribute their risks as per their objectives of returns from such investments. They invest in a portfolio of assets as they do not want to put all their eggs in one basket. Hence what really matters to them is not the risk and return in isolation, but the risk and return of the portfolio as a whole.
Definitions
In order to appreciate the relevance of the portfolio theory and the CAPM, it is important to understand basic definitions of these concepts:
Portfolio theory A portfolio is a collection of securities. Portfolio theory is a formal analysis of the relationship between the rates of return on a portfolio of risky securities and the rates of return on the securities contained in that portfolio. The rate of return on a portfolio is random variable. The probability distribution that generates value for the rate of return on the portfolio is the compilation of the probability distribution that generates the rates of return on the securities contained in that portfolio.(James Bradfield, page 167). The theory is useful for an investor in decision making for allocation of funds in risky securities to create a portfolio that describes his or her preferences regarding combination of risk and expected returns.
Capital Asset Pricing Model (CAPM) It is believed that investments are largely influenced by the overall risks of those investments. The CAPM theory links risks and returns of the investments. Since the development of CAPM theory by William Sharpe, it has been analyzed and developed by many considering the diversifiable and non- diversifiable risks. Earlier the CAPM has only one systematic risk factor the risk of the overall movement of the market. The risk is referred to as market risk and the CAPM is given by the following formula:
E(Ri)= Rf +²i[E(RM)- Rf]
Where:
E(RM) = expected return on a market portfolio
²i = measure of systematic risk of asset i relative to market portfolio .
The expected return for an asset i according to CAPM is equal risk free rate plus a risk premium. (Frank J. Fabozzi and Harry Markowitz, page 67).
Later the developers of CAPM theory linked diversifiable (unsystematic) risks and non- diversifiable (systematic) risks for all assets in the portfolio. Some management experts believed that CAPM is not true as it rules out active management and investment research. But as per Frank J. Fabozzi and Harry Markowitz even though the idea is not true it does not mean that the constructs introduced by the theory are not important. Constructs introduced in the development of theory include the notion of a market portfolio, systematic risk, diversifiable risks and beta.
Thesis Statement
The important thing is overall risk of the investors in the marketplace and the investors prefer portfolios instead of individual investments; and the basic theory that links risk and returns is the Capital Asset Pricing Model (CAPM) and helps to understand the basic risk- return tradeoffs involved in all types of financial decisions. (Lawrence J Gitman, page 246).
Main Body
Portfolio theory envisages that diversification reduce variability. Even a little diversification can provide a substantial reduction in variability. Basically diversification of investment ensures that movement of prices does not have a combined effect. Often a decline in the value of one asset is offset by the rise in the price of other asset. The risk that potentially be eliminated is unique risk. But there are other risks that cannot be avoided.
There are certain relationships between risk and returns that must be understood in order to appreciate the portfolio theory and relevance of CAPM:
Securities are risky as their returns are variable.
The most commonly used measure of risk or variability in finance is standard deviation. This is because the return on a portfolio is a weighted average of the returns of individual assets (Lawrence J Gitman, page 238). Suppose 47% of portfolio is invested in A expecting 17% return and the remainder is invested in B expected to provide 14% on investment. The expected return on portfolio is simply a weighted average of the expected return on the individual assets calculated as under: Expected portfolio return = (0.47 * 17) + (0.53 * 14) = 15.41%
It is important to note that when there are two assets in portfolio there are equal number of variances and covariances when we calculate standard deviation. When there are many assets in the portfolio, the number of covariances is larger than number of variances. Thus the variability of a well defined portfolio reflects mainly the covariances. Wise investors do not put all their eggs into just one basket: they reduce their risk by diversification. They are interested in the effect that each asset will have on the risk of their portfolio.
The risk of a security can be split into parts : unique risk and market risk
Unique risk is caused by factors specific to the asset that generate volatility, for example, a change of management within a company. This type of volatility is unique to the assets, or unsystematic. (Bruce J Feible, page 191). It is seen risks those are unique in nature emerge from firm factors that are very specific in nature. Such a situation can be created say by a new industrial policy of the state affecting a particular business. Events of this nature primarily affect the particular entity and they do not have a general effect on all entities in the industry. That is why unique risks are also called diversifiable risk or unsystematic risk.
On the other hand market risks are general in nature. These risks affect firms in an industry to a greater or lesser degree. Investors cannot avoid the effect of such risks. Even diversification of investment of a portfolio may not change the effects of such risks. Hence it is referred to as systematic risk or non- diversifiable risk. Systematic risk factors are reflected in the market returns, therefore, we can isolate the influence of systematic factors on an individual asset by observing market returns. (Bruce J Feible, page 191). Therefore the risk of a well diversified portfolio depends on the market risk of the assets included in that portfolio.
The contribution of a security to a fully diversified portfolio is measured by its beta. The beta coefficient is a relative measure of non- diversifiable risk. It is an index to the degree of movement of an assets return in response to a change in the market return. An assets historical returns are used in finding the assets beta coefficient. The market return is the return on the market portfolio of all traded securities.(Lawrence J Gitman, page 247)
For calculating the beta of a security, the following market model is employed: Rjt = ±j + ²j RMt + ej
Where:
Rjt = return of security j in period t
± = intercept term alpha
²j = regression coefficient beta
RMt = return on market portfolio in period t
ej = random error term
Stocks with betas greater than 1.0 tend to amplify the overall movements of the market. Stocks with beta between 0 and 1.0 tend to move in the same direction as the market, but not so far. Of course, the market is the portfolio of all stocks, and that is why the average stock has a beta of 1.0
If an asset does have an element of market risk, CAPM states that it should earn a risk premium proportnate to the amount of market risk reflected in the asset. If the underlying market itself has a degree of return uncertainty, we assume that the market return will be higher than the risk free return. This is the excess market return. To derive the incremental excess return, we lever the excess market return up or down by the degree of market risk exposure inherent in the asset. (Bruce J Feible, page 192).
Conclusion
It is observed that diversification reduces risks and therefore make sense for investors. If an investor is diversified in accord with the theory, then CAPM indicates that the percentage of returns that is due to the market should be 100 per cent. As a result, effective diversification under CAPM should provide investors with investment returns that are consistent with market returns. (John Mauldin, Page 93). The variability of stocks representing unique risk may be mitigated by introducing diversification of investment portfolio, but such diversification cannot eliminate market risk. Beta measures the amount that investors expect stock price to change. A stock with beta greater than 1 is unusually sensitive to market movements, whereas a stock with a beta below 1 is unusually insensitive to market movements. The standard deviation of a well diversified portfolio is proportional to its beta.
Limitations
CAPM is not testable. The market portfolio is theoretical and not really observable, so we cannot test the relation between expected return on an asset and the expected return of the market to see if relation specified in CAPM holds. (Frank J Fabozzi and Pamela P Peterson, page 299). Only unique risks are dealt with by CAPM and market risks are not at all addressed. Moreover CAPM assumes that risk can be encapsulated in a single figure (beta). (John Ogilvie, page 185). Critics argue that it is not necessarily reasonable to measure risk purely in terms of variance of portfolio returns (Peter J Booth, page 97). In fact CAPM is considered in both its standard form and with distribution parameter extensions an incomplete model of asset pricing(Robert R Trippi and Jae K Lee, page 38).
Recommendations
Risk is best judged in portfolio context. Part of the uncertainty about a securitys return is diversified when security is grouped with others in a portfolio. There is no doubt that diversification is a good thing for investors. This does not imply that firms should diversify. Corporate diversification is redundant if investors can diversify on their own account. Though it lacks realism and is difficult to apply, the CAPM makes some sense regarding the role of diversification and the type of risks we need to consider in investment decisions. (Frank J Fabozzi and Pamela P Peterson, page 299).
References
James Bradfield, Introduction to the economics of financial markets, Oxford University Press S, 2007, page 167.
Frank J. Fabozzi and Harry Markowitz, The theory and practice of investment management, John Wiley & Sons, 2002, page 67).
Lawrence J Gitman, Principles of Managerial Finance, Pearson Education, 2006, page 246.
Bruce J Feible, Investment Performance Measurement, John Wiley and Sons, 2003, page 191.
John Mauldin, Just One Thing: Twelve of the worlds best investors reveal with one strategy, John Wiley and Sons, 2005, Page 93.
John Ogilvie, CIMA Learning System 2007 Management Accounting Financial Strategy, Elsevier, page 185.
Peter J Booth, Modern Actuarial Theory and practice, Part I, CRC, 1998, page 97.
Robert R Trippi and Jae K Lee, Artificial Intelligence in finance & investing state of art, Irwin Professional Book Team, 1996, page 38.
I defined risk management in the previous assignment as identifying, analyzing, and responding to risk factors that arise over the course of a companys operations. A critical part of the assignment involved developing a brief risk management program that our health organization would adopt to help inform its risk management procedures and policies. As a result, this essay provides a high-level overview of the risk management program in action, with the purpose of informing a group of administrative people from a recently formed community health agency in our state who are planning to build risk management procedures and policies.
Function of the accreditation body certified by MIPPA
There are many bodies certified by the Medicare Improvements for Patients and Provider Act (MIPPA) whose roles are centered on quality improvement and risk assessment through risk management. MIPPA-accredited entities are also committed to guaranteeing that all healthcare organization employees receive proper training and instruction in areas of task and responsibility execution (Bendixen et al., 2010). Particularly, our organization conforms to standards of the MIPPA-certified body, Agency for Healthcare Research and Quality (AHRQ). According to Bendixen et al., (2010), AHRQ supports enhanced healthcare quality, efficiency, and safety by developing the information, resources, and data required to boost the health systems effectiveness and assist patients and health professionals in informed decision-making.
The body executes this mandate by promoting research to develop recommendations to improve the safety, quality, accessibility, equity, and affordability of health care, and collaborates with other federal agencies (i.e. US health department) to ensure such research or evidence is shared and passed across all healthcare organizations (Congress, 2021).Our organization utilizes EHR-based databases to detect high-risk patients, improve services given to such patients, and improve information exchange and communication about patients among care team members. For instance, the organization utilizes databases to deploy risk classification algorithms premised on serious diseases and service consumption, as well as to provide patient involvement and care collaboration services tailored to patients relative risks.
Administrative Staff Roles
Organizations have many levels of administration that perform different functions and help develop and sustaining risk management strategies and policies. Risk managers are competent people whose duty comprises planning, evaluating, executing, and reviewing risk management plans to reduce exposure to certain hazards. In executing this mandate, top-level administrators ensure hackers do not gain access to the technologies required to provide exceptional treatment ( Jalali & Kaiser, 2018). Accordingly, our health administrators act in various capacities to promote efficiency of our health systems. For example, they implement the organizations ethical leadership ideals and train the staff on different risk management practices and assist in the advocacy of the best quality health outcomes. In this way, the organization can better avoid risks and promote ethical practices.
How Compliance and Risk Management Programs Promote Patient Engagement, Ethical Practice, and Patient Rights and Duties
Compliance and risk management programs in organizations ensure continuity of ethical practice. In our organization, allied providers maintain the practice standards in that programs that include new recruits are enlightened about the ethics standards they need as practitioners, and address potential risks in care. Programs encourage patient agreement because they reduce the possibility of illegal accessibility to their medical records. The EHR programs safeguard information by eliminating and limiting the risk of unlawful access by personnel (Ayatollahi, & Shagerdi, 2017). Systems that support patients various rights and obligations, including as the privacy rights, help to guarantee that their confidentiality is safeguarded by allowing the secure handling of patient data. Overall, the organization maintained right to privacy by following HIPPA privacy standards.
Healthcare Practitioners Ethical and Legal Obligations
In our organization, healthcare personnel face a variety of ethical and legal responsibilities for risk management and providing safe treatment. The major task is for patients to obtain informed permission prior to performing surgeries or activities affecting the patient. This role also entails providing patients with all necessary information regarding their ailment and treatment options as part of patient engagement and informed decision making (Vahdat et al., 2014). As Taylor (2014) notes, all care providers must understand that infringing patient privacy can lead to serious ethical and legal ramifications. All healthcare personnel in the organization adhere to HIPPA rules regulating patient privacy. Another role performed by healthcare personnel is safeguarding patients during care (i.e. protecting them from harm). Practitioners understand that harming patients during care is illegal and unethical and can lead to negligence charges (Vahdat et al., 2014). Thus, the organizations risk management methods ensure that healthcare personnel avoid distinct threats that could lead to legal and ethical issues.
How the Quality Assurance Methods Contribute To and Support the Organizations Effectiveness
The Quality Assurance Methods Contribute To and Support the Organizations Effectiveness notably making healthcare processes durable and cost-effective, enabling them to meet their objective of enhancing care delivery and achieving optimum patient outcomes. The organizations training program ensures new recruits apply contemporary technology in healthcare to enhance efficiency and improve their skills. Using such technologies enhances patient and healthcare provider experience, leading to good healthcare outcomes. Thus, the firm is excellently positioned to improve quality of care delivered to its patients.
Risk management practices are necessary to ascertain that a healthcare institution provides safe and high-quality services. Technology is critical in delivering high-quality treatment to patients since it streamlines healthcare processes while increasing effectiveness. Organizations ensure the efficiency of healthcare while also improving the protection of patient data. Putting in place risk management programs gives firms the tools they need to prevent potential risks.
Bendixen, Z., Steinberg, M., & Families United for Senior Action Foundation. (2010). Making the Medicare Improvements for Patients and Providers Act (MIPPA) work: How states can help people with Medicare. Washington, D.C: Families USA.
