Category: Performance

Introduction

Beyond budgeting movement is founded by the Beyond Budgeting Round Table organization in respond to shortcomings encountered with the use of traditional budgets. The traditional budgets are the annual budgets that organizations use to allocate resources and plan and implement in a fiscal year.

An investigation was conducted by Beyond Budgeting Round Table organization to establish the effectiveness of the traditional budget. Their findings formed a base to justify their ideas on beyond budgeting.

The Beyond Budgeting Round Table organization is a movement that advocates for exchange of ideas concerning business management by giving out experiences as well as utilize research findings. The aim of the movement is to help organizations introduce ways to achieve more adaptive control and continuous planning (Beyond budgeting Round Table, 2005, pp 1).

Beyond budgeting movement incorporates the community using ideas that will enable organizations survive in a competitive surroundings. This paper will critically discuss how the traditional budget is inappropriate for modern business while the beyond budgeting movement is effective for modern business.

Discussion of Beyond Budgeting Movement

There are two group of doctrines that the beyond budgeting movement believe in. The First doctrines focus on the process of management while the second doctrines focus on the leadership of the organization. The process entails incremental growth in the objectives of the organizations where individual employers receive rewards on projects completed.

The capital for a project is given upon request and the employees coordinate their activities towards a common goal. The leadership on the other hand is transparent and it encourages a tradition of achievements. The leadership let the employee make own targets and take responsibility of the outcome.

The communication is open and shared within the organization. The procedure put more emphasis on how to satisfy the consumer needs by investigating their mannerisms and their beliefs

The movement argues that the inflexibility of the official procedure within organization is detrimental to the growth of an institution. The processes that cause delays due to long processes of business can be changed to allow for flexibility. In return the organization will experience enlargement.

Additionally the organization upon embracing the beyond budgeting movement becomes accustomed to the transforming environment and in response increase the profits for the company. Operating cost incurred as a result of the hierarchical structure of the traditional organization structure is reduced as the procedure is decentralized (Beyond budgeting Round Table, 2005, pp 1).

However, the beyond budgeting movement are effective in a dynamic environment. In an environment where the environment is predictable the traditional budget can be effective as long as the customers needs are met (Perks and Leiwy, 2010 p17).

In accordance with Daum (2007, Para 2) the traditional annual budgeting is ineffective in the modern world. The process is void of incentives to workers and consumes a lot of time without fulfilling its targets. The organization is easily carried away by politics within the organization where the workers are preoccupied with personal success rather than the success of the organizational goals.

The budget itself has limitations because it does not adjust to the surrounding environment; what is planed has to be followed. The companys expansion or growth cannot be limited by the budget. Beyond budgeting movements encourage strategy with aspirations that guide the organization.

It is noted by Daum (2007, Para 4) that the budgetary mechanisms raises a suspicious way of interaction among workers. Constrains within the organization emerge when there are changes within the market environment.

For instance if the organization is required to introduce a marketing strategy when the products are not selling, the organization deals with the problem incongruously. Therefore, the business organizations can manage to maintain their expected income as well as stay at the top in competition if the organization embraces beyond budgeting.

Beyond budgeting movement entails making the distribution of resources flexible whenever market trends change. This will enable business to maximize on profits as resources are allocated according to the needs of the consumer, thus what the consumer wants is produced (Daum, 2007, Para 4).

Beyond budgeting Round Table organization (2005, pp 1) argue that the beyond budgeting model does not exclude planning, instead it is a solution to the failure of the traditional budgets that has driven companies to do quarterly and short-range budgets.

Therefore, the beyond budgeting model is a strategy that an organization can adopt to avoid making losses. As a result, the organizations are not affected by the irregular market drift that leave the organization with a deficit.

The traditional annual budgets that were fixed where meeting the target was of high value is replaced by overall goals set by the executive and articulated by the workers who make their own targets in line with the overall goals.

Most often as Beyond Budgeting Round Table Organization (2005, p 4) note the executive had pressure to meet targets that were the measurement and rewards in the traditional budget, at times the engaged in manipulative behavior. With the beyond budgeting movement, the executive have no predetermined targets hence the manipulative behavior is turned into rewards given upon assessment of the organizations advancement.

Dyson (2009, p. 8) indicate that the traditional budget give a false hypothesis that future is taken care of in the budget whereas shortly after the financial the organization encounters budgetary difficulties.

The beyond budgeting movement recognizes that budgetary evaluation is done after short period of time to monitor steps forward. The workers are involved in the development and implementation of the organizational goals while taking the shortest period of time.

For that reason unpleasant long process that involved long term planning from the head offices in traditional budgeting is withdrawn (Beyond Budgeting Round Table Organization 2005, p 4). Proctor (2009, p 24) mentioned that the accountant control of the budgeting process is does not resign from doing management, the focus is shifted to managing strategies as they are implemented with the beyond budgeting model.

Beyond Budgeting Round Table Organization (2005, p 4) in their research point out that resources are disbursed within a short period of time since the long process that required authorization from the central authorities in the organization are not needed.

The members of staff are held responsible of their actions. Therefore, the decisions they make on allocation of resources must be based on established results from an inquiries. Consequently, the organization observes less wastage.

The challenge of letting employee who make own targets can result into excessive pressure from the top management. The targets might be too high and demanding on the employees. Consequently, they may feel pressured leading to stress and at times departure from the organization. The targets set must therefore be realistic and attainable.

Activities are coordinated towards meeting the customer demands within each unit. Accordingly, different departments harmonize their actions to give a fulfilling outcome to the market. In addition the focus on the budget is founded on the future rather than the past.

Rarely do the beyond budgeting trace past budget to prepare a budget for the future. To measure progress, indicators of success and the evaluation according to standards are used Beyond Budgeting Round Table Organization (2005, p 6).

The employees become motivated as they participate in decision making hence their loyalty remain with the organizational goals rather their superiors. The outcome is quality performance as responsibility is bestowed on the employees in areas within their mandate. Furthermore efficiency and effectiveness are realized on an improvement scale.

Dependency on the central management is abandoned as the employees can make decisions stimulating innovativeness although a greater risk is imposed on the organization. This is due to the fact that a wrong decision might cost the organization severe losses.

Furthermore, the team is answerable and reward able for the successes in the institute. This means that there is devolution of the authority within the organization (Beyond Budgeting Round Table Organization, 2005, p 9).

Working in teams cause employees to have attachment to the organization and introduce healthy competition that create positive results in production and contentment of consumer demands. There are no intentional transactions or trading that the company must carry out.

Besides healthy competition, the employees communication is improved when compared to the time when the traditional budget was in use. There is information flow with the introduction of the beyond budgeting movement.

The connection between the management and the employees has taken a new shape where the workers make few consultations with the top managers. The employees usually make decision without constantly consulting the managers.

The employees make use of the information to make informed decisions alongside with clarity in operations. Whats more is that morals are held up as the tradition of secretively hiding reality and presentation of inaccurate information is no longer in practice Beyond Budgeting Round Table Organization (2005, p 9). The challenge comes in when the information is used to create games within the organization.

These games may lead to disputes within the organization where resources allocation is based on unfair competition and create end up recalling the abandoned games practiced in the traditional budget. At times, some groups may end up without projects since employees must work to give an output. Those left without the projects may end up being retrenched or lose their jobs.

Conclusion

For an organization to be successful, it can adopt the beyond budgeting model to realize growth in the changing environment. The market is unpredictable and has increasing competitors in the business. In order to stay at the top the budget can be made flexible and evaluated on shorter basis.

The hierarchy and lack of information flow that characterize the budgetary process can be substitute to devolution where the employees can make decisions using the information available. This motivates employees to make own targets that are innovative.

The leaders have to be realistic in setting attainable targets while ensuring that resources are allocated on merit to avoid games. The beyond budgeting movement help organization to avoid making losses and use their full potential to gain profits.

Reference List

Beyond Budgeting Round Table Organization. 2005. Finance Transformation Visionary Honored for his Dedication to the Beyond Budgeting Movement. Web.

Daum, J. H., 2007. Beyond Budgeting: A model for flexible enterprise control- Beyond fixed annual budget and ineffective traditional management concepts. Web.

Dyson, J R., 2009. Accounting for Non-Accounting Students, 8th edition, FT; Prentice Hall.

Perks, R, and Leiwy, D., 2010. Accounting for Managers Interpreting Accounting Information Decision Making, 3rd edition. New York: McGraw Hill.

Proctor, R., 2009. Managerial Accounting for Business Decisions, 3rd edition. New Jersey: Prentice Hall.

This table includes student performance in each of the activities that were presented in class and homework over a period (e.g. a week). Performance can be described as a percentage or as a grade, after which the overall performance is calculated for both classroom and homework. The table can include all types of activities that were presented within the period. If activities were presented in previous periods, but were not included in the current period, then a dash should be put in the corresponding column.

Further, based on the calculation of the arithmetic mean of all the activities presented for the period, the students overall performance in class and in homework is calculated. This indicator is compared with the indicator of the previous period, indicating positive or negative dynamics. Thus, if a student shows a higher performance compared to the previous week, the result is indicated in green, red identifies a negative trend, yellow defines a lack of change. Later, the results can be tabulated over a longer period (for example, a month or a semester) to track progress for each activity separately.

Abstract

Globalization operations are the current trends in which businesses pursue in a bid to be competitively advantaged. Small and medium enterprises have as a result embarked on opening their branches and operation of their businesses in overseas markets.

This is what has made the researcher to do a research by taking a sample of 20 SMEs in the UK and gather data from the employees and top management. It would be observed in the research that the performance and operational efficiency of SMEs is enhanced by foreign operations. There will thus be a swell on the financial reports presented by these businesses.

Introduction

A large number of multinational firms are small and medium enterprises. The contribution of the SMEs on the economic development and their impacts on the international arena has made it a major area for research.

The lions part of the economies of underdeveloped and developing economies is controlled by small and medium enterprises (Athavale, 2006). A considerable proportion of the size of the economies of developed nations is also determined by the SMEs.

The need to go global has led to the internalization of the operations of small and medium firms. The attention on the operations of the SMEs is epitomized by the quantity of research undertaken on the contributions of SMEs on the economic performance of various economies (Kirby & S, 2003). It is now common to find branches and agents of small and medium enterprises in overseas economies.

The premises that are used in the classification of operations as either small or big is based on factors like number of customers, capital base, number of employees, technologies adopted and the size of the premises among others (Aitken & Harrison, 1999). In UK, a lions share of the market is controlled by small and medium enterprises.

Justification of the study topic

Several researchers have conducted their studies on the various factors that have led to the international operations of SMEs and developed the role of internationalization on the growth of these organizations. More research has also been conducted on the strategies and structures put in place to ensure firms go global.

Little research has been done on the impact of globalization on the performance and operations of SMEs. It is for these reasons that the researcher has picked on this topic to further reduce the information gap.

The research area has also been desired by the urge to comprehend the trends that are likely to be observed in the internationalization of small business. The impact of internationalization is also important in the sense that it may have a considerable impact of the economic variables e.g. employment, economic growth and levels of economic interactions.

Objectives of the study

The researcher has carried out this study with the following objectives in mind:

1. To understand the reason for internationalization of small and medium enterprises
2. To determine the barriers of internationalization of SMEs
3. To elaborately and determine the impacts internationalization of SMEs on their performance and operations.

Literature Review

Reasons for internationalization

SMEs desire to operate in overseas markets has been propelled by many factors. According to Turnbull (1987), some of the critical reasons why small firms have decided to globalize include:

The need to increase their financial returns- internationalization will increase the firms turnover and result into economies of scale production which reduces the costs of operations. Small and medium firms have thus internationalized their activities in order to increase sales, minimize costs and maximize revenues (Burgel, Fier, Litch, & Murray, 2001).

To exploit new advanced technologies- SMEs that are in search of new and advanced technologies have always internationalized in a bid to utilize and benefit from the technology that better. Technology reduces costs, increase output and increase efficiency and effectiveness in production (Aitken & Harrison, 1999)

To enter into new markets (widen consumer base)  the availability of a wide market and international consumers, motivates the expansion of the SMEs in the foreign market. Kirby & S (2003), asserts that International operations also enhance diversification reducing the financial shocks likely to be experienced in operations.

The entry of SMEs in new markets will result into a modification of the promotional message that is used to market in the global market. This is because of the diverse cultures language and the media coverage.

Benefit from a pool of qualified human resource  firms that operate globally can benefit from the availability of a large pool of qualified expertise. Expertise improves the quality of decisions and policies that are made by an organization (Grant, Jammine, & Thomas, 1988). It thus motivates small and medium enterprises to globalize and use these production factors.

To exploit the idle factors of production the firms- SMEs are endowed with resources that they at times fail to completely utilize in the domestic market. The idle resources can therefore be put into production by internationalizing. This will reduce the level of unused resources and increase the production level. The SMEs will therefore make more gains in their operations.

Most of these factors are caused by the need to remain competitive in the market that is characterized by stiff competition from known and unknown, hostile and friendly, intended and unintended competitors (Athavale, 2006). Irrespective of whom the competitors are small and medium firms have to take necessary precautions in order to ensure their survival.

Environmental scanning is mandated by the need to retain market share and improve financial performance in the fast changing environment caused by decline in government regulation and the increase in the size of the informal sector (Grant, Jammine, & Thomas, 1988)

Obstacles of internationalization of SMEs

According to Moen (1999), there are various factors that hinder internationalization of SME. These include:

Financial constraint- in undertaking international expansion firms require adequate resources to enable it stabilize in the foreign market. SMEs have majorly been constrained by the resources needed for establishing operations of their activities.

Legal and regulatory framework- the different economies where multinational firms operate is characterized by diverse government regulations and changing legal framework. Some countries deliberately promulgate rules intended to reduce and bar firms from penetrating their markets.

This has reduced heavily the operations of firms in international markets. Several SMEs have as well been faced by continuous legal proceedings for failing to act within the legal framework. Trade barriers and huge tariffs account for heavy costs of internationalization.

Different cultural practices and beliefs- culture is the beliefs, norms, convictions and practices upheld in a given society (Grant, Jammine, & Thomas, 1988). International operations require high level of cultural understanding if a firms product gas to perform above par in the international market.

SMEs failure to customize their product and promotional message to suit the international, market adversely influence their performance (Turnbull, 1987)

Competitive disadvantages- global market experience drastic environmental and market changes that affect the trends and precedents of business performance. SMEs are always characterized by poor capability of analyzing and predicting the market trends.

This has further hindered their performance in the global market. Large multinational companies have also engaged in an unfair trade competition which has led to the demise of SMEs activities.

Internationalization strategies

There are different ways which a firm can use to globalize. According to Aitken & Harrison(1999), the internationalization strategies include:

Exporting- in exporting, firms engage in production in home country and export their products to the foreign market. It can involve either direct or indirect exporting. In direct exporting firms will use its employees in exportation whereas in indirect exporting, there is the use of external parties (Kirby & S, 2003). This strategy is dependent on the transport costs and the import duty imposed by the importing nation.

Forming alliances- SMEs can internalize their operation by entering into alliances with foreign firms that will help penetrate the market efficiently and quickly. Moen (1999) opines that strategic alliances are advantageous since it permits quick entry in the foreign market, synergetic effects of alliances and the ability to use the distribution channel of the strategic partners.

It also involves the sharing of costs and risks which thereby minimize the risk factor. The kind of strategic alliance entered into dictates the success or failure of entry (Burgel, Fier, Litch, & Murray, 2001). Firms must there fore identify objectively and carefully the strategic partner that will enable successful entry.

Foreign direct investment- firms that decide to internalize in this manner can do this in two forms: Greenfield investments or merger and acquisition. In green field investment completely new firm is formed or constructed while merger involves the purchase of existing firm or amalgamation with a different firm (Aitken & Harrison, 1999).

FDI is preferred where exporting involved huge transport cost, high custom duties and where the business intends to retain total control and confide its business know how. Most SMEs have adopted this means of internationalization due to lack of sufficient resources to introduce their operations in the foreign market (Moen, 1999)

The type of internationalization strategy that a firm adopts depends on the firms resources, size, type of product and the intention of going global. Careful scanning is necessary in making choice of the strategy to be adopted as it involves the utilization of firms resources.

Conceptual framework

Internationalization of SMEs has impacted greatly on their performance and radically changed the way of operations. The SMEs that decide to internationalize has realized a swell on the business turnover and increase in the returns as exhibited by the increased profits after tax. The increased sales turnover of SMEs due to internationalization is attributed to the expanded market size and increased home sales turnover.

When a firm internalize, it positively impacts on the goodwill in the domestic market and increased customer loyalty (Turnbull, 1987). The further increase in returns is pegged on the economies of scale production that results into a reduction on the cost per unit.

Proposition formulation

The research therefore attempts to formulate proposition that aims at explaining the reasons of the increased performance and efficient operations exhibited by SMEs that internalize. The increased performance is thus explained with the following propositions:

Proposition A: SMEs internationalization result in increased sales turnover

When SMEs internalize, they increase their areas of coverage. This therefore results into the increase in the production and the sales turnover. The business increases sales and increase in the economies of scale makes the business realize increased profits. The result of the wider coverage makes the business compile annual reports by consolidating its earnings from the foreign market.

Proposition B: internationalization of SMEs impacts positively on the improved operation efficiency

Efficiency refers to the manner in which the resources are utilized reducing the wastages and losses (Grant, Jammine, & Thomas, 1988). With expanded area of operation, the businesses will minimize its losses as a result of the improved and modern technologies adopted in the production process. Capital intensive techniques will be adopted to support the increased demand and ensure standardization of production.

Proposition C. Quality of management and better decision making arise with internationalization decisions.

Multinational firms have to engage qualified and competent managers who possess conceptual skills that enable managers to make decision and anticipate the effects of their decision (Athavale, 2006). Small and medium enterprise firms that invest in the foreign markets are therefore compelled to recruit managers who are highly qualified.

As a result, the operations of these SMEs are improved and the decision process is assesses to ensure that the draw backs that arise from hurried decision making is avoided. Better structures are formulated with internationalization of a business to allow for sufficient coordination of the foreign branches.

Proposition D: financial sources increases with internationalization of SMEs

When SMEs globalize, they become eligible to acquire debt from both foreign market and increases there credit ratings (Kirby & S, 2003) a business that internationalize therefore enhances their ability to obtain more capital that is needed for expansions.

Prosition E: SMEs internationalizations lead to the adoption of better and improved technology.

SMEs that decide to internalize their operations will be likely to adopt better technology from countries that are more advanced than in the home country.

Methodology

The research to be conducted using this proposal was to determine the impact of internalization of SMEs on their operations. A sample of 20 SMEs were picked out of the thousand in the UK. Both small and medium were picked for the analysis. The 20 were also picked since they indicated consistency in growth of the various elements which were to be considered as mentioned below.

The various elements considered are the number and quality of employees and in the businesses selected, the relative annual turnover, technologies employed in production, the spread of branches both in the home and overseas market.

The categorization of data in terms of the elements above was done using the various sampling techniques such as simple random, stratified and clustered sampling techniques as well as judgmental sampling techniques for non-numeric characteristics of the SMEs (Grant, Jammine, & Thomas, 1988)

Primary data was gathered by the use of questionnaires. Questionnaires were developed, mailed to some of these organizations and others administered to these organizations orally using the researchers assistants.

interview schedules were as well prepared to enable the researchers conduct personal interviews which would help in collecting and finding out about very sensitive information e.g. information on their strategic plans and their competitive advantages given that the performance of the 50 SMEs were not the same in all aspects. Interview is an oral administered of a questionnaire or an interview schedule (Burgel, Fier, Litch, & Murray, 2001)

The criterion that was found to be the most useful in determining the growth and size as well as the internationalization of an SME was the sales turnover. According to Turnbull (1987), an SME is determined as a firm with a sales turnover of over 24 million dollars and in the less developed countries given their weak financial systems, its even determined using a lesser turnover.

The number of outlets were also determined more so the number in foreign countries as this would help determine the impact as per the market share since the larger the number of branches the larger the market controlled.

The data collected for the study above was all based on the above assumptions. Secondary, sources consisting of the various annual reports from various firms were majorly got from the websites of the varied firms found in developed countries due to their quick adoption of technology. Secondary data of most SMEs in developing countries were sourced from books and financial journals including the gray literature or material.

Variables

A variable is a measurable characteristic that assumes different values among the subjects (Athavale, 2006). The measure of internalization has been found in terms of the size of FDI resulting into increased outlets. The outlets further raises the growth of the assets of the SMEs hence output also goes up through increased turnovers.

Internalization in form of FDI of the SMEs is also largely affected by the ratio of the foreign assets to the total assets of the firms. While profitability has been determined as a measure of general performance, profitability to the ratio of assets giving the Return on capital employed (ROCE) gives the perfect measure of performance.

Another variable is the ownership-management relationship as a determinant of internalization which in turn which in the end affects the operations of the SMEs. Management abilities like creativity, adoption of the right management styles and the educational qualifications of the managers can also give the firms competitive advantage over the other.

The size of the SMEs also performs a significant role in the internalization of the small firms which alternatively affects the operations of the small firms. The size is determined by the sales turnover.

Data analysis

The data collected above will be analyzed by use of statistical and mathematical tool. The return on capital employed will be taken as the dependent variable.

The independent variable will include the ratio of outlets to the sales, advertising expenses and sales level, quality of management as a function of strategic level management. Strategic management is the highest level of management concerned with the formulation of policies and the developing of an organizations strategic plan (Aitken & Harrison, 1999).

The quantitative data will be coded and then classified by use of mathematical techniques like tables, graphs, pie charts and ratios. For the qualitative information, the researcher intends to develop criteria which will be employed in classifying and coding of the data.

The information will then be subjected to a regression analysis and a regression equation will be developed to illustrate the prediction of the dependent variable from the independent variables.

Correlation coefficient will as well be calculated. Correlation is the degree of relatedness of variables (Burgel, Fier, Litch, & Murray, 2001).This will enable the research to identify the degree of how the performance and operations of the variables are related.

Coefficient of determination will be developed to determine the degree to which the independent variable explains the dependent variable (Grant, Jammine, & Thomas, 1988). The pictorial representation of data will be instrumental in the easy and quick understanding of the trends and data comprehension to those with little understanding on complicated mathematical equations.

Limitations in the study

While conducting the study the researcher will be constrained by several factors. First, the financial limitation will only allow the research to be conducted using a small number of SMEs and a limited number of respondents.

As a result, this may compromise on the findings of the research and lead to wrong generalization. The problem posed in this situation can be mitigated by the careful selection of appropriate respondents and use of qualified research assistants.

The second limitation of the study arises from the scanty data gathered to show the financial performance of the SMEs. Businesses are reluctant to reveal their financial performance and give information on their strategic plan to non members of the organization to help keep is concealed to the competitors (Kirby & S, 2003). This thus affected the level of information details that were acquired.

The inadequate records that are kept by the SMEs also posed a problem on understanding the operations and data given. This problem can be minimized by disclosing to the respondents the reason for the research and giving assurance of confidentiality on the findings and data collected from their firms (Burgel, Fier, Litch, & Murray, 2001).

Moreover, the researchers experienced a limitation arising from the spread of the operations of the SMEs. By internationalizing, the operations of a business become spread in more than one country and sometimes in different continent (Kirby & S, 2003).

It will be thus a mirage for the researcher to collect data from a specific data and then use the information derived from the sample to make a generalization on the universe. Careful consideration must be made to ensure that the generalization takes into account the diverse nature of SMEs operation.

Finally, the researcher may be limited of sufficient knowledge and time required in data collection and analysis. The researcher should therefore increase the number of researchers he intends to employ to reduce the time for data collection.

Deadline and a clear time budget are necessary in research to avoid delays (Moen, 1999). FOR THE skills, the researcher can engage qualified research assistants who posses both statistical and mathematical knowledge necessary for data analysis.

Conclusions

The research enables us to conclude that there is a positive impact on internationalization of SMEs on their performance and operations. The research findings will be used to generalize the effects of internationalization of SMEs on performance and operations.

This therefore assists in the bridging the gap that has existed on how internationalization is crucial in improving efficiency on processes and operations of SMEs particularly in the UK.

We can therefore explain and draw the impact of globalizing on the increased turnover and employment creation in SMEs that secede to internalize. I also urge researchers to do more research on this area due to the nature and importance of the subject matter.

References

Aitken, B. J., & Harrison, A. E. (1999). Do domestic firms benefit from firect foreign investment? Venezuela: The American Economic Review.

Athavale, D. (2006). SMEs can become big brand. New Delhi: Springer.

Burgel, O., Fier, A., Litch, G., & Murray, G. (2001). The Rapid Internationalization Of High-Tech Young Firms in Germany and the United Kingdom. London: Anglo- German Foundation.

Grant, R. M., Jammine, P. A., & Thomas, H. (1988). Diversity, Diversification, and Probability Among British Manufacturing Companies. Academy of Management Journal.

Kirby, A. D., & S, K. (2003). Joint Ventures as an Internationalization Strategy for SMES. Small Business Economics , 21 (3), 229-242.

Moen, O. (1999). The relationship between firsize, competetive advantages and expoer perfomance revisited. International Small Business Journal , 18 (1), 53-72.

Turnbull, W. P. (1987). A Challenge to the stages theory of internationalization. London: Praeger.

Abstract

This report entails an analysis on the financial performance of banks in the Gulf region. The GCC is comprised of a number of countries. However, the report focuses on six banks operating in Saudi Arabia, the United Arab Emirates (UAE), and Qatar. The analysis entails evaluating the performance of one big and one small bank from each country. In a bid to gain a better understanding of the banks financial performance, the analysis focuses on a number of financial ratios. Some of the ratios considered in this form of analysis include return on average assets, return on average equity, net interest margin, and cost to income ratio (Golin & Delhaise, 2013, p.102). Moreover, the paper evaluates the performance of the six banks based on liquidity ratio, capital ratio, asset quality ratio, and operations ratio. The analysis shows that the big banks have a relatively strong performance compared to the small banks.

Introduction

Economies in the Gulf Cooperation Council (GCC) have a number of commonalities. Most GCC countries are oil exporters and they have adopted a fixed exchange rate regime. Subsequently, their economies are exposed to change in international oil prices (Bikker, 2008). The banking sector forms a fundamental component of the GCC economies. The sector dominates the GCC financial sector and it is comprised of both Islamic and non-Islamic banks. The banking sector in the GCC countries has undergone significant growth over the past decades.

A report by Global Research released by Global Research in September 2013 shows that the industry has experienced a double-digit year-on-year growth with regard to profitability (Statt, 2013). However, the level of profitability varied from one country to another. Banks in Kuwait had highest increment in net profit at 23.1% while that of the Kingdom of Saudi Arabia, the United Arab Emirates, and Qatar averaged 13.4%, 20.8%, and 3.5% respectively (Oxford Business Group, 2007).

The sector also experienced a significant growth in the size of loan issues (Baker & Powell, 2005). The Qatar banking sector registered the highest growth with regard loan books at 23.1% while the Kingdom of Saudi Arabia experienced a 13% growth. This paper attempts to compare the performance of banks in the GCC countries. Considering the large size of the sector, the report focuses on three countries, which include Qatar, the UAE, and the Kingdom of Saudi Arabia. Two banks [one large and one small] are selected from the three countries.

Background information of the big banks

Qatar National Bank

The bank was established in 1964 in Doha. Currently, the bank serves 26 countries through its affiliate and associate companies. Fifty percent of the bank is owned by the private sector and 50% by the Qatar Investment Authority. QNB has undergone steady growth over the years hence positioning itself amongst the largest banks in the MENA region. The QNB is the largest bank in the Qatar. The banks total assets is estimated to be over $ 101 billion and accounts for 45% of the total assets in the countrys banking sector and 6.9% of the total assets in the regions banking sector.

QNB offers customers different products such as mutual funds, investment management, insurance, commercial deposits, loans, commercial and private deposits accounts, and credit cants. Currently, QNB has established over 50 branches in Qatar. The banks competitiveness has grown over the past years because of its excellent reputation, local branch and ATM network, large capital base, and its strong financial position.

National Commercial Bank (AlAhli Bank)-Saudi Arabia

The NCB was established in 1953 in the Saudi Arabian Finance industry. The banks headquarters is located at Jeddah, Saudi Arabia. The bank mainly focuses on Islamic banking. Over the years, NCB has also earned its place in the Arabs world financial institutions. By the end of 2013, NCB managed 512 branches located across Saudi. Moreover, the bank has also established branches in Bahrain, the United Kingdom, Beirut, Seoul, and Singapore. Its customer base is estimated to be over 3.3 million and a human capital base of over 9,631 employees.

In its pursuit to maximize the shareholders wealth, NCB is committed to position itself as the leading Islamic bank and the market leader in the provision of consumer finance. The bank has achieved consistent growth over the years. Its growth has emanated from the managements focus on core growth, geographical expansion, and expansion of the banks scope.

Initially, the bank operated as a General Partnership. However, it was restructured in 1997 to operate as a Joint Stock Company. Today, the banks ownership is divided into private and public institutions. Since its inception, NCB has managed to establish over 264 branches, 10,750 point-of-sale terminals and a network of 1,180 ATMs. The bank is cognizant of the importance of operating in an effective and efficient manner. Subsequently, it has invested in mobile phone banking and internet banking. NCB has established a number of business segments, which include Islamic retail banking, business banking, wealth management, investments and consumer finance (National Commercial Bank, 2014).

Emirates National Bank of Dubai

The bank was established in 2007 after a merger between the National Bank of Dubai PJSC and the Emirates Bank International PJSC. NBD has positioned itself amongst the largest banking institutions in the Middle East. The bank operates in three main industries, which include the Banking, Insurance, and the Financial Services. Its headquarters is located at Dubai, the UAE (Statt, 2013).

The bank falls under the ownership of the Government of Dubai [56%] and the public [44%]. Emirates NBD operates as a fully-fledged commercial bank and offers diverse financial services. The bank has established a number of business segments, which include personal banking, specialized services, wholesale banking, priority banking, private banking, and business banking. Personal banking provides individual customers with a broad range of personal banking packages such as loans, accounts, cards, and insurance. The bank commands approximately 20% of the UAEs banking industry.

On the other hand, specialized services is comprised of activities, which are aimed at assisting customers meet their asset management needs, global markets and treasury, global markets and treasury. Currently, the bank has over 140 branches in Dubai. However, the bank is formulating expansion policies in an effort to establish branches in other emirates. In addition to domestic operations, the firm has also established branches in the United Kingdom, Singapore, Saudi Arabia, and Qatar (Statt, 2013).

Financial performance

The financial performance of an organization can be determined using various performance measures. Financial ratios are one example of such measures. Needles and Powers (2005) argue that financial ratios aid in evaluating the performance of an organization on different platforms. Subsequently, firms management teams can be able to understand an organizations strengths and weaknesses (Baker & Powell, 2005).

There are different critical financial ratios that an organization can use in evaluating the financial statement elements. The financial ratios are classified into the return on investment or profitability ratios, liquidity ratios, leverage ratios, and efficiency ratio. Below is a comparative analysis of the three big banks based on the various financial ratios.

Analysis of the big banks

Qatar National Bank

Return on average assets

This ratio is used to determine the effectiveness of an organization in deploying its assets. The ratio is calculated by dividing the net income by the total assets (Carlberg, 2001).

The bank has experienced remarkable year-on-year growth with regard to its profitability. The firms return on average assets has increased significantly from 2009 to 2013 as illustrated by the chart below. The ratio is calculated by dividing the total net income by the average total assets (Golin & Delhaise, 2013, p.119).

Return on average equity

The ROE is calculated by dividing an organizations net income by the total shareholders equity (Doumpos, 2008). The ratio shows how effective an organization is in generating profit using the shareholders investment.

Net profit margin

This ratio is used to determine the overall profitability of an organization (Leach & Melicher, 2012). This ratio illustrates the effectiveness of an organizations management team. Despite its growth, Qatar National Bank has experienced a decline in the level of its net profit margin over the past years. The chart below illustrates the banks trend with regard to net profit margin.

The chart below shows that Qatar National Bank has experienced a steady decline in the size of its profitability over the past five years. However, the rate of decline has been relatively low.

Cost to income ratio

This ratio is used as a proxy in determining an organizations operation efficiency (Luna-Martinez, 2000). The ratio is mainly used in the process of determining the financial performance of banks. According to Emirates NBD (2014), the ratio indicates the effectiveness of banks in managing their costs in relation to their income. The ratio is determined by dividing the total operating cost by the operating income within a particular financial year. The table below shows the cost to income ratio in Qatar National bank.

The chart shows that Qatar National Bank has been very effective in sustaining its cost to income ratio at a low level as illustrated by the minimal change in the cost to income ratio over the years under consideration. The slight change in the level of cost to income ratio indicates the banks effectiveness in managing its costs (Gibson, 2012).

Net Interest Margin

Qatar National Bank (2014) is cognizant of the importance of effective loan management. Subsequently, the bank has implemented effective loan management strategies. This has led to a significant decline in the level of net interest margin over the years. The effective loan management strategies have shielded the bank incurring losses emanating from interest expenses. The table below illustrates the trend in the banks NIM.

Liquidity ratios

These ratios exhibit an organizations ability to meet its current financial obligations (Golin & Delhaise, 2013, p.94). Subsequently, liquidity ratios depict how effective an organization is in managing its assets in order to cover its liabilities such as short-term debt and accounts payable. There are different liquidity ratios that an organization can utilize. Current ratio is one category of liquidity ratios. The ratio is used in evaluating an organizations ability to meet its near-term financial obligation. The general rule is that the ratio should be 2:1.

The ratio is calculated by dividing an organizations total current assets by the total current liabilities (Zopounidis, 2002).The chart below shows the banks current ratio.

The chart above shows that Qatar National Bank has been able to manage its current assets and current liabilities over the past five years. Subsequently, the firm has been able to meet its financial obligation.

Debt-to-equity ratio

This ratio is used in evaluating an organizations financial leverage. The ratio is calculated by dividing the total debt by the total shareholders equity (Golin & Delhaise, 2013, p.121). Qatar National Bank has sustained a positive trend with regard to its debt to equity ratio as illustrated in the chart below.

National Commercial Bank (AlAhli Bank)-Saudi Arabia

Return on average assets

National Commercial Bank has also experienced significant growth with regard to return on average assets. The chart below shows the trend in the banks performance.

Return on average equity

AlAhli Bank appreciates the importance of effective utilization of the shareholders equity. Subsequently, the bank has been able to sustain a steady growth with regard to return on average equity. The table below illustrates the growth in the banks ROAE from 2009 to 2013.

Net profit margin

The bank is committed towards attaining leadership with regard to Islamic banking and finance. Subsequently, the National Commercial Bank has invested a substantial amount of resources in popularizing Islamic banking the GCC region. The table below illustrates the growth in the institutions net profit margin over the past few years.

The chart shows that the National Commercial Bank has undergone a steady growth with regard to the level of its profitability.

Cost to income ratio

AlAlhli Bank ensures that its cost to income ratio remains at a low level in an effort to sustain its operations into the future. The chart below illustrates the change in the banks cost to income ratio.

Current ratio

National Commercial Bank has been able to sustain its current ratio at an acceptable margin indicated by the chart below. The banks current ratio is relatively similar to that of Emirates NBD. The chart below shows the banks current ratio.

Debt-to-equity ratio

The National Commercial Bank recognizes the importance of effective debt-to-equity management. The bank has maintained its debt-to-equity ratio at a relatively low level as illustrated below.

Net interest margin

The national commercial bank has also sustained its net interest margin at a relatively low level over the past few years as illustrated in the chart below.

Emirates National Bank of Dubai

Return on average assets

Emirates National Bank of Dubai is one of the biggest banks in the UAE with regard to total assets. The bank has been very effective in utilizing its assets to generate revenue. The table below shows the trend in the banks return on average assets.

Return on average equity

Emirates National Bank of Dubai has implemented effective strategies on how to utilize its equity. The chart below shows the banks performance over the past five years. The chart shows that the bank has experienced a steady growth with regard to its return on average equity.

Net profit margin

The chart below shows Emirates NBD trend with regard to net profit margin. The banks trend with regard to net profit margin.

Cost to income ratio

This ratio is used as a proxy in determining an organizations operation efficiency.

Liquidity ratios

Current ratio

Emirates NBD performance over the past few years has been enhanced by optimal management of current assets and current liabilities. Similar to the National Commercial Bank and the Qatar National Bank, Emirates National Bank of Dubai has maintained a stable current ratio as illustrated by the table below.

Debt-to-equity ratio

Emirates NBD has sustained a positive trend with regard to its debt to equity ratio as illustrated in the chart below.

Net interest margin

Emirates NBD has also sustained its net interest margin at a relatively low level over the past few years as illustrated in the chart below.

Comparative analysis of the big banks financial performance

The financial ratios above shows that the National Commercial Bank, the Emirates NBD, and the Qatar National Bank have managed to attain significant market dominance in their respective industries. However, Qatar National Banks performance is relatively strong compared to the other two banks. The difference in the performance of the three banks is illustrated by the graph below, which compares the banks performance with regard to return on average assets and return on average equity.

Similarly, the banks have portrayed positive performance with regard to return on average equity as illustrated by the chart below.

From the graph above, Qatar National Bank has a relatively high return on equity. This indicates that Qatar National Bank has a high level of profitability compared to the other banks. Moreover, the bank has been able to add value to the shareholders equity compared to the other two banks.

The difference in the banks financial performance is also illustrated by their variation with regard to net profit margin. Qatar National Bank has a relatively high net profit margin compared to the National Commercial Bank and the Emirates National Bank of Dubai as depicted in the chart below.

The three banks have managed to maintain their current ratio at an acceptable level. Subsequently, one can assert that the banks can be able to meet their current financial obligation without difficulty. With regard to the debt-to-equity ratio, the banks have been able to rely on the shareholders equity compared to borrowing. Subsequently, the banks are characterized by low debts. One of the factors that have contributed to the low debt-to-equity ratio is the managements ability to maximize the value of their equity. According to Sheeba (2011), a low debt-to-equity ratio eliminates financial distress in an organization.

Analysis of the small banks

Background information of the small banks

Noor Bank

This bank was established in 2008 in the UAE. Fifty percent of the bank falls under the government of Dubai ownership, 45% by individual investors, and 5% by the Emirates Investment Authority. The bank is managed by the Sharia board, which is largely comprised of Islamic scholars. The bank operates as a subsidiary to Noor Investment Group. Its headquarters is located in Dubai, UAE (Noor Bank, 2014).

The bank has positioned itself as an innovative and creative bank, which is evidenced by the introduction of attractive banking products tailored to meet personal and business customer needs. The banks commitment towards creativity and innovation is motivated by the desire to attract new customers. The bank is focused towards being ranked amongst the most innovative financial institutions in the UAE by 2010.

Saudi British Bank (SABB)

SABB was established in 1978 in Riyadh, Saudi Arabia. The bank operates as a Joint Stock Company and an associate of HSBC Group in the United Kingdom. Over the years, the bank has developed a wide range of financial products and services. The banking services offered include ATM Cards, private and Islamic banking, personal banking, corporate and commercial banking. The companys total asset has increased significantly over the years. For example, the total assets increased from SAR 125.4 billion in 2010 to SAR156.7 billion in 2012 (SABB, 2014).

Barwa Bank

This bank operates in Qatar and it has been licensed by the Qatar Central Bank. The bank has an estimated issued capital of QAR 3 billion and an additional authorized capital of QAR 4 billion. In the course of its operation, Barwa Bank provides diverse Shariah compliant banking products. Some of the products offered include real estate finance, structured finance, asset and investment management, structured finance, private banking, retail and corporate banking. The bank is committed towards positioning itself as the leading Islamic bank in the world. Subsequently, its operations are guided by excellent service provision, adherence to progressive ethos and positive contribution to the society (Barwa Bank 2014).

Analysis of the small banks financial performance

Noor Bank

Return on average assets

Despite the competitive nature of the banking industry in the UAE, Noor Bank has managed to attain a positive financial performance over the past five years as illustrated by the table below. The growth in the level of the banks return on average assets depicts the management teams commitment to exploit the assets fully in order to attain the desired level of profitability.

Return on average equity

Noor Bank has also been effective in utilizing its shareholders equity. This is well illustrated by the organizations return on average equity, which has been on an upward trend from 2009 to 2013. Subsequently, the bank has been in a position to maximize the shareholders investment hence generating high returns. The chart below shows the banks performance with regard to ROAE.

The chart shows that the bank has experienced steady growth with regard to its ROAE over the years.

Net Interest Margin

Noor Bank has sustained a positive improvement in its net interest margin as illustrated below.

Net profit margin

The net profit margin depicts the effectiveness of an organization in achieving its profit maximization objective. Subsequently, the ratio can be used to judge the effectiveness of an organizations management team. The table below depicts the banks performance with regard to net profit margin from 2009 to 2013.

The chart above shows that Noor Bank has experienced a steady increment in the size of its profitability over the past five years.

Current ratio

Noor Banks management team appreciates the significance of effective asset and liabilities management. The bank has managed to increase the size of its loans significantly over the years. As a result, Noor Bank has improved its financial returns through accumulated interest on loan issued. On the other hand, the banks management team has maintained the level of its current liabilities at a low level. The banks effectiveness in managing current assets and current liabilities is illustrated by the current ratio in the chart below.

The chart shows that Noor Bank has been able to manage its current assets and current liabilities over the past five years.

Debt-to-equity ratio

Noor Bank has sustained a positive trend with regard to its debt to equity ratio. The bank has largely relied on equity in undertaking its operations. Subsequently, the size of banks debt has remained low over the years. The table below illustrates the percentage change in the banks debt-to-equity ratio. From the char, it is evident that Noor Bank has managed to lower the size of its debt to equity ratio.

Saudi British Bank (SABB)

Return on average assets

SABB has also experienced significant growth with regard to return on average assets as illustrated by the chart below.

Return on average equity

SABBs management team and the board of directors are cognizant of the importance of effective utilization of the shareholders equity in order to maximize their wealth. Thus, the bank mainly depends on the shareholders in the course of undertaking its investment activities. The table below illustrates the growth in the banks ROAE from 2009 to 2013.

Net profit margin

The profitability of an organization is a key determinant of its attractiveness to individual and institutional investors. SABB is committed towards positioning itself as the leading bank in Saudi Arabia. Subsequently, the institutions management team ensures that every dollar earned is translated into profit. Over the years, the banks management team has been focused towards managing the cost of its operation. Its effectiveness in controlling cost and utilizing the earnings is well illustrated by the growth in the level of its net profit margin (SABB, 2014).

Cost to income ratio

In the course of its operation, SABB has managed to sustain its cost to income ratio. Subsequently, the ratio has been characterized by minimal change in its cost to income ratio as illustrated by the table below.

Current ratio

Over the years, SABBs management team has maintained its current ratio at an acceptable level of 2:1. Consequently, the firms management team is able to meet its short-term financial obligation without major hindrance.

Debt-to-equity ratio

SABB recognizes the significance of sustaining a low debt to equity ratio. Consequently, the bank is increasingly focusing on how it can utilize the shareholders equity in generating profit. The chart below depicts the change in the organizations level of the debt-to-equity ratio from 2009 to 2013. From the table, it is evident that the bank has managed to lower the debt to equity ratio remarkably.

Net interest margin

Similar to Noor Bank, SABB has maintained its net interest margin at a low level. Its effective management has culminated in a decline in the level of its net interest margin as indicated in the chart below.

Barwa Bank

Barwa Bank is ranked as the fastest growing Islamic banks in the Qatar. Its growth is associated with effective utilization of the organizations assets in order to generate revenue. The bank has managed to sustain a growth with regard to return on average assets as illustrated by the table below.

The table above shows that the bank has experienced a positive and steady growth in the size of its return on average assets. From this trend, one can assert that the bank will sustain a growth in the future.

Return on average equity

Similar to the other small banks, Barwa Bank is committed towards ensuring that the shareholders equity is effectively utilized. Over the years, the bank has managed to improve its return on equity as illustrated by the table below.

Net profit margin

Barwa Bank appreciates the importance of sustaining a growth with regard to net profit in order to meet its cost obligations. The banks management has implemented effective cost control measures, which have culminated in growth in the firms level of net profit over the years. The chart below illustrates the percentage change in the institutions level of profitability.

Cost to income ratio

The management team of Barwa Bank appreciates the significance of developing effective cost and income management strategies. Subsequently, the bank has been able to sustain an acceptable change in its cost-to-income ratio. The chart shows that Barwa Bank has managed to lower the cost to income ratio subsequently.

Current ratio

The firms effectiveness in managing current assets and current liabilities has enhanced its capacity to meet the short-term financial obligations. The table blow illustrates the banks current ratio over the past five years.

Debt-to-equity ratio

The bank has also maintained its debt to equity ratio at an acceptable level. In the course of its operation, the bank mainly relies on both equity and debt sources of finance. However, the level of debt is relatively low as compared to equity. The chart below illustrates the change in the banks debt-to-equity ratio over the past five years. From the chart, one can assert that the bank has been committed in lowering its dependence on debt finance over the years.

Net interest margin

Barwas bank management is cognizant of the importance of effective management on the loans. Loans provide a source of revenue to banks through the interest that they generate. However, poor management of loans can culminate in a significant decline in the level of profitability emanating from interest expenses. Barwa Bank is committed towards reducing the net interest margin at an acceptable level. The chart below shows the trend in the performance of the banks NIM from 2009 to 2013.

Comparative analysis of the small banks financial performance

From the above analysis, one can assert that the small banks in Qatar, Saudi Arabia, and Emirates are committed towards attaining high and sustainable financial performance. The financial ratios show that Noor Bank is more effective as compared to the other small banks under consideration. The strength of Noor Bank is well illustrated by the various financial ratios evaluated. For example, the banks return on average assets and return on average equity have grown substantially over the years. The graph below compares the performance of Noor Bank, SABB and Barwa banks ROAA.

The small banks have also portrayed a positive trend with regard to return on equity as depicted by the chart below.

From the graph above, Noor Bank has a relatively strong return on average equity compared to SABB and Barwa Bank. Subsequently, one can assert that the bank is more effective in managing its shareholders equity compared to the other small banks. This has greatly improved the banks effective in generating a high level of profitability and hence adding value to the shareholders wealth (Khan& Jain, 2007).

Noor Bank financial strength is also illustrated by the difference in their level of net profit margin. Noor Bank has managed to sustain a growth with regard to the level of profitability. Similarly, Barwa Bank and SABB have undergone a growth with regard to their profitability. However, their growth has been relatively low as depicted in the chart below. The high level of net profit margin in Noor Bank shows that the firm is in a position to withstand challenging economic conditions. According to Khan and Jain (2010), the net profit margin is very effective in illustrating an organizations effectiveness in managing and sustaining its operations.

With regard to the current ratio, the three small banks have maintained the level of their current ratio at an acceptable level of 2:1. This shows that the bank has been very effective in meeting its current financial obligations.

Evaluation of Bankscopes strengths

Bankscope provides a wide range of data on the financial performance of banking institutions. Financial analysts can therefore utilize the database in conducting analysis on the financial performance banks across different countries over a period. Thus, the credibility of the financial analysis using data from Bankscope is high. The database covers over 30,000 banks distributed in different parts of the world. The database is effectively developed in order to improve its usability.

Conclusion

The banking industry is one of the most important components in a countrys economic growth. Banks act as financial intermediaries, which enhance transfer of finances between the demand and the supply sides. However, the effectiveness with which banks undertake their operation is dependent on how well they are managed. Countries in the GCC region have undergone significant growth over the past few years. Subsequently, most of the countries in the GCC region are categorized as emerging economies. Some of these economies include Saudi Arabia, Qatar and the United Arabs Emirates. These economies have undergone significant growth over the past decade. The growth has been greatly supported by the banking industry, which is dominated by both big and small banks.

Qatar National Bank, Emirates NBD, and the National Commercial Bank are amongst the largest banks in Qatar, the UAE, and Saudi Arabia respectively with regard to total asset. The three banks have experienced significant growth with regard to financial performance over the past five years. The ratio analysis shows that Qatar National Bank has a strong financial performance compared to Emirates National Bank of Dubai and the National Commercial Bank of Saudi Arabia. The strength of the three banks is illustrated by the growth in their return on average assets and return on average equity.

Moreover, the banks financial performance is also illustrated by the growth in their level of net profit margin. This shows that they have been effective in managing their operating cost, which is further illustrated by the cost-to-income ratio that has declined steadily over the years. Thus, one can argue that the big banks have been effective in maintaining their cost of operation at a low level. Thus, the banks are able to invest their income in areas that culminate in maximization of the shareholders wealth.

The analysis also shows that the big banks have been very effective in managing their net interest margin. The three banks have a relatively low net interest margin compared to the small banks. Subsequently, the banks have been able to avoid losses emanating from interest expenses. The small banks should learn from the big banks strong financial performance and implement effective operational strategies. This will enable the small banks to gain substantial market share in their respective industries.

References

Baker, K., & Powell, G. (2005). Understanding financial management; a practical guide. Oxford, UK: Blackwell Publishers.

Barwa Bank: vision and mission. (2014). Web.

Bikker, J. (2008). Bank performance; theoretical and empirical framework for the analysis of profitability. New York, NY: Routledge.

Carlberg, C. (2001). Business analysis with Microsoft excels. Indianapolis, IN.: Worldcat.

Doumpos, M. (2008). Handbook of financial engineering. Berlin, Germany: Springer.

Emirates NBD: Emirates NBD announces its 3^rd quarter 2013 results. (2013). Web.

Gibson, C. (2012). Financial reporting and analysis. New York, NY: Southwestern Publishers.

Golin, J., & Delhaise, P. (2013). The bank credit analysis handbook: A guide for analysts, bankers and investors. Solaris, Singapore: John Wiley & Sons Singapore Pte. Ltd.

Khan, M., & Jain, P. (2007). Financial management. New Delhi, India: Tata McGraw-Hill.

Khan, M., & Jain, P. (2010). Management accounting; text, problems and cases. New Delhi, India: Tata McGraw Hill Education.

Leach, C., & Melicher, R. (2012). Entrepreneurial finance. Singapore: Cengage Learning.

Luna-Martinez, J. (2000). Management and resolution of banking crisis; lessons from the republic of Korea and Mexico. Washington, DC: World Bank.

National Commercial Bank: AlAhli online. (2014). Web.

Needles, B., & Powers, M. (2012). Financial accounting. Mason, OH: Cengage Learning.

Noor Bank: Islamic finance. (2014). Web.

Oxford Business Group: The report; emerging Qatar. (2007). London, UK: Oxford Business Group.

Qatar National Bank: QNB. (2014). Web.

SABB: About SABB. (2013). Web.

Sheeba, K. (2011). Financial management. Noida, India: Pearson.

Statt, F. (2013). Emirates NBD posts Dh 2.6 billion profit. Web.

Zopounidis, C. (2002). New trends in banking management. Heildelberg, OH: Physica- Verl.

Introduction

Student achievement in the educational domain depends on a variety of factors, addressing which educators can facilitate instruction approaches, organization of the learning process, and academic outcomes. In the context of the modern student-centred trend in pedagogy, the inclusion of individual factors in working with learners is essential (Garcia & Skrita, 2019). Scholars agree that family environment, in general, and the presence of siblings in a childs family, in particular, impact the academic achievements of a student (Anderson, 2017; Jia et al., 2022). However, the research problem addressed in this paper is related to the ambiguity of the implications of the relationship between having no siblings and academic performance. The importance of the investigated issues is justified by the necessity to avoid negative implications for students success opportunities due to the neglect of environmental factors.

Discussion

On the one hand, according to Anderson (2017), family size affects not only the environment in which children grow up but also the architecture of their brains (para. 6). The researcher claims that if a student is the only child in the family, their IQ level is a higher, hence better educational achievement. Such an opinion is justified by the positive implications of having no siblings since parents attention and resources are focused on the benefits of one individual. On the other hand, Jia et al. (2022) state that the combination of factors such as age, gender, socio-economic status, and the status of being the only child predetermines the level of academic performance. Thus, it is essential to clarify the dependence between the status of being an only child and academic performance to inform educational decision-making in facilitating success opportunities for diverse students.

The objective of this study is formulated in the following research question.

Research Question: Is the academic performance of a child with siblings different from the academic performance of a child without siblings? The study will be based on quantitative inquiry, which implies the identification of a hypothesis and variables. Given the evidence retrieved from the reviewed literature, the hypothesis for the study might be as follows: children with no siblings will demonstrate better academic performance levels than children with one or more siblings. The relationship between two sets of variables will be established when testing this hypothesis. In particular, the independent variable will be the status of having no siblings and the status of having at least one sibling; the dependent variable will be academic performance.

Conclusion

One should provide an operational definition of the dependent variable in question due to the need to clarify its meaning in the context of this study. Academic performance is defined as the level of educational achievement measured in the form of average grades in all subjects (Garcia & Skrita, 2019). Thus, to test the hypothesis, the researcher will conduct a quantitative study with two groups of participants (individuals with and without siblings being in different groups) by comparing their academic performance. The methods of data collection that will be used include a survey and document analysis to obtain information about students family status and academic performance. The method of statistical analysis will be used to analyze the collected data and answer the research question. It is anticipated that the results of this study will provide an evidential basis for adjusting teaching approaches to the academic achievement opportunities predetermined by the family environment.

References

Anderson, J. (2017). Neuroscience shows that our gut instincts about only children are right. Quartz. Web.

Garcia, J. D., & Skrita, A. (2019). Predicting academic performance based on students family environment: Evidence for Colombia using classification trees. Psychology, Society & Education, 11(3), 299-311.

Jia, C., Yang, Z., Xin, T., Li, Y., Wang, Y., & Yang, T. (2022). Differences in school performance between only children and non-only children: Evidence from China. Frontiers in Psychology, 12, 1-14. Web.

The Competency Outcomes and Performance Assessment (COPA) model has been widely used in recent decades to revision faculties and develop more efficient academic curricula. COPA is a theoretical curriculum framework to promote competence for practice (Lenburg, 1999, p. 312). In particular, the model can be considered as the foundation for a comprehensive and cohesive revision of the curriculum, faculty and student roles, and methods to validate achievement of competency outcomes (Lenburg et al., 2009, p. 4). COPA is based on four components: core competencies, end-result outcomes, interactive learning, and competence performance examinations (Lenburg, 1999; Lenburg et al., 2009). A key feature of the model is the orientation in practice and the development of special competencies, which are ultimately the goal of the learning process. Thus, for COPA to be effective, it is necessary to identify the needs and assess the environment to produce appropriate content within the learning setting.

This model was developed to facilitate the process of defining competencies and developing learning practices. In particular, within the COPA framework, the competencies to be addressed in the course can be addressed in relation to eight key groups (Lenburg, 1999; Lenburg et al., 2009). Depending on the needs and environment, the faculty also evaluates the subskills that are most important in the learning process. During the course, these subskills can vary, becoming more or less important, which also result in the modification of the training program. However, as part of creating a curriculum for faculty, it is important to address all of the listed core competencies in order to provide comprehensive learning. Depriving students of the opportunity to study any of the group of competencies and the lack of experience in the practical application of skills can lead to an insufficient level of knowledge to guide professional activities in the future. Thus, the core competencies describe the areas that are required for inclusion in the course and form the structure of the educational process.

Formative and summative assessment allows one to assess both the ongoing and final progress of students within the course. Core practice competencies can also be viewed as milestones for learning and should be addressed depending on the learning domains and the learners level of experience. Each of the competencies represented within the framework of the model represents a large group of skills that together form the basis for comprehensive learning. With regard to formative strategies, the mastery of each of the subskills should be assessed using tests and quizzes. This approach will ensure continuous monitoring of the students ongoing progress within the course. Within the framework of formative strategies, it is important to consider not groups of competencies but their individual components within the course. For example, when assessing critical thinking skills, it is important to test the skills of analyzing scientific evidence immediately after mastering this tool.

Summative strategies should aim to assess the overall progress of students across the course. In relation to COPA, the summative aspects assess the development of one of the competency groups also using tests and quizzes. Within the framework of summative strategies, it is important to consider the group in relation to the studied subskills and their interaction in the formation of overall practice competence. Thus, summative assessment involves the evaluation of subskills in the relationship between each other within the core skill set.

References

Lenburg, C. B. (1999). The framework, concepts and methods of the Competency Outcomes and Performance Assessment (COPA) model. Online Journal of Issues in Nursing, 4(2), 312-317.

Lenburg, C. B., Klein, C., Abdur-Rahman, V. Z., & Spencer, T. (2009). The COPA model: A comprehensive framework designed to promote quality care and competence for patient safety. Nursing Education Perspectives, 30(5), 312-317.

The firm needs to improve on its debt to net worth ratio because this has made its value to stay low in real market terms. It is necessary for the firm to look at how it can boost its profile in the market by identifying new revenue streams to help it grow its income. The firm needs to carry out an analysis of its operations to find out areas that need to be improved to boost performance.

Its quick ratio needs to be improved to make the firm have positive prospects in the market. This will make it possible for the firm to improve its cash flow situation to help it conduct its operations without any problems. The firms current ratio levels are positive but they are still below the industry average (Meggison, & Smart, 2008, p. 48). Therefore, the firm needs to improve its current ratio by disposing some of its current assets to improve liquidity. This will help it register good results in the market.

Wegmans Food Markets is an organization which operates about 80 food stores in several states in the U.S. The firm is ranked 5th on the Fortune 100 list because of its positive performance in the market. It made more than 63 million US dollars in sales revenues in 2011. The firms current ratios are above 2 because it has enough assets which can easily be converted to cash to pay off its creditors.

The firms cash flow situation is positive and this has helped it run its operations smoothly without any interruptions (Hoovers Resource, 2013). It also has a positive quick ratio that enables it use its assets to pay off all outstanding expenses. This has made it possible for the firm to conduct its business without a lot of disruptions.

The firms debt to equity ratio is positive and this has given the firm more leverage in the retail industry. The firm has a low debt to equity ratio and this has helped it attract more investors. The firm is in a position to generate new funds from the capital market which gives it an edge over other firms. The firm is also able to finance most of its operations which has made it possible for inbound and outbound supply chain functions to go on without a hitch (Meggison, & Smart, 2008, p. 56).

References

Hoovers Resource (2013). Wegmans food markets inc. company information. Hoovers Company Profile Information. Web.

Meggison, W.L., & Smart, S.B. (2008). Introduction to corporate finance. Mason, OH: Cengage Learning.

Introduction

Background of the study

The restaurant industry, both domestic and multinationals, were faced with extremely tough challenges through the end of 2009 due to the economic hardship that lead to weak labor and tight credit markets. The result was a decline in discretionary spending by consumers. With the US economy slowly reviving, the industry posted improved results during the first half of 2010.

As a result, the restaurants are expanding and management teams are increasingly considering the most effective strategy to integrate in order to exploit opportunities presented in the market. The resultant effect is that these firms will be able to remain competitive (Cummings et al, 2010, pp.5). Multinational firms refer to those firms in the industry which operate both locally and internationally. Domestic firms only operate within the US.

Research indicates that restaurants are opening up branches worldwide and are hence facing numerous challenges. Firm seeking to venture into the international market must assess various factors. Some of these factors include inflation rates, interest rates, politics, cultural differences, government regulations among other factors. The study entails a report comparing the differences between multinational firms and domestic firms in the restaurant industry.

Aim

The aim of the report is to analyze the performance of domestic and multinational restaurants in the US.

Scope

Scope of this report focuses on comparison of performance of domestic and multinational restaurant in US.

Discussions

Percentage change in sales, operating Income and growth of assets will be discussed in this section.

Change in sales

Restaurant firms grew larger in size and generated higher sales during the first period (1981-1990) and the second period (1991-2000). Sales from food service grew by at least 49 percent from $228 billion in 1990 to $339 billion in 1999. The huge growth was in sales by commercial food service establishments that prepare, serve and sell food to the consumers.

Their sales more than doubled from $178 billion in 1990 to $275 billion in 1999 (Price, 2000, pp.23).As for the multinational restaurants such as Burger King, Pizza hut, KFC and McDonalds, saturated US food market forced them to go abroad.

Operating income

Operating income of the domestic restaurants is lower than the operating income of the multinationals. This is results from the fact that multinational firms have an effective diversification opportunity thus reducing the degree of risk they face. Reasons for diversification include benefiting the firms owners through increasing the efficiency of operation in the firm.

Diversification decisions may reflect the preferences of the restaurant managers. The motivation for diversification is to minimize risk of relying on only one or few income source, avoid cyclical or seasonal fluctuation by producing foods with different demand and achieving a higher growth rate in the hotel business. Bankruptcy costs are lower when firms incorporate the concept of internationalization.

Multinationals may attain competitive advantage by venturing into the foreign markets since they have sophisticated skills and new technologies (Porter, 1991, pp.538) .This enables them to outperform local corporations in foreign markets. The advantage is reflected by rapid expansion and value of future growth opportunities of the multinationals.

It is important to also note that domestic firms have relatively lower growth in operating income and higher pre-tax earnings loss compared to multinational firms (Markle & Shackelford, 2009, pp.5). Causes of profitability for some multinationals cannot be determined. However, one of the factors which result into this is existence of different tax policies (Clausing, 2009, pp.1) and tax avoidance.

Growth in domestic earnings

Economic growth of multinationals is associated with higher levels of foreign activity by American firms since economic growth increases the value of the foreign output of U.S. companies. Alternatively this arises from the fact that foreign economic improvement coincides with reduced real costs due to productivity gains.

Collaborations with other local firms promoted growth in earnings of some domestic firms. Burger King, for example, had a successful long-term deal with Disney Corporation for motion picture tie-ins signed in 1992. This increased their revenues to over 12, 000,000 dollars during that year.

Conclusion

It can be concluded that performance of multinational restaurants outshine that of domestic firms in the same industry growth in profits, earnings and sales. It can also be concluded that multinationals have many assets as compared to local firms.

Recommendation

It is highly recommended that domestic restaurants should incorporate the concept of internationalization. This will enable firms to expand to other countries so as to tap the unexploited market opportunities. The resultant effect is that the firms will be able to improve their revenues and profits. Venturing into other countries outside America can result into the firm attaining a high competitive advantage.

Reference List

Clausing, K. (2009). Multinational firm tax avoidance and tax policy. Web.

Cummings, J., Manyaka, J., Mendonca, L., Greenberg, E., Aronowitz, S., Chopra, R. etal. (2010). Growth and competitiveness in the United States: The role of its multinational companies. Washington DC: McKinsey Global Institute.

Markle, K. & Shackelford, D.(2009). Do Multinationals or domestic firms face higher Effective tax rates? Cambridge, Massachusetts: National Bureau of Economics.

Porter, M. (1991). The competitive advantage of nations. Massachusetts: John Wiley And Sons.

Price, C. (2000). Food service sales reflect the prosperous time-pressed 1990s.Food Review. Volume 23, Issue 3.pp.23-26.Economic research service: Washington DC.

Introduction

Performance-based budgeting has been the center of reforms in both the private and the public sectors. However, a substantial ambiguity still remains on how to define and implement performance-based budgeting (Aristovnik & Seljak, 2009, p. 3; Robinson, 2007, p. 2). A somewhat close definition is that performance-based budgeting apportions resources in accordance with specific achievement or quantifiable results.

Performance budgeting can also be defined as systems of planning, budgeting, and appraisal that focuses the link between budgeted funds and the expected outcome (Axelrod, 1998, p. 5). Therefore, performance-based budgeting links measurable performance and allocation of resources, with the capacity to state the level of achievable output with the injection of additional resources. Nevertheless, the output can never be measured accurately (Grizzle, 2001, p. 6).

Performance budgeting is result oriented in that it holds different divisions accountable to specific performance standards. This form of budgeting enhances awareness of the kind of services expected by the taxpayer. This type of budgeting is flexible since it allocates resources in a lump sum instead of piecemeal budgeting, giving the managers the options in determining how best to attain results (Government Finance Officers Association, 2007, p. 2).

Performance-based budgeting is also inclusive in that it involves all the stakeholders in the development of strategic plans, identification of preferential areas, and in the assessment of the outcome. Last but not least, performance-based entails long-term strategies. By acknowledging the link between strategic planning and allocation of resources, this form of budgeting is geared towards long-term goals (Hatry, 2006, p. 12; Hatry, 2006, p. 7).

Performance-based budgeting versus the traditional budgets

While performance-based information can provide a massive benefit to a country, it can not eradicate the political nature of budgeting. Performance-based budgeting can only provide benefits to a country once it is acknowledged that the connection between performance measures and allocation of resources is involuntary and are subject to political interference (Ingraham & Donald, 2001, p. 3; Joyce, 1999, p. 5).

The traditional budgeting methods are basically tools for regulating and controlling expenditure. They spell out the amount of money to be spent for a particular purpose (Joyce, 1999, p. 6).

As the financial year progresses, line-item budgets dictate that spending must be within the budgeted amount unless formal budgetary amendments are permitted (Lane, 2006, p. 4; Fielding, 1999). While these traditional budgetary methods are useful in helping the management in internal regulation, they are not as beneficial when it comes to policy and decision making. These types of budgets only assure the top management that money has been spent for the approved purpose but do not what the money has accomplished (Melkers, 1998, p. 23; Miller, Hildreth & Rabin, 2001, p. 3).

In the traditional budgeting methods, organizations develop long term strategies and break them into annual budgets that are formed as projections. At the end of every fiscal year, actual performance is compared with the projected figures, and the variance is determined. Analysis of traditional budgets is considered simple and lacks sophistication in terms of flexibility. Essentially, actual- budget variance is normally used for amending funds for the subsequent plans and budgets, and for tracking performance in different departments (Rubin, 1996, p. 35; Robinson, 2007, p. 4).

In contrast, performance-based budgeting is more geared toward policy/decision making. They help in connecting plans, measurements, and budgeting (Segal & Summers, 2002, p. 4). They expand the thinking horizon of the policymakers and departmental heads. Performance-based budgeting offers excellent information on the impact of the budget decision and provides enhanced budgetary flexibility and motivation for creating budget savings (World Bank, 2003, p. 2). Performance-based budgeting also permits continuous evaluation of the expenditure trends and therefore reinforces decision making and oversight. It increases economic accountability to all the stakeholders and supports good governance and evaluation (Joyce, 1999, p. 11; Miller, Hildreth & Rabin, 2001, p.5).

Performance budgeting does not mean that the management has to give up all of their control over expenditure; instead, it gives them the authority to evaluate expenditure all the time. They do so basically to spot check and to rectify specific setbacks. Performance-based budgets also give the common citizens power to hold the elected officials accountable for not attaining the performance target as per the budget and within the money already spent (Segal & Summers, 2002, p. 8).

The working of the Performance-Based Budgeting

This type of budgeting requires Key Performance Indicators linking resource allocation and performance measures (Lane, 2006, p. 4). Performance-based budgeting is similar to a Corporate Performance Management structure, where strategy and planning are linked to implementation and measurement (Hatry, 2006, p. 13). It is a balanced scorecard approach in which the Key Performance Indicators are defined and assembled between bases and impacts of the budgetary system in which monetary systems and business operations are tracked. In addition, connecting resource allocation with the performance provides vital information on how much money is required to attain a given level of outcome (World Bank 2003, p. 5-6).

Numerous public organizations have failed to determine how much it cost to achieve a specific outcome, basically due to challenges arising from the indirect allocation of funds. This necessitated the introduction of an activity-based costing structure. Activity-based costing was a dominant concept in the private sector, much less than the public sector organizations until the inception of performance-based budgeting. Performance-based budgeting has introduced a rational but tougher budgeting approach in both sectors (Aristovnik & Seljak, 2009, p. 6).

The top companies have incorporated numerous business intelligence applications and procedures to attain corporate performance management (Grizzle, 2001, p. 9). Initially, steps in implementing the performance-based budgeting involve the formulation of the organizational plans and defining strategies based on major financial and non-financial measurements (Hatry, 2006, p. 5). The measurements and plans form the basis for the next step. The strategies and the budget are communicated to the forefront employees who perform routine activities. The targets and thresholds are then transferred from the planning system to the organizational activities evaluation engine that involuntarily notifies the management of any setback (Hatry, 2006, p. 5-6; Ingraham & Donald, 2001, p.10).

The performance of the organization is constantly reviewed and re-estimated, and if required, budgetary amendments are made. If the performance of the business massively deviates from the plan, business strategies are re-assessed because a number of the earlier assumptions may have changed. The ability to establish a performance-based budgeting control depends on the initial understanding of the business through uniform and consistent data, although the organization (Lane, 2006, p. 12). Uniform data ensures that there is a distinct information warehouse where users can follow and assess the path of the strategy. Implementing performance-based budgeting in public is not that easy, but given the dynamic nature of the business and political environment, it is very significant (Miller, Hildreth & Rabin, 2001, p. 10).

Most governments use performance data to account for their funds they have appropriated in their projects to the parliament and the general public, besides self-regulation. The numerous goals necessitate a number of measures to assess whether the set goals have been achieved, given the number of resources allocated for those purposes. State agencies differ significantly in the effort to utilize performance measures as their budgeting/management instrument (Segal & Summers, 2002, p. 13).

Advantages and disadvantages of Performance-Based Budgeting

Performance-based budgeting has clear objectives. Many organizations experience numerous problems as a result of obscure objectives. Performance-based budgeting necessitates setting up of specific objectives and fundamental goals for the subsequent year. For instance, the goal of many businesses is to generate extra revenues. The generation of extra revenue is not specific and therefore defined goals such as business positioning, which can enhance revenue generation, is an example of a clear objective. Business positioning involves other activities like product promotion, which are quantifiable (Robinson, 2007, p. 5).

Performance-based budgeting enhances business/organizational accountability. This type of budgeting makes it more difficult for data manipulation or fraud by the people in charge since it tracks all the activities. In essence, performance-based budgeting allows the top management to demand the results of the laid down strategies or plans within a specific period. It exposes the low-performing employees or departments, necessitating suitable action to avert the same (Segal & Summers, 2002, p. 9).

In this case, performance-based budgeting enhances overall business performance since employees have full knowledge of the repercussions involved. Performance measures can also identify high-performing parts of the business, which requires additional investment to maximize product or service efficiency. Information acquired from the performance-based budgeting enables the business to adjust their goals in accordance with the prevailing conditions (Grizzle, 2001, p. 7; Segal & Summers, 2002, p. 10). Last but not least, performance-based budgeting expands the horizon of thinking. It helps to avert what is known as black box operations. Black box operation refers to organizational goals that are restricted to one particular element of the organization. Performance-based budgeting removes such an inferior way of thinking and facilitates the expansion of business goals (Miller, Hildreth & Rabin, 2001, p. 11).

Nevertheless, there are a number of limitations linked to performance-based budgeting. Performance-based budgeting only emphasizes on goals and targets. For instance, it may set a goal of 200 vehicles to be bought in the company within a particular, fiscal year but do no set the limit of expenditure for each vehicle. Therefore, performance-based budgeting does not answer the fundamental questions such as the money to be spent on a particular item and the suitability of the item for the intended purposethe budget which provides limits answers to such question. Budgets with only targets and goals can be excessively indefinable, resulting in imprecise prediction and excessive expenditure (Hatry, 2006, p. 14; Government Finance Officers Association, 2007).

Another weakness of performance-based budgeting is in the performance measurement. Even if a budget was cohesive and is envisaged to see the project to its completion, defining the completion can prove to be very challenging. Some of the goals set by this form of budgeting are vague. The organization may have contradictory opinions on the goals that have been achieved, making it hard to identify the end of a project or its turning point. Performance-based budgeting also does not provide a clear cost framework to be followed and has no room for flexibility problems (Hatry, 2006, p. 15; Aristovnik & Seljak, 2009, p. 4-5).

Conclusion

Performance budgeting is as systems of planning, budgeting, and appraisal that focuses on the link between budgeted funds and expected outcome. Performance-based budgeting has been dominant in the private sector for a very long period of time but is also gaining access to the public sector. It has numerous advantages over the traditional budgeting methods; however, it also has some weaknesses. Despite these weaknesses, performance based budgeting is a way to go for the future. It should incorporate elements in other budgetary methods to make it an all-inclusive budget.

References

Aristovnik, A., & Seljak, J. (2009). Performance budgeting: selected international experiences and some lessons for Slovenia. MPRA Paper 15499. Germany: University Library of Munich.

Axelrod, D. (1998). Budgeting for Modern Government. New York: St. Martins Press.

Fielding, S.J. (1999). The Benefits and Threats of PBB: An Assessment of Modern Reform. Public Budgeting and Finance, 19 (3), 315.

Government Finance Officers Association, (2007). Performance Management: Using Performance Measurement for Decision Making. Recommended Practice 2002 & 2007.

Grizzle,G.A.(2001). Performance measures for budget justifications: Developing a selection strategy. In.G. J. Miller, W. B. Hildreth, & J. Rabin (Eds.). Performance-based budgeting. Boulder, CO: West view Press.

Hatry, H.P. (2006). Performance Measurement: Getting Results. London: The Urban Institute Press.

Ingraham, P.W., & Donald, P. M. (2001). Beyond Measurement: Managing for Results in State Government. In Dall Forsythe, ed., Quicker, Better, Cheaper? Managing Performance in American Government. Albany, New York. Rockefeller Institute.

Joyce, P. G. (1999). Performance-based budgeting. In R. T. Meyers (Ed.), Handbook of government budgeting. San Francisco, CA: Jossey-Bass Publishers.

Lane, C. S. (2006). Performance Based Budgeting  Putting The Pieces Together. Deputy Director, Office of Planning and Budget, Division of Administration, State of Louisiana.

Melkers, J. (1998). The State of the States: Performance-based Budgeting Requirements in 47 out of 50. Public Administration Review, 58(1), 22-45.

Miller, G. J., Hildreth, W. B., & Rabin, J. (2001). Performance-based budgeting. Boulder, CO: Westview Press.

Robinson, M. (2007). Performance Budgeting, Linking Funding and Results. New York: Oxford Press.

Rubin, L. (1996). The Politics of Public Budgeting. Chatham, New Jersey: Chatham House.

Segal, G., & Summers, A. (2002). Citizens Budget Reports: Improving Performance and Accountability in Government. Reason Public Policy Institute, Policy Study No. 292, p. 4.

World Bank (2003) Performance-based budgeting: Beyond Rhetoric. Poverty Reduction and Economic Management, 7, 1-4.

In business world interaction of individuals has been a key factor at their success in terms of achieving their goals and also in the assurance of smooth running of their departments. Group dynamics has increased the effectiveness of those organizations through proper understanding of each individual through communication of the members.

The leadership in the group dynamics is also a core value at the business performance depending on the perceptions of fellow members towards that leadership. This article analyses the group dynamics in terms of its importance, leadership, the leadership source and also interdependence in terms of making decisions for each and every member.

In group dynamics, people interact at a given environment which can either be in social environment business environment or in a social environment. Our main concern is in the business environment where group dynamics has been an important tool in organizations in enabling them to perform their duties and also achieve their goals effectively. The performances of businesses at the current situation are determined by the degree of the effectiveness of group interactions.

These interactions are between individuals who working at the same level and those who are working at different levels of work in organization they are working for. For instance individuals who are working at the same department are likely to do a better job if they have good relations to each other which can only be brought through group dynamics (Levi, 2001, p. 67). Group dynamics importance includes, first it enables employees to have a common goal as stipulated by the organization they are working for.

Through group dynamic they will understand each other better like a friend and not a stranger. Secondly it will enable all the individuals at the organization to view each other as a colleague since through group dynamics people will eliminate dominance of some members. Therefore all members will have a will an obligation to facilitate at the achieving companies objects.

Companies/ organizations performances are highly depended on personalities of individuals who are working for that organization. Therefore for a good organization of a business we need to organize employees and all the stakeholders from the individual level through group dynamics (McNamara, 2010, p. 1). Finally it is advisable to use group dynamics since individuals tend to perform their duties better, especially if they are working with individuals whom they know and understand than people they dont know

Every business has its objectives as stipulated by the organizations charters and other legal documents of that organization. Therefore it is the main agenda of each and every business to achieve to those goals. Group dynamics has been great self drive for individuals in achieving the mutual goals of organizations. Positive interdependence enables individuals to put their individual efforts at their work which in turn facilitates the achievement of the organizations goals.

Therefore interdependence gives people power to make decisions, monitor their performance therefore enable them dedicate their efforts so as to carry out their dedicated roles by the business. Interdependence makes each individual feel guilty if he/she has not done his/ her part therefore this serves as a drive for each member to deliver the part he/ she is allocated to do.

Although research on groups has always been helpful to the businesses sometimes it has proved unworthy especially if it does not touch key issues. In some business group dynamics does not perform a major role in achieving the goals and also in the smooth run of the organization.

For instance in organizations where individual efforts are highly regarded than collective bargain, then involving group dynamics will destabilize the business as a whole since individuals who have a bigger role will tend to relax with a claim of equality or fair distribution of roles while those with relatively small role will tent to complain for additional roles added to them. In some cases if groups are taken on the negative side them the relevancy of the research will be questionable.

If researches about groups are under influence of any parameter for instance culture, gender or even race in a diversity world there is likelihood of that research being irrelevant in the sense that it will try to avoid some key factors about that research of groups. In organizations where individuals have different interests then, with introduction of group dynamics may cause problems because each member has a different goal to work for.

Both groups and individuals play important roles at the working environments at influencing the performance of businesses. Although both are useful, each will be suitable at a given environment. For instance in a big company where group dynamics is more effective than using individual effort will destabilize the operations of a business while in organizations where individual efforts are highly effectively then incorporating group effort will also affect the smooth run of the organization.

In most cases groups tend to be more effective than individual since most companies and other organization success is based on networking, therefore group dynamics is very important. In groups effectiveness is easily achieved due to the diversity of ideas from the members, collectiveness in solving the problems and also moral boost from each member for greater productivity and meeting set targets.

Finally collective efforts of a group proves to be more effective since one will do his /her part in anticipation of other will do their part which leads to achieving the mutual objective of the business (Ambrus, 2009, p. 8-12).

Group cohesiveness is the state of a group being able to stick together based on goals that organization intends to achieve. Cohesiveness of groups is brought about by either rules or sometimes the intensity of the matter or goal concerning that group. Cohesiveness is key tool in ensuring that groups achieve designated targets.

Group cohesiveness enables groups to run smoothly, improve productivity, ensure full participation of all the members, and makes member accountable for anything that they does. It also improves morality of performance of each member. In my group cohesiveness can be improved though several ways, which includes first though explaining to the members importance of their group that is why they are needed at the group, their groups objectives, and their roles at the group.

Secondly, the group should have roles that govern it so that any member who goes against the group is either punished in a particular manner or thrown out of the group depending on the intensity of the matter. Thirdly, the group set clearly the goals and the role of each member at achieving that goal for instance in cleaning environment should specify which members should sensitize the dwellers in the areas they wish to clean (Seashore, 2003, p. 91).

Social influence has always been a factor in decision making in both business world and other social organizations. Firstly, decisions can be made through consensus building between the members. Therefore any decision made through consensus is a mutual decision in which all some members either did not agree with their full decision or part of it. In consensus each of the opposing teams will sacrifice part of their demands in order to get another favor from the other.

Secondly, social interaction can also influence decision making via voting from which part of the members are objecting while others are supporting therefore any winning team with majority is assumed to be the decision of all the members. Members can be encouraged to accept proposals at their working places through giving workers better deals that is giving out proposals that have a touch at the lives or that have a benefit to them.

Therefore each proposal should at least have a benefit to them. Secondly, team leader should include members in availing those proposals so that they can be part of those proposals and also ensure that their interests are catered for. In discouraging the acceptance of proposals at work place one can either present proposals that have adverse effect to the members for instance in a company a proposal to decrease a pay of the workers will automatically be rejected by them since their welfare is worsened off.

Secondly, if decisions made concerning the groups, members are not involved then there is likelihood that members will not accept those proposals because of feeling that they are down looked upon by leadership.

For the smooth run of a group a leader is highly required to manage that group. Leaders act as overseers. That is, they ensure that every activity of the organization is carried out well as prescribed by the group for instance leaders are the one to prepare the calendar of activities at a given time.

Leaders organize their members by assigning then duties and roles that they will perform. Leaders also coordinate the activities of each member for a mutual aim of achieving organizations goal. Generally leaders are the main decision makers in the in any group since not all the decisions can be made by all the members.

Yes, leaders can emerge from groups through experience that is long serving members who have acquired a lot of knowledge concerning that group can be chosen as a leader. That is why most leaders in business world are chosen from those with experience.

Also leaders can emerge from groups especially those with special talents, interests, and dedication. Talented people have proved to deliver in their groups due to the personal sacrifice to the roles they have acquired. Perception of group members to the leadership is of great importance because it is through leadership that members will either accept or reject that leadership.

For instance if perception of members to the leadership is positive then members will cooperate with that leadership in its duties and these will ensure that the group achieves its objects but if the perception of members to the leaders is negative then this will disrupt all the communication between the leaders and other members (Higby, 2002, p. 1). Therefore negative perception will deteriorate all the activities of that group.

Teams comprises of small groups of individuals with a common goal or objective while working groups is a temporary set of entire no individuals with a mutual goal. Teams are more effective in some situations compared to work groups because teams tend to have a longer time than work groups in carrying out their responsibilities.

Besides team shave leaders who gives guidelines on the activities to be carried out by the team members while work groups only arises when there is an activity to carry out therefore there are either temporary or no leaders. There are several situations that teams do better work groups, first work group works are temporal therefore they will only perform a specified task and seize to exist.

If time for instance has elapsed there is likely of poor performance of their activities while teams are not temporal therefore they are likely to perform their activities effectively since there is no time limit. Work groups have temporal or no leaders hence any activities to be carried by the leaders are likely to cause problems on the side of work groups (Lesmeister, 2004, p. 1). For instance in organizations that are fighting for workers rights cannot be temporal because it is a continuous process.

Finally it clear that individual group dynamics are important in ensuring smooth running of businesses. Through leadership of groups which are accepted by the members, there is likelihood of a good performance of those groups. Collectively, individuals will bring in new ideas, experience, and morality in productivity and performance therefore it is advisable to adopt group dynamics than adopting individual approach.

In addition groups should have clearly defined goals to minimize the conflicts of interest between the members. Though groups have importance in the business world sometimes they are not effective therefore it is advisable to use them where they are reliable. Here we have talked about group dynamics and group cohesiveness. Also we have seen how group interaction affects the decision making.

Reference List

Ambrus, A. (2009). Group vs Individual decision-making. Web.

Higby, M. (2002). Teaching more than you know. Web.

Lesmeister, M. (2004). Leadership for effective groups. Web.

Levi, D. (2001). Group Dynamics for Teams. California. Barnes & Noble.

McNamara, C. (2010). Group Dynamics: Basic Nature of Groups and How they develop. Web.

Seashore, S. (2003). Group Cohesiveness in the industrial workgroup. New York. McMillan Publishers.