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Within the scope of this research, we will evaluate the organizing function of management of Berkeley Group Holdings, and will attempt to identify the critical factor that enabled the company to maintain that success. “The Berkeley Group is a leader in the business of urban regeneration, with over 95% of development taking place on Brownfield land.” (Berkeley Group corporate website) The company’s management claims to have vision needed to provide high quality projects, specifically in the field of urban regeneration, and team of experts capable of achieving results on any task provided. “The Berkeley Group was established in 1976, with the founding of Berkeley Homes in Weybridge, Surrey.” (Berkeley Group corporate website) In more than 30 years that followed, the Group has completed numerous successful development projects for different clients. “Brands include St. George PLC, Berkeley Homes, St. James, St. Edward Homes, SAAD Berkeley, Berkeley First, Berkeley Strategic and Berkeley Commercial.” (CI)
Berkeley Group Holdings, as well as any other development holding in the UK, or construction and development industry at large, is a perfect example of capacity-constrained companies that have to address the challenge of perishable revenue opportunity from their productive assets. An important consequence of the inherent characteristics of products and services and of service components in products is that the product cannot be produced without customer interaction - production and delivery processes of services are idle unless a customer is being served.
For a number of reasons, fluctuating demand is an inevitable fact of life for Berkeley Group Holdings. There are times when demand exceeds supply and at other times supply exceeds demand. For Berkeley Group Holdings, the demand-supply mismatch results in situations where revenues and profits are not maximized. Every firm seeks to generate the maximum profits from its assets; this goal requires Total Quality Management (TQM) for long-term profit maximization. The firm needs to manage demand and supply such that it attracts and serves the segment mix that provides the maximum total profitability.
The key in the development industry is in the timing of demand as much as in volume. The task may be more one of shifting rather than building demand. This is a daunting task, especially when the causes for demand patterns may be uncontrollable, such as weather or the school year and other institutionally imposed events such as filing taxes or reporting quarterly earnings. When the demand is predictable and some behavior can be modified, firms must find a way to shift demand when and where possible. Before a person attempts that, one needs to have a sense for the profit implications of shifting demand, because the quality of demand is just as, if not more, important than its quantity. Quality of demand refers to how desirable the customers are. Berkeley Group Holdings should be relentless in making sure that the profitability of the mi of segments making up demand is maximized. Segments are selected to be served based on the long-term profitability of the customer. Therefore, demand management should consider the timing of the demand as well as the profitability of the demand being served at all times.
A measure of how well Berkeley Group Holdings is doing is the profits generated from its assets. This is TQM, plain and simple. Demand management within TQM should aim to manage volume and revenues generated by the firm for maximum long-term profits. Capacity management, at the same time, should aim to minimize the costs of production along with maximizing utilization for maximum profits. Berkeley Group Holdings will seek to understand customer behavior to manage customer demand. The management will also seek to cost-effectively adapt capacity to the demand level without affecting the customer experience. The objective of TQM is to manage customer behavior and the capacity utilization of the firm such that returns from assets are maximized)
Demand analysis for Berkeley Group Holdings is a critical review of the profitability of customers being served at any given time so that demand management methods may be designed effectively. Demand analysis begins with detecting and identifying the demand patterns. Are there discernible nonrandom fluctuations in demand? Berkeley Group Holdings must first establish the cycles of demand in terms of the time frame across which demand fluctuations occur. By mapping customer interactions over a demand period, Berkeley Group Holdings can identify all of the ‘peaks’ and ‘valleys’ in customer demand patterns. Since each time frame has a different pattern of fluctuation, firms must identify when they occur in each time frame. What is the extent of the fluctuation—how high are the peaks and how low are the valleys? Berkeley Group Holdings might want to focus on those peaks and valleys that display the highest variance from the desired levels of capacity utilization.
As the timing and patterns of the fluctuations are determined, it is also important to establish at which points in the firm customers interact and to identify the utilization patterns at each point of customer interaction. Managers must look at their blueprints and determine the demand patterns, particularly at the fail-points, for all of the appropriate time frames. The variation in significance of the fail-points makes it imperative to prioritize capacity allocation decisions according to their significance in affecting customer value.
It is necessary to identify the customers or the segments that interact at the different times and to determine their prospects for profitability. Different segment-mixes are likely to patronize the services at different times. Further, the proportion of each segment within the total number of customers served at any given time could be different. To enable prioritizing capacity allocation, the size and profitability of each segment need to be examined. The size relaates to the volume of revenues received from the customer, whereas profitability includes the revenues as well as the costs associated with serving that customer.
TQM objectives cannot be met unless the firm understands customer behavior in interaction patterns over the relevant time frames. Firms must use their understanding of customers to determine what causes the fluctuation in their demand patterns. Why do these patterns occur? What factors affect not just the customers’ purchasing patterns but also their consumption patterns? When customers’ consumption activities require interaction with the firm, it would require identifying the demand patterns in each interaction activity and its effect on the firm’s capacity.
This is where customer knowledge is critical. Without an understanding of the customer’s purchasing and consumption decisions, it would be impossible for Berkeley Group Holdings to attempt effective demand management. Why do customers in each segment interact with the firm at the times that they do? Can that behavior be changed and if so, what will change that behavior? Once that is determined, it becomes apparent that the next question is: Are the costs of changing that behavior worth the incremental effect it has on total profits? The answers to these questions lead to possible avenues for the firm to explore in its attempt to change customer behavior.
Capacity analysis complements demand analysis and begins with identifying the processes in the blueprint that relate to each customer interaction. Very simply, the capacity in terms of servable customers for each value-creating process supporting each point of customer interaction needs to be calculated. Berkeley Group Holdings must identify what productive factors can be profitably adjusted to demand patterns by increasing or reducing capacity without affecting the quality of the customer experience. The alignment of the firm’s assets and resources to demand fluctuations will require an analysis of the capacity of the productive factors of the firm.
Productive factors of the process are represented by capacity in the number of customers that can be served by Berkeley Group Holdings. TQM is vitally important in making this capacity used as efficient as possible. With activity-based costing methods, the group’s costs can be assessed against their contribution to customer value. Berkeley Group Holdings’ attempt to keep costs down is based solely on financial criteria. Indeed, any adjustments to capacity that must be made to keep costs down must be based on their impact on customer value. Consider how some common practices to adjust capacity might affect customer value. Firms attempt to shrink capacity during low periods of demand. Practically speaking there is a limit to this – development companies cannot shrink or expand the number of specialists employed in particular high technical segment within a day or a week, for example. Customer-focused managers will consider the impact of these actions on customer value.