Barclays Plc 1

Financial Analysis of Barclays Plc.

Terms of Reference

This study is based on the financial analysis of Barclays Plc for the last five year. In basic

financial literature, this report highlights the current performance of Barclays Plc and its effort to

deliver the desired targets to its shareholder. One of the majoranalyses of this report describes the

shareholder’s value for Barclays Plc. Second phase of this report explains the sources of finance

for Barclays Plc and evaluation of its long term business policies to achieve its objectives. Final

part of the report is based on the evaluation of company’s shareholder equity, by assessing net

asset value and price/earnings ratio.

Procedures of Investigation

For the purpose of investigation, this study utilizes the financial information available in

financial/annual reports, statements and financial analysis report from different brokerage house.

This process involves assessing the documents, observations and interviewing company’s

employee.

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Background of the Study

The aim of this study is to analyse the financial condition of Barclays Plc in three

different perspectives, shareholder value, sources of finance and current valuation of the equity.

This analysis is based on the information released from the company in the form of annual

reports, financial and stock indexes. Barclays Plc provides three different financial services that

include, retail banking, wealth management, corporate and investment banking (Barclays Plc,

2014). All the operations of Barclays Plc are integrated across the globe. Barclays Plc.will

provide services to small and large business, corporation and government institutes. Business of

Barclays Plc is spread across the world in different market to support customer and clients need.

1) Findings and Analysis of Information

1.1Barclays Plc Shareholder’s Value

Shareholder Wealth Maximization (SWM) principle postulates that ultimate operating

goal and objective of any public organization is to maximize its return on equity capital. This

defines the operating goal of the corporation and efficient allocation of its resources, which

yields maximum return for the shareholder’s. Key factors in understanding the SWM, is tofocus

on the motives and interest of company’s stakeholder. The stronger form of SWM principle

argues that main objective of a corporation is to maximize its wealth, even within any set of legal

or ethical constraint. Ultimate purpose or the goal of an organization is aligned with the SWM

theory. Therefore, this part of the study assesses the business goal of Barclays Plc and its

performances over the past five years.

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From the analysis of Barclays Plc, it can be observed that there is a significant change

inrevenues and net income of the company. Net revenue for FY2010, was £32,204 million,

which is followed by £33,033 in FY 2011, £25,609 in FY 2012, £28,444 in FY2013 and £25,768

in FY2014. This shows volatility and overall downward trend in the revenues of the company.

Similarly there has been a significant decline in the net income of the company, i.e. £4,549

million in FY 2010 and a sudden decline to £845 million in FY 2014.

For financial year 2014, company’s leftover revenue or operating margin is 7.06%,

however, net operating income for first quarter FY15, is £5.935 million. This represents a

negative trend in the performance of the company. Meanwhile, an increase in dividend per share

is observed from 5.50p to 6.50, i.e. 1p form FY 2010 to 2014. There is also a significant decline

in the adjusted earnings per share from FY 2010 (EPS 28.15p) to FY 2014 (EPS 17.30p), this

represent 61.45% decline of EPS in past five years. However, the changes in EPS and DPS

represent the company’s performance and overall market performance(Financials-Morningstar,

2015).

1.2 Gain on Investments

Gain on investments can be explained as capital gain from the sales of assets on the

investments. Data extracted from the balance sheet of Barclays Plc depicts an increase of total

loans and advances of £34bn to £504bn. However, an increase in customer accounts of £19bn to

£447bn from FY 2014 to 1Q15 is observed and total shareholder’s equity increased to £67.1bn

which was £66.0 in FY14. Similarly, an increase in profit after tax is £0.5bn. Net Asset Value

(NAV) and net tangible assets value of the share also showed an upward trend in past year, i.e.

337p increase from 288p in FY14.

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2) Sources of Finance

2.1 Financial Leverage

2010 2011 2012 2013 20140

5

10

15

20

25

30

35

Financial Leverage (%)

Financial Leverage

Figure 1: Financial Leverage (%)

Financial leverage is defined as the extent to which an organization uses fixed income

securities including debt and preferred equity. A high degree of financial leverage results in high

interest payments which has a negative impact on the organization’s bottom line earnings per

share. As per Barclay’s bank is concerned, the company has high financial leverage. In 2010, the

financial leverage was calculated to be 29.29 which decreased to 28.13 in 2011. As per the

above chart, it can be witnessed that the company is focusing towards minimizing the financial

leverage in order to boost up their productivity in terms of earnings per share. In the year 2012,

the company had a total financial leverage of 27.81 which further declined to 21.52 in 2013.

Moreover, in 2014, the financial leverage increased to 22.80. The major reason behind high

financial leverage is that the company is largely dependent on external debt and has issued a

large sum of money through debt financing (Barclay’s 2014).

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2.2 Debt to Equity/Gearing Ratio

2010 2011 2012 2013 20140

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

Debt to Equity

Debt to Equity

Figure 2: Debt to Equity Ratio

Similar to financial leverage, the gearing ratio or the debt to equity ratio is also showing a

declining trend. In 2010, the debt to equity of Barclay’s bank was calculated to be 0.56 which

further declined to 0.45 in the next year (2011) which remained constant in 2012. The low debt

to equity ratio shows that the company is more focused towards minimizing the total debt of the

organization. After the bailout of Barclay’s bank in 2008, the management has formulated

different strategies and policies to minimize the negative impact of debt on the overall

performance of the company. In 2013, the company was reported to borrow large amount of

funds from external sources due to its hampered conditions.

The gearing ratio calculated in 2013 was approximately 1.42 which means that the

company is taking high leverage thus possessing high risk to the investors and other shareholders

of the bank (Morning star, 2014). However in 2014, the company showed remarkable

performance and were able to minimize its gearing ratio to ever time lowest of 0.36. Moreover, it

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has also been researched that the leverage ratio of Barclay’s bank was regarded as the lowest as

compared with other major banks of UK.

2.3 Total Debt

2010 2011 2012 2013 20140

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Total Debt

Total Debt

Figure 3: Total Debt (USD$)

The above chart shows the total debt acquired by Barclays bank from the year 2010 to

2014. In 2010, the total debt of the company was reported to be $1.4billion which was further

increased to $1.5billion in 2011. In 2012, the company reduced its total debt and was able to

report a figure of $1.43billion. Moreover, the total debt was also declined in 2013 and was

reported to be $1.2billion. However, in 2014, the total debt of Barclays bank increased to

$1.29billion. This fluctuation total debt can be related to the fact that the company is closing

down its operations from various parts of the world. The selling of company’s assets was used to

pay off the interest on the loan taken from external sources (Barclay’s, 2014). Moreover, the

corporate objective of Barclay’s bank is to create and develop long term relationship with its

shareholders.

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3)Evaluation of Current Shareholder’s Equity

3.1 Net Asset Value per Share

To explain the net asset value per share of Barclays Plc, current market price of a share is

considered. Net asset value (NAV) is calculated by Net assets of the company divided by number

of outstanding shares. Net asset value is calculated to reflect the current value of the stock. In

case of Barclays Plc, calculatedNet asset value and net tangible asset value per share depicts an

increase to 337p from FY 2014: 335p, and 288p FY 2014: 285, respectively. From the available

NAV of 1QFY15, it can be concluded that there is a more chance of higher bid price per shares

by the investor as NAV of Barclays Plc is relatively higher from the past five year.

¨ NAVPS = Net Assets / Number of outstanding Share

3.2 Price/Earnings Ratio of Barclays Plc

Price to earnings ratio depicts the company’s share price to its earning per share. Simple

formula is utilized to calculate P/E Ratio, i.e. Market value of the share divided by earnings per

share (EPS). From the analysis of Barclays Plc quarterly results, and the current market price per

share (i.e. 220.83 as of 23rd November, 2015) and EPS of 17.30 (FY2014), price to earnings ratio

is calculated.

PE Ratio = Price per share/Earnings per share

= 220.83 /17.30

= $ 12.76.

Recent analysis of price to earnings ratio (23rd November, 2015), is $12.83 (Hargreaves

Lansdown, 2015). This represents an increase in the earnings of Barclays Plc and decline in the

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current market price per share. To conclude, current price/earnings ratio is $ 12.83 which is

higher than financial year 2014.

Conclusions

To conclude, this report has identified the current financial health of the Barclays Plc, and

analysed few key ratios to predict the value of the firm. In the past five year analysis it was

observed that shareholder’s value of Barclays Plc, has declined and a similar pattern is observed

in earnings per share.However, the overall profits before tax increased in 1QFY15, 14% i.e.

£2,104mn. Barclays Plc has achieved significant growth in investment banking with 37% to

£675mn, and 23% rise (£295mn) in the banking sector at Africa.

By analysing the sources of finance for Barclays Plc, it was observed that company is

more focused on reducing its debt to equity ratio. However, in FY14, total debt of Barclays Plc

increase to $1.29billion. Similarly, NAV and PE ratios are stable and depict a substantial growth

in shareholders’ value. However, Barclays Plc is not performing to achieve its desired targets

and fluctuation in the debt is associated with the fact that company is closing its operations in

several countries to minimize its losses.

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Task 1: Scenario – Enviro-Cars Ltd

Introduction

The scenario understudy for this report pertains to Enviro-Cars Ltd, a car dealership

business in England, suffering from decreasing sales due to a recent upheaval of their

experienced staff. Enviro-Cars Ltd is now trying to re-establish their market presence and use

enhanced personal selling to increase their decreasing sales.

Discussion

1. Explain how personal selling at Enviro-Cars Ltd supports other promotional activities

In the words ofauthors Manning, Ahearne& Reece (2011) the concept of personal selling

refers to a type of organization where employees sell the product directly to the customer after

holding face to face meetings. The primary goal of the personal selling team is to encourage the

customer to make the purchase through their actions, attitude and competent knowledge about

the product. The cliental for Enviro-Cars is twofold, B2C and B2B. B2C refers to private

customers who require a car for their own personal use (Ta, Esper& Hofer, 2015, p.133).

Whereas B2B refers to those business customers who require cars for their business use (Vargo&

Lusch,2011, p.183). For both the two clients the sales team pitch is different. For private

customers the focus of the sales pitch should be based on how economical the cars are at Enviro-

Cars. The personal selling team should be well versed in the price of the cars offered by Enviro-

Car and the price offered by competitors. In contrast when negotiating with business customers,

the sales team for Enviro-Car should articulate the benefit of bulk buying and how the features

offered by Enviro-Car’s product can enhance the productivity of the business.

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2. Compare buyer behaviour and the decision making process in different situations with special

reference to Enviro-Cars Ltd.

In addition personal selling can also support other promotional activities that Enviro-Cars

can adopt to boost their sales. Recently Envrio-Cars decided to align their positioning strategy

with the provision of environment friendly car which are economical in price. For this particular

aspect the role of the sales team is important in instilling the concept of environment friendliness

in the consumers who visit the distribution centres with the intention of purchase. The

importance of personal selling is also extended towards other modes of promotion like

advertisement and discount offerings. Most scholars believe that personal selling does not have a

major role to play in the process of advertisement (O’Guinn, 2014). However, one of the factors

of personal selling is attention to detail, which is essential in a good advertisement campaign.

Attention to detail can allow the marketer to redirect the attention of the audience to an area of

their choice; in the case of Enviro-Cars that choice is environment friendly products and

economic pricing. Another promotional platform is Sales promotion. This is a short term period

where the organization tries to boost their sales through various different aspects such as

discount vouchers. Personal Selling is again at the helm of this promotional campaign as their

task is to build confidence among the target audience to make the purchase and benefit from the

discounts (Czinkota&Ronkainen, 2012).

While personal selling is critical for Enviro-Cars to boost their sales, another dimension

that the organization needs to focus on is the buying behaviour process of the customers.

According to author Johnston & Marshall (2013) the buying behaviour process includes the

following steps as stated in Fig1:

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Figure 1: Consumer Decision Making Process

Source: https://goo.gl/IRJXN1

For a product which requires a substantial amount of investment, like the acquisition of a

new house, will have a significantly lengthier decision making process as considerable thought

would be given to each of the five stages in the consumer purchase model (Tung & Carlson,

2015, p.864). In contrast, if the consumer is buying a new pair of shoes, the decision making

process will be considerably shorter as the consumer will directly move on to the last stage, post

purchase, that is the feeling of either regret of happiness of making the decision.

3. Analyse the role of the sales teams in the overall marketing strategy for the Enviro-Cars Ltd.

For Enviro-Cars the consumer’s decision making process will involve all the five stages

because the consumer is investing in to a product which requires prior information and the search

of alternate car vendors. At this point it is the job of the sales team for Enviro-Cars to develop a

successful marketing strategy based on personal selling and the consumer buying and decision

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making process. Any marketing strategy that is being designed is implemented by the sales team

eventually. Therefore, the strategies should be aligned along the capabilities of the sales team.

Additionally, the sales team can provide sufficient information based on their interaction with the

customers as to what the intended target audience requires. Weather they prefer environment

friendly cars or are they looking for cars that are economical in terms of price and the fuel

consumption. Articulating the entire information the marketing strategies can be designed

accordingly so that they have a higher effective rate.

Conclusion

Enviro-Cars is facing decrease in sales due to inexperience level of their staff therefore

they need to train their staff and better articulate the consumer buying behaviour in order to make

sufficient marketing strategies which can be implemented effectively through the sales team’s

personal selling ability.

Task 3: Scenario - Plastic Products Ltd

1. Explain with examples, how sales strategies can be aligned with corporate objectives in

organisations like Plastic Products.

One of the ways through which Plastic Products Ltd can inundate their sales strategies

with their corporate objectives is to decide a corporate strategy that will solely be based

on the sales results of the company. It is important to determine the overall goal of the

organization, for example is Plastic Product Ltd looking to increase their revenues, or are

they looking for further market penetration which would require the sales team to sale

more products (Ingram, 2012).

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Another approach to achieve the desired target of aligning sales strategies with corporate

objectives is through training the sales team in the art of personal selling. Elaborating on

the example of Plastic Products Ltd, they recently increased their regional sales force in

order to increase their customer base (corporate objective). To achieve this objective,

they can use the sales strategy of Personal Selling whereby Plastic Products Ltd can train

the sales team to be better negotiators and confident in being able to sell the products to

either business clients or private customers (Ravishankar, Pan &Leidner, 2011, p.42).

Communication can also be used as a tool by Plastic Products Ltd to align their sales

strategies with their corporate objectives. For example, the senior level management can

hold a meeting where they coordinate all the corporate objectives with the sales team so

that they can align their personal sales goals with the communicated corporate objectives.

2. Explain why the recruitment and selection procedures are important for Plastic Products Ltd.

The recruitment and selection process within any organization plays a vital role in

making sure that the employees recruited are best suited for the organization and can provide

enhanced productivity levels within the organization (Hassan, 2014).

As previously narrated recruitment is a costly process and if the right employee is hired

and trained they can add incremental value to the firm’s productivity. Furthermore, the

right employee is also loyal to the organization decreasing the turnover rate for the

organization (Taylor, 2014).

Without having a competent workforce, the organization can face work related issues

which can cause deadlines to be missed quality of workforce to be deteriorated (Townley,

2014).

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Furthermore, if the recruitment and selection process is flawed the increased

advertisement cost for rehiring the right employee can be detrimental.

Lastly without a proper recruitment and selection process the firm can face legal issues as

well. If the recruiter or the HR manager at Plastic Products Ltd selecting new employee is

inefficient or incompetent and undertakes discriminatory activities, the applicant can file

a lawsuit against the organization demanding justice (Armstrong & Taylor, 2014).

3. Evaluate the role of Motivation at Plastic Products Ltd. You should also explain how

Remuneration and Training can be utilised as tools for motivation within Sales Management.

The human resource manager at Plastic Products Ltd must articulate the importance of

motivational tactics in order to improve the moral of the employees. If the appropriate

motivational strategies are used Plastic Public Ltd can benefit from incremental employee

engagement where the employees take further accountability of the work they perform (Schunk&

Zimmerman, 2012). This in turn can increase the employee vigilance level with the work they

perform ensuring that the final deliverables are of high work quality.

In addition, high motivation levels among the employees can also increase their loyalty

levels with Plastic Products Ltd. If the employees are well motivated they will likely be able to

increase their association with the organization showing increased commitment levels.

Motivation can be done through different modes, either through extensive techniques like

Remunerations or intrinsic method like Training and development. Sales staff at Plastic Products

Ltd can be motivated either through better remuneration packages where the sales team is given

incremental financial support on top of their regular salary (Riters, 2012). However, some of the

staff members may not be motivated through financial benefits and may require intrinsic

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motivation like training and development. Training provides employees with the chance to

improve their professional career where they undertake better and new skills on the expensive of

the organization.

4. Explain how Plastic Products Ltd. can organise Sales activities in order to control of sales

output.

Three primary sales activities that can be used for control for sales output are; Order

Confirmation, Delivery Note and Invoice (Miao & Evans, 2013, p.79). Through these sales

activities Plastic Product Ltd can easily make sure that sales are delivered to the right client and

make future sales forecasts through accumulating the previous sales invoice data. This would

allow the organization to assess the overall demand of their products and make the necessary

future decision pertaining to the acquisition of raw material. Excessive raw material can increase

the overhead costs for Plastic Products Ltd, because it would also increase the storage costs

along with ensuring that the quality of the raw material does not deteriorate.

5. Explain with examples, how effective Sales Management can be supported by the use of

databases.

The use of technology is often used in CRM practices where client databases are

manufactured in order to keep a detailed list of all the client activities (Heller &Parasnis, 2011,

p.25). Plastic Product Ltd can better retain their customers through the use of effective sales

databases. Saving key personal and professional information about the customers can enable the

sales team to make better future decisions about the same client. Furthermore, better sales

scheduling can be done through effective sales databases. The time the client purchased a

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particular product to the time the product was delivered can be saved in the database (Ernst et al,

2011, p.297). This can allow the sales team to make appropriate feedback with the client.

Another benefit for the sales management team through effective database schedules is the

element of targeted marketing. Since the organization is aware about the preferences of the

customers they can make personalized marketing strategies for key customers.

Task 4: Scenario – Currys (Dixons Carphone)

1. Investigate opportunities for selling internationally into your chosen emerging market.

Currys can venture into the Indian market, which is considered one of the latest and

fastest growing economies. Recently, Indian Prime Minister NarinderModi initiated the Digital

India Campaign with emphasis on the use of technological goods (CXO, 2015). Since the Indian

economy at the moment is undergoing a technological change, it is feasible to operate in the

market and benefit from increased revenues and sales. The Indian electronic industry has grown

by 10.1 per cent along with the changes in the consumer preference. Recently India’s prime

minister visited the United Kingdom and agreed to new trade agreement thereby providing

Currays with an easier entrance in the Indian market (BBC, 2015). Another opportunity for

Currays is the increasing living standards of urban areas in India, where majority of the target

audience for Currays resides.

2. Investigate opportunities for using Exhibitions/Trade-fairs in your chosen emerging market.

Exhibitions or Trade-Fairs relate to the demonstration of goods and services to an

enlarged target audience whereby more people can witness the product being operational.

Certain key advantages of trade shows in India include:

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Generate lucrative, highly targeted business leads within the industry.

Get an idea about what is preferred by the audience and what is not. Currays can have a

clear idea as to which of their products should they market in the Indian market.

Increase brand awareness, with the trend of tradeshows increasing in India, it is easier to

increase the brand’s awareness.

3. Develop a Sales Plan for a product category of Currys suitable for your chosen emerging

market.

Sales Plan:

Step1: Increase the sales of Televisions provided by Curraysin India by 15%

Step 2: Increase the Sales of Television in the upcoming Diwali Festival along with a 15%

increase in Sales during the Christmas period.

Step 3: Decrease in inflation rates in 2014 as compared to 2013 has allowed the consumers to

increase their capital intensive expenditure. Emphasis by the Indian government on compulsory

digitisation has boosted sales for LCD and LEDs in India. Along with the growth in India’s

electronic market there has been a sharp increase in the sales of Home Theatres Systems and

other related products further strengthening Currays belief in venturing in to the Indian Markets.

Other improving stats within the Indian electronic market are the dominance of foreign players

who are operating in the electronic industry. Currently Indian Electronic Market is dominated by

Korea however Currays can provide higher quality products to a market which is quality

sensitive (EuroMonitor, 2015).

Step 4: The following plan shall be implemented in November 2015 and the outcomes are

expected to be met around mid-July 2016 during the festive period of Eid in India.

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Step 5: The budget allocated for this venture is 15 million pounds, where the conversation into

the Indian currency can allow Currays to benefit from a higher exchange rate.

Unit 8 – Research Project on Digital Music Services and Illegal Downloads

Task 1: The Research Proposal

a) Formulate and Record Possible Research Project Outline Specifications

IntroductionPeer to Peer or commonly referred as P2P and involves sharing of copyrighted files

without express permission by the copyright owners. Nevertheless, it is a business which has

grown since early 2000s, even after the introduction of the Digital Economy Act 2010 which

specifically addressed media policy issues pertaining to unauthorised sharing of digital media

leading to copyright infringements (Koegel, 2009, 4). Hence, sharing music specifically on

websites and allowing multiple users to download the data without express permission from the

copyright owners is considered illegal and is a direct violation of copyright law (Latif, 2010).

Nevertheless, this trend has grown to a point where people in the UK mostly download

illegal data off the internet instead of purchasing the CDs or DVDs of especially media content

such as music or movies (IFPI, 2010, 1). Furthermore, it is the various internet providers instead

of individual users who face liability for this infringement as individual users are harder to

identify. As per an article published in BBC News, internet service providers such as Talk Talk

and BT have argued that the Digital Economy Act 2010 is in conflict with the European Union

law as the Act as it states that ISPs are responsible for sending warning letters to individual users

downloading illegal data and to monitor their usage. However, it cannot be argued that the

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creative industry loses over four hundred million pounds per year in revenue due to illegal

downloading and P2P sharing (Tschmuck, 2010, 30).

Aims and Objectives of the ResearchThe aim of this research project is to investigate the online file sharing industry which

will allow digital music services such as Spotify to remain competitive.

The objective is to provide recommendations and form certain strategies for the senior

management and other shareholders of Spotify so as to allow them to keep ahead of their

competition.

Methodology for Collecting Data

Qualitative ResearchQualitative research usually entails fieldwork which allows the researcher to observe and

record events and other behaviour in natural environments as it is occurring. This research is also

based on participation as opposed to results and revolves around experiences and perceptions.

For the purpose of this research qualitative data collection through interviews will be adopted.

Primary ResearchPrimary research techniques for this research will involve gathering data via primary

collection data collection using semi structured interviews.

Secondary ResearchSecondary research or data collection for this research was carried out by collecting

information from secondary sources such as published articles, books, journals etc. This method

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is used most commonly as it allows the researcher to gather a large amount of data without the

hassle of fieldwork (Kumar, 2010, 62).

b) Factors Contributing to the Process of Research Project Selection The process of research can only be undertaken after a research problem has been

identified. Hence, variables affecting the problem or issue need to be acknowledged and each

problem should have a separate hypothesis which can be used to state the relationship between

two or more variables (Kumar, 2010, 64).

The main research problem in any research project has to thoroughly explored to allow

the researcher to clearly formulate the problem, its sources, various considerations etc. Hence,

factors affecting the research process include the four Ps – people, problem, phenomena and

program. Formulation of a research problem has to follow the below mentioned steps (Kumar,

2010, 64):

1. Measureable variables which can presume multiple values – dependent, independent and

extraneous.

2. Different measurement scales to classify the variables – interval, normal, ratio and

nominal scales.

3. Hypothesis is a potential statement of the outcome of the research which connects and

verifies the variables.

c) Critical Review of Key References for the Research project

Critical Review on Digital MusicVarious articles, books and journals have addressed issues stemming from illegal online

downloading of media for the music industry. Giants such as Warner Bros Records, Sonry Music

and Universal Music Group own around ninety percent of market share of recorded music sales

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globally (Koegel, 2009, 4). Online distribution of digital music or illegal sharing and distribution

of P2P file sharing hence is a direct threat to pre-existing channels of distribution for these

giants. These companies along with official bodies such as the BPI, IFPI and RIAA have

therefore taken a strong stance against illegal downloading and sharing of media online, and

regularly call for more stringent laws relating to copyright and file appeals to ISPs to block such

websites. Hence, this review relates to DMR and piracy related data and holds the view that

liable events have promoted digital piracy and the decline of the industry (Kreitz & Niemela,

2010, 1).

P2P networks can be defined as networks which enable internet users to share digital

content such as video, audio and text files directly along with real time data which includes

telephony traffic without being dependant on a central server. Hence, P2P content is an illegal

method of obtaining data but is still a common way of exchanging large files. Hence, users need

a file sharing software which can be used to download or transfer files from the host machine

(Poster, 2010, 409).

The introduction of Napster in 1999 allowed consumers more freedom is buying media

content as opposed to being forced to buy entire albums. With the advent of digital technology, a

single track can now be downloaded for free without any restriction. The on-going fight against

unauthorised digital content has therefore been focused on such networks such as LimeWire,

Napster etc (Kreitz & Niemela, 2010, 3; Tschmuck, 2010, 36).

d) Research Project Specification

Research ObjectiveThe objective of this research is to delve into the perceptions and opinions of users who

frequent online music digital service sites on the important issues of piracy and illegal

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downloading. Furthermore, the researcher will also gather data related to copyright laws and

whether downloading music and movies online should be allowed. Hence, the main objectives of

research are as following:

Evaluating literature on music piracy

Investigating ‘pirates’ and their methods of downloading

Understanding music piracy ethics

Exploring industry responses

Reviewing the problem of music piracy and analysing its impact on the industry

Research RationaleIt has been found that almost a third of internet users from the UK access, download or

stream media illegally. Furthermore, online piracy has been steadily growing and has reached

sixty percent. Therefore there is a need to identify the reasons the problem of music piracy and

analysing its impact on the industry.

Hypothesis StatementHypothesis for this research is:

H1: Legal digital services would increase revenues for the media industry

H0: Legal digital services would not increase revenues for the media industry

Scope of the ResearchScope of this research is to analyse the precedent of online piracy and illegal accessing of

media content through P2P websites and its consequences. Hence, the findings of this research

will allow for the formation of certain recommendations for Spotify on how to improve their

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services in order to remain competitive so as to encourage internet users to opt for legal means of

downloading as opposed to illegal downloading/streaming.

MethodologyThis research will focus on internet user’s attitudes and perceptions related to media

piracy. Secondary research will utilise articles, journals, books etc and primary research will be

built on the secondary research findings.

Secondary ResearchCurrent data and statistics regarding the music industry and online piracy will be

evaluated from sources which have already used a combination of surveys, questionnaires etc in

their research.

Primary ResearchPrimary research is usually moulded from a variety of options based on the nature of the

study. Hence, looking at the set research objectives will allow the researcher to select an

adequate method of gathering data. These are: evaluating literature on music piracy, reviewing

the problem of illegal downloading and its impact on the media industry, understanding the issue

of music piracy ethics and exploring the industry responses.

Approach used in this researchPrimary research can be either conducted through interviews, questionnaires and

observation. For this research, an interpretivist approach will be used to analyse a small sample

of respondents in order to gain user insights into the problem of music piracy and user needs.

Interpretivist approach is the concept that reality is not objective but contains individual

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perceptions and translation which creates understandings. The interview will contain semi

structured questions and privacy of all respondents will be respected.

Ethical Consideration of the ResearchThe research was conducted based on the rules of ethical conduct. For example, the

research did not harm the participants in any way and the researcher promised to uphold their

privacy and anonymity. None of their identifying personal information was released or retained

by the researcher and all the information provided by them was kept strictly confidential.

Furthermore, the researcher gained participants consent before enlisting them for the project and

used anonymous participants.

e) Plan and Procedures for the Agreed Research Specification

Plan and Timescale for the Research

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f) Resources and the Research Question or HypothesisPiracy, file sharing and free music consumption are terms used interchangeably by

different internet users based on their perceptions and views. Hence, results of studies based on

the issues of piracy also reflect these extreme differences and lack of unity in methods of

research pose a problem in correlating data on the issue. From IFPI commissioned studies such

as the Jupiter Research in 2009 which used internet user surveys from empirical data gathered by

differentiating actual downloads from file-sharing sites to chart activity of industry demonstrate a

wide divergence in terms of the measureable variables (Baym, 2010, 177).

Nevertheless, file sharing has a two pronged effect on sales – the substitution effect

where users opt for downloading data instead of purchasing the DVD or CDs and the sampling

effect where users prefer to sample or examine the product before purchasing it (Latif, 2010).

However, studies have suggested that in the long run, the sampling effect could potentially

increase an artist’s sales; nevertheless, this contrast could be termed as an attempt to differentiate

between pirates and users looking for sampling purposes (Bowie-Sell, 2012).

In 2010, BPI reported that over 1.2 billion units downloaded illegally cost the industry

over £984m in revenue. Hence, the researcher opines that certain freeloaders could be converted

to legal users in absence of P2P and consumers who are not willing to pay for their media usually

cannot be converted to buyers. It has been proposed that incentives can be served to engage in

file sharing activities which could provide some benefits given in portions (Frontier-Economics,

2011).

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Task 2: Implementing the Research Project

a) Proposed Research Investigation according to Specification and ProceduresSixteen (16) undergraduate students aged 19-23 were selected as the target population for

interviews. This is due to the fact that young people such as college students are commonly

reported as most likely to obtain media from illegal downloading websites as digital music piracy

behavioural model demonstrated that people over 29 years of age will engage less in illegal

downloading. Nevertheless, despite selecting the correct target population, it can be said that the

results of this study cannot adequately reflect opinions of the general population due to the

limited number of respondents.

The interview was divided into seven units:

The first unit was based on the demographic information such as age, occupation etc. so

as to build a rapport with the respondents to make them feel comfortable.

The second unit was geared towards finding out the respondents sampling method of

download as it is the main argument in favour of illegal downloading. The questions were

regarding illegally downloaded music for the purpose of sampling it and purchasing the

CDs/DVDs or from official apps such as iTunes later.

The third unit targeted social norms of respondents and their friends/family.

The fourth unit aimed to discover any justifications given by the respondents to justify

their actions.

The fifth and sixth units asked questions about their perceptions of legal threats and legal

alternatives.

The seventh unit aimed to get the participants attitudes towards the music industry.

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b) Record and Collate Relevant Data

Figure - Descriptive Statistics

The above table demonstrates that students with income less than £3375 were more likely

to resort to piracy instead of buying music. All of the participants admitted to downloading

content from P2P services such as BitTorrent sites from which Kickasstorrents and The

PirateBay were most common amongst the sample.

Questionnaire ResultsQuestionnaire has been provided in the appendix. Answers are discussed as per the question

number.

1. Answer to Question 1

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3 out of 16 participants agreed that they had used the sampling method before buying

music. 1 responded that he only buys a previously downloaded track if he is not able to find the

full version of the song on BitTorrent. However, most of the participants agreed that they would

not buy the content if they were getting it for free.

2. Answer to Question 2

Answers ranged from family to friends and one respondent admitted that it is a common

way of getting content.

3. Answer to Question 3

Here, only one participant agreed that he understands the moral and legal complications

of his actions. The rest did not feel that it is an ethical dilemma for them.

4. Answer to Question 4

Results here were mixed. Only 6 participants agreed that they had different moral values

and the others responded that enjoying music any way they want to is a matter of choice.

5. Answer to Question 5

Figure - Results of correlating statements

The above table demonstrates the most agreed upon statements. The letters relate to the

statements below in terms of most agreed upon.

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A) Downloading illegally is my only choice because of financial limitations.

B) My actions in downloading one or two free songs cannot affect the music industry as

a whole.

C) Piracy is booming because record labels keep their prices very high and so it is their

fault.

D) The industry is very unfair which is why I download illegally.

E) My actions could be wrong, however, I download illegally for friends and family.

F) I do not agree with the above statements.

Statement A received the most agreement however F had no agreements which can

indicate that none of the participants were fully aware of their immoral and illegal behaviour.

Most participants justified their behaviour and denied their culpability. Also, it was found that

money is a factor in online piracy.

6. Answer to Question 6

All participants knew about legal downloading platforms such as iTunes. Only 9

participants had actually purchased from iTunes.

9 participants also were not aware of subscription services. Further investigation revealed

that 14 participants out of 16 had heard of Spotify.

7. Answer to Question 7

The responses indicated that none of the students believed there was an actual threat of

being caught and held legally responsible.

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8. Answer to Question 8

13 participants agreed that if chances of being caught and held legally responsible were to

rise, they would stop downloading illegal content.

9. Answer to Question 9

14 respondents stated that they would switch to alternate sites. 3 mentioned that they

would try something else. This demonstrated that gaining content is actually more important that

the websites or the applications.

10. Answer to Question 10

All participants indicated distrust of the industry and did not believe that their actions

were affecting the industry much.

11. Answer to Question 11

All participants agreed that artists and labels would be paid less. The only agreed upon

negative affect was the resulting loss of jobs.

Task 3: Evaluation of the Research Outcomes for the Project

a) Appropriate Research Evaluation Techniques

Evaluation MethodSemi structured interviews were conducted on a one on one basis. The researcher also

attempted to keep personal bias and views from the interview so as to not prejudice the

participants’ responses even though it is difficult to do so during one on one interviewing and

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resulting discussions. Nevertheless, the participatory approach used provided for rich data which

served to increase internal validity (Kumar, 2010, 69).

It has been observed that comparability of data decreases as each response is different in

participatory approached. However, the researcher believes that interviews develop their own

coherence.

Responses were recorded and observations were also written by the researcher. The tapes

were later transcribed and compared with the observations to ensure reliability and validity.

b) Interpretation and Analysis of Results

Research Findings SummaryMost of the participants in the research responded similarly, only their downloading

patterns were found to be a little different. Gender was not found to be an important element,

females and males all downloaded illegal content. The participants used P2P BitTorrent sites

with Kickass and PirateBay torrents the most popular. Furthermore, the researcher found that

increased social acceptance of illegal downloading via torrents has dampened remorse or ethical

dilemma for the users.

Furthermore, the research found that participants were all aware of legal downloading

platforms. IT was also found that some respondents used illegal downloads and transferred them

to legal alternatives (downloading a song from P2P and transferring it iTunes for example).

Furthermore, it was found that participants lack knowledge about subscription services which the

industry could promote as an alternative.

Furthermore, participants indicated lack of concern for potential prosecution as the

number of cases where users have been caught is very small. However, majority of the

participants accepted that if legal measures were strengthened, they would probably stop illegally

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downloading content. The participants also had a very decided negative view about the industry

and believed that the only downside of music industry losing out in revenue was the potential

loss of jobs for common workers.

Overall, even though there were no quantitative findings, the research did provide a

multidimensional explanatory understanding of useful measures of user attitudes towards

downloading music.

c) Recommendations and Justification for Further Consideration

Limitation to the ResearchOne limitation in this research was that by using students as the sample target meant that

they would lean more towards illegal downloading. Future studies could rely on a mix of

demographics to receive a more accurate view of P2P websites.

RecommendationsThe research provided several insights into illegal downloading of content.

Recommendations were synthesised from the results such as:

Due to a rise in P2P users, further research needs to be conducted into its usage.

Spotify could educate people on the benefits of subscription services.

Different subscription packages could also encourage P2P users to stop downloading

illegal content.

Spotify could create effective student packages to attract them.

Spotify could also include access to radio stations in its student packages by partnering

with other distribution channels to balance open services.

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Spotify could also create a Sirius radio type service by partnering with car companies as a

lot of music in listened to on the go.

Task 4: Presentation of Research Findings

ConclusionAll in all, this research has demonstrated that users do not believe that downloading

illegal content is wrong, which is why it is fast becoming a social norm, By utilising a

neutralisation technique based on primary and secondary data, it was found that the music

industry could greatly benefit from conducting further studies into understanding piracy,

especially where young users are concerned.

Hence, digital service providers such as Spotify could work to educate the young

demography about subscription services in order to stop downloading of illegal content or reduce

it, thereby enhancing Spotify’s reputation as a mainstream choice as much as Bit Torrent.

Nevertheless, it seems that stopping music piracy is almost impossible as long as there are

multiple choices in P2P sites.

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Managing Financial Resources and Decisions

1. Task 1

1.1. Different Sources of Finance

Business finances can be explained as the capital required for expanding a business.

There are two viable sources available for any business i.e. internal (financing from inside) and

external (financing from outside the business) (Lusardi & Mitchell, 2013, p. 2).

1.1.1. Internal Sources of Finance

1.1.1.1. Retained Profits

Companies can raise funds by retaining the profit from business activities and not using it

to pay dividends to the shareholders. In return shareholders of the organisation are assured that

retained profits are being invested at a competitive rate of return. Most of the business

organisations retain their 50 % of profits for further expansion.

1.1.1.2. Share Capital

More funds can be generated if the founders of organisation are interested in investing

more to the share capital of the company. The founders providing the share capital of the

organisation has complete right over the business activities. Once the investment is made,

shareholder will get return on the investment in the form of dividends (Norvaišienė,

Stankevičienė & Krušinskas, 2015, p. 5).

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1.1.2. External Sources of Finance

1.1.2.1. Ordinary Shares

This method is used to generate funds by selling stocks of the business. Ordinary

shareholders have the right to voice any decision that is made by the organisation. However,

ordinary shareholders are not payed fixed amount of dividends.

1.1.2.2. Finance Lease

In this mode of financing, a financial institution is involved to lease the desired asset to

the company. The lease amount is paid to the financer in the form of rental payments. This

method is an alternate way to large cash outflows for an outright purchase of an asset. In this

case, the risks are associated with the lessee.

1.1.2.3. Operating Lease

This method is also similar to finance lease, as in this case, the reward and the risk

involved in operating lease are limited to the owner. Operating lease is awarded without any

credit checks; however, assets are considered as a form of security. Assets can be leased multiple

times as the operating lease is based on a short period of time (Tarca, Morris & Moy, 2013, p.

74).

1.2. Implications of Different Sources of Finance

Generating funds for business expansion and issuing additional stocks can dilute the

ownership of the founders and existing shareholders. For example, if a company issues 100,000

shares and an investor owns 1,000 shares, the investor owns 0.01 or 1% of the company.

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Similarly, if the company decides to issue additional 30,000 shares, the ownership is reduced to

0.00769 or 0.76% of the company. Publicly traded companies face pressure from shareholder for

changing the board of directors, if the company is not performing up to the standard

(Chesbrough, 2012, p. 2).

In the past, debt financing from financial institutions was only offered to large

organisations that maintained substantial revenues and assets. Now, the case is different and this

option is available to small companies as well. Companies are required maintain liquidity after

filing for funds from financial institution. If the company goes bankrupt, it will be liable to pay

for the employees and the suppliers for new inventory. All the assets will be confiscated by the

court and the organisation must wait for forty five days in order to sell to commercial or

government customers and get the invoices paid. Invoice factoring is a viable source to maintain

accounts receivable and keep the company operations navigating during bankruptcy process.

This will be a substantial source to keep up with the expenses of paying the employees and

vendors (Leitmann, 2013, p. 3).

1.3. Appropriate Sources of finance for Green Supplies Ltd.

Business requires funds to continue operations and implement new strategic expansion

plans. Green Supplies Ltd. can use following three sources to finance the expansion process of

business:

1.3.1. Retained Profits

Retained earnings are the amount left from revenue after taxes and dividends being paid.

In this case company gets to use this money for the expansion process or to pay off the liabilities.

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Few advantages of retained earnings are getting higher returns for the shareholders’ equity and

availability of capital for growth. Some disadvantages of this method include non-payment of

dividends to shareholder and the Green Supplies Ltd will owe more in form of income taxes.

1.3.2. Ordinary Shares

Among many other options, Green Supplies Ltd can consider issuing shares to private

investors. Issuance of shares to private investor comes with advantages and few disadvantages.

This method will generate funds to the organisation but comes with dilution of the ownership.

Shareholders will expect a higher return on their investment, and rights to change the directors.

However, the company obtaining funds from issuance of ordinary shares can repurchase all of its

outstanding shares when it has no need of equity capital. This will consolidate the ownership and

eliminate the need of generating funds from shareholder (Gitman, Joehnk & Billingsley, 2013, p.

8).

1.3.3. Finance Lease

The biggest advantage for Green Supplies Ltd using finance lease will be spreading out

of cash flows over several years for the purchase of an asset. Likewise, the ownership of the

asset remains with the lessor and lessee is required to pay rental payments only, this way a

company can purchase any quality asset which it cannot afford. However, disadvantages related

to finance lease are the expenses in the form of rental payment, rather than as equity payments.

The lessee will not benefit from any appreciation in the value of the land, and the lease payments

become a burden as it is fixed for a very long period of time (Lin & Paravisini, 2013, p. 229).

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1.4. Costs of Chosen Sources of Finance for Green Supplies Ltd

In balance sheet the accounts for the issuance of stock, involves cash, common stock and

paid in capital accounts. Credit paid in capital is the difference between the issuance and par

value of the issued stock. To illustrate, if Green supplies Ltd. decides to issue an additional 1,000

shares of common stock with a face value of 30 cents and the issuing price is $10, the cash

proceeds will be 1,000 multiplied by $10 and the paid up capital / share will be $10 less 30 cents

i.e. $9.70.

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2. Task 2

2.1. Importance of Financial Planning for Green Supplies Ltd

Establishing a business plan before starting a business is a valuable process for the

owners. This process helps in guiding the day to day business decisions and budgeting process.

Financial planning helps deciding the progress of company by evaluating the forecasted numbers

with actual yields. Even a sole proprietorship business requires a financial plan before continuing

business activities. In case of Green Supplies Ltd, business owner needs to make decision

regarding sources of finance; therefore, it is necessary for the management to spot previous

business trends about allocating their resources efficiently (Ak et.al, 2013, p. 553).

Green supplies Ltd. also needs to limit their expenses by prioritising their important

expenditures. Financial planning is also important for Green supplies Ltd. because this represents

whether the company is achieving their desired targets and with adequate cash balance. This will

help the management of Green Supplies Ltd. to see the clarity of hard data, about the business

being on its way to success.

2.2. Information for Decision Makers of Organisation

Decision making in an organisation is required at all levels. This process requires

involvement of every individual in the organisation. Depending on the type of problem, different

decision making techniques should be taken under consideration. The first process is to identify

the problem at hand and the leader of the organisation should evaluate all the possible solutions

of this problem with employees. Multiple perspective analysis is sometime considered best

option because the CEO or manager of the organisation can force themselves to think outside the

box about the problem (Ak et.al, 2013, p. 553).

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Another important decision method involves short term decisions or operational

decisions. This involves instant solution of the problem through the action of the employees. In

case of Green Supplies Ltd, they could only use a particular delivery service to deliver their

finished goods. Lastly, following up and feedback about the problem is necessary and it is the

duty of the manager to make sure that targets of the organisation are met appropriately. Leaders

of the organisation should be involved in implementing any decision that is important for the

progress of company, which will help in assessing the future decisions (Engel, Fischer &

Galetovic, 2013, p. 83).

2.3. Impact of Loan and Equity Finances or Investment on Financial Statements

The amount of loan and equity finances has a significant impact on the several

components of company’s balance sheet. If an organisation uses equity financing mode to

finance its operation, there will a positive change in the cash flows from financing activities and

balance sheet component will rise due to common stock par value. If a firm raises the funds

through debt financing, there will be an increase in the liability portion of the balance sheet and a

positive item in the cash flow statement. If a firm increase debt financing, leverage ratios, like

debt to equity and debt to capital, will also rise. This will require the company to maintain

certain interest coverage in the event of liquidation (Gitman, Joehnk & Billingsley, 2013, p. 9).

Equity financing affects the balance sheet liability portion, and if the company maintains

high debt to asset ratio, lenders might be concerned about investing in the organisation. In case

of debt to income ratio, lower ratio means that company is performing well and the liabilities are

less than the intangible assets. Higher ratio means company is at a risk of being dissolved by the

creditors.

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3. Task 3

3.1. Prepare the Cash Budget for Four Months Ending September 2015

  15-Jun 15-Jul 15-Aug 15-SepBeginning Cash 50,000 247,000 444,000 769,000 Sources of Cash        Cash Sales 45,000 50,000 65,000 82,000 A/c Receivable 750,000 812,000 970,000 910,000 Asset Sales        Total Cash 845,000 1,109,000 1,479,000 1,761,000 Use of Cash        Purchases 486,000 562,000 596,000 640,000 Expenses 82,000 83,000 94,000 110,000 Rent 10,000     10,000 Bank loan Payments 20,000 20,000 20,000 20,000 Total Use of cash 598,000 665,000 710,000 780,000  Surplus / Deficit 247,000 444,000 769,000 981,000

From the above table it can be observed that Green Supplies Ltd is in constant surplus,

which represent good financial health of the organisation. However, Green Supplies Ltd must

consider paying down the purchase debt from the cash surplus. Another important aspect for

utilising the cash surplus is to invest the cash in the highest interest rate yielding investments.

For this purpose Green Supplies Ltd must consider risk, liquidity and maturity of that

investment. Advantage of maintaining the cash flow is to understand the future cash needs of the

business. This will also help the Green Supplies Ltd to finance internally its expansion plan and

not rely on external financing.

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3.2. Calculation of Selling Price Per Unit

3.2.1. 33% Mark Up on Cost and profits on 500 Units Sold

Selling Price - cost = gross margin

SP- 300 = 33% of SP

SP (1 - 0.33) = 300

SP = 300 / 0.67

SP = 447.76

Cost of 500 Units = 300 * 500

= 150,000.

SP of 500 units = 447.76 * 500

= 22, 3880

Profit on 500 units sold = 22, 3880 – 150,000

Profit on 500 units sold = 73, 880

3.2.2. 30% Mark Up on Cost after First 500 Units Sold & Sale Profit on Additional 1000 units

Selling Price – cost = gross margin

SP – 300 = 30% of SP

SP (1 – 0.3) = 300

SP = 300 / 0.7

SP = 428.57

Cost of 1000 units = 300 * 1,000

= 300, 000

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SP of 1000 units = 428.57 * 1, 000

= 428, 570

Profit on 1000 units sold = 428, 570 – 300,000

Profit on 1000 units sold = 128, 570.

3.3. Viability of Project Using Investment Appraisal Techniques

Payback Period = Initial Investment / Cash Inflow per period

By using the method of payback calculation, cash flows are used to calculate how fast

Day choice ltd will recover its cash investment. ‘Project A’ requires an initial investment of

£150, 000 and the payback period for Project A is 3.2 years, while ‘project B’ investment is

£175, 000 payback period is 3.1 year. ‘Project C’ initial investment is £160, 000 payback period

is 3.3 years.

With a discount rate of 10% and a span of 4 years, projected cash flows for ‘Project A’

are worth £157,581.45, which is greater than the initial £150,000 paid. The resulting positive

NPV of the above project is £7,581.45, which indicates that pursuing the project A, may be

optimal. While ‘Project B’ is worth £174,342.60 today, this is less than the initial investment.

The resulting NPV of the above project is -£657.40, which means the ‘project B’ may not be an

optimal decision. In ‘Project C’ projected cash flows are worth £143,994.95 today, which is less

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than the initial £160,000. The resulting NPV of ‘project C’ is -£16,005.05, which means the

above project may not be an optimal decision.

From the above analysis it can be concluded that NPV is more effective process to

evaluate the projects. Discounted cash flow analysis is used in NPV tool which is more effective

to compensate for the future cash flows (Ak et.al, 2013, p. 553).

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4. Task 4

4.1. Main Financial Statements Produced by a Business

There are four main financial statements that must be produced by a small business. This

includes income statement, cash flow statement, balance sheet and the statement of owner’s

equity. These statements are helpful in compiling financial records and analyse the past financial

performance and industry average (Lusardi & Mitchell, 2013, p. 4). Each of these financial

statements is helpful in understanding the financial health of the business and all these statements

are studied together. Individual analysis of each statement identifies the weakness and potential

problems of the organisation.

4.2. Comparison of Appropriate Formats of Financial Statements

Income statement for sole trader is comparatively different from the publicly traded

organisation. In publicly traded organisations, income statement starts with gross income amount

that is calculated using revenue followed by the deduction of cost of goods sold. In second part

of income statement, operating income is calculated using gross income minus all expenses

incurred, which reveals the operating income (Chesbrough, 2012, p. 3). The last part of the

income statement is related to interest expense and taxes to calculate the net income of the

business.

For sole traded organisation balance sheet is very simple that show the assets, liabilities

and shareholder equity. However, a publicly traded company’s balance sheet breaks down into

current and long term assets, which refer to the assets that can be quickly converted into cash and

long term assets that will take longer to liquidate. This is followed by current liability and long

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term liabilities. Long term liabilities that are due for more than a year and current liabilities are

due within the next year from the date of balance sheet.

4.3. Interpretation of Financial Statements Using Appropriate Financial Ratios

4.3.1. For Whole Sale Business

Gross profit margin = (Revenue – COGS) / Revenue

= (580,000 – 430,000) / 580,000

= 0.258

Net profit Margin = (Net profit / Net Sales) * 100

= (85,000 / 580, 000) * 100

= 14.65 %

Current Ratio = Current asset / Current Liability

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= 2510 / 1550

= 1.619

Quick ratio = (current assets – inventories) / current liabilities

= (2510 – 1420) / 1550

= 0.703

From the above analysis of ‘Whole sale business’ it can be observed that gross profit

margin is 0.258 or 25.8%, which means that for every £1 the company will earn £0.25 at the end.

From the net profit margin it can be concluded that business is performing excellent. Current

ratio is greater than 1, which means assets are greater than liabilities and quick ratio represents

that £0.75 is liquid for any £1 liability.

4.3.2. For Retail Business

Gross profit margin = (Revenue – COGS) / Revenue

= (426,000 – 325,000) / 426,000

= 0.237

Net profit Margin = (Net profit / Net Sales) * 100

= (61,000 / 426, 000) * 100

= 14.31 %

Current Ratio = Current asset / Current Liability

= 5070 / 2950

= 1.718

Quick ratio = (current assets – inventories) / current liabilities

= (5070 – 2370) / 2950

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= 0.915

From the above analysis of ‘Retail business’ it can be observed that gross profit margin is

0.237, which means that for every £1 the company will earn £0.23 at the end. From the net profit

margin it can be concluded that business is performing excellent as the value is greater than 10%.

Current ratio is greater than 1, which means assets are greater than liabilities and quick ratio

represents that £0.95 is liquid for any £1 liability.

Organizational Change Management

1. Introduction

Today, companies are changing in response to external and internal business environment. Organisational change can arise from minor-scale modifications such as implementation of new software in a company, to large-scale organizational re-modelling, such as new business ventures, ending the old ones (CEFIMS, 2011, p. 3). Organizational change materializes in a response to continuous changes in environment, reaction to crises, or is promoted by a leader. Successful organizational change is not only a procedure of modifications, but it needs adequate and effective managing skills and abilities (Chen et. al., 2001, p. 1).

The implementation of organizational change can be deliberate or unintended. Change resistance in organization can be experienced on the basis of individuals, groups and teams working on change in an organization (Senior and Swailes, 2010, p. 65). Leaders and employees play a key role in through involvement in change process. This paper discusses three aspects of organizational change:

Strategic Change

Resistance to change

Employee involvement

2. Strategic Change

In organizations, the word “change” refers to the external change in terms of technological advancements, customer’s behaviour, market competition, market structure, or socio-political surroundings and reflects to in-house change, such as a policy of restructuring or

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re-engineering (Mutihac, 2010, p. 13). Many external and internal factors force organizations to change their processes or policies. According to Lunenburg (2010, p. 2), these factors are as follows:

2.1 External factors

2.1.1 MarketplaceThe increased competition in the market causes the organization to think and strategize in

order to survive in the market. This includes the strategies of change in organizational structures, reengineering, reorganizing and remodelling the internal processes of the business organizations. Innovations are required on each step due to the technological advancements in the marketplace and business environment (Lunenburg, 2010).

2.1.2 Government laws and regulationsGovernment laws and regulations are the powerful sources that cause frequent changes in

policies and strategies in the organization in order to meet the achievement of business goals. Enforcement of legal policies and regulations on the commercial and industrial sectors influences the whole business sector of a country. So the organizations are forced to change their planned activities and structures accordingly to be competent in the current business environment (Lunenburg, 2010).

2.1.3 TechnologyToday, technology is changing and advancing on the daily basis. In order to be competent

and thrive in the current business environment, organizations have to change and innovate frequently. If an organization is reluctant to the adaption of the technology advancement, it may find it difficult to survive in the fast growing business market (Lunenburg, 2010).

2.1.4 Labour MarketThe instability in the labour market forces organizational change. One of the keys of

success of organizations is their labour. The businesses rely on the effective and skilled professionals whose abilities and skills lead the organizations towards the achievement of goals. So the labour market should be the focus for business managers to implement change in their organizations according to the external labour markets (Lunenburg, 2010).

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2.1.5 Economic ChangesEconomic changes force not only the organization but each individual to change in their

professional activities. Economic environment of country influences the industry which leads the businesses towards change strategies and implementations (Lunenburg, 2010).

2.2 Internal FactorsInternal forces and internal environment of organizations also cause the organizations to

change or restructure their business. Some of the common internal factors which cause the change are as follows:

2.2.1 Administration ProcessesManagement and administrative processes such as communications, decision making,

leadership and motivational strategies can also force the organization to change. Breakdown or slowdown in these processes pressurises the business to change its structures in order to motivate the employees and not letting them leave the organization (Lunenburg, 2010).

2.2.2 Employee’s Issues Employee’s performances, employee’s activities and all those issues of employees which

can cause an organization a failure in achieving the strategic goals force the business to change. Those changes can be beneficial for the employees directly and motivating for them to work efficiently (Lunenburg, 2010).

2.3 Complexity Theory and Strategic ChangeThe above factors which can cause the change in organizations have to be addressed and

managed effectively to meet the organizational goals. Complexity theory should be implemented by the management of an organization to effectively implement the organizational change process. Complexity theory was developed by the meteorologists, biologists, chemists, physicists and other natural researchers in order to form quantitative models of structures in nature. The theory classifies an organization as a structure which is tangled by complexities of the system where companies are adapted to a sound environment while arguing about the uncertainties (Burnes, 2005, p. 73).

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Frederick (1998) debated that organizations which follow a way of continuous change flourish due to their operations at the edge of chaos and due to their implementation of innovations and change and their risk taking abilities (as cited in Burnes, 2004, p. 315-316). Complexity theory is a measure of variation or diversity in internal and external environmental features such as departmental sections, clients, suppliers, political, socio-cultural and technology. It emphasises on the impact of complex micro-level aspects on the macro-level factors in an organization (Amagoh, 2008, p. 6).

2.3.1 Dynamics of Complex SystemsA prime aspect of the complexity theory model is the notion of Complex Adaptive

Systems (CAS). The systems which engross information of their environment and stores knowledge to assist activities in need are known as “Complex Adaptive Systems” (Amagoh, 2008, p. 6). These systems help in implementation of change through the transparency in information sharing. Information storage programs let the management and employees integrating with each other and interact frequently to work on innovations according to the environmental changes. Since, the organizational structures are complex to operate, these information sharing systems are essential to implement changes.

There are a number of characteristics of complex systems in organizations. One of those features is the existence of numerous of interrelating factors inside the system. Those elements interrelate and communicate with each other mostly on the existing feedback mechanism in system. These communications in return cause non-linearity in the system.

Another characteristic of the complex system is semi-firm configurations which do not get influenced by the outside forces. Third characteristic of the complex system is that it can self-organize and adjust. Chunks of the system can organize itself without any external pressure or imposition and the last characteristic of the complex system is that complex systems have inclined to revelation emerging properties (Amagoh, 2008, p. 7-8).

Complexity reflects a more significant change in context of ontological and epistemological approaches. In complex systems, there is a network of interconnection of not only simpler, straight associations and acceptability of the inherited complexity of economic systems, rather than depending on the traditional reductionist models. The key role in adaption and implementation of the complexity theory is played by the leadership and the management of the company. Idea of change includes rise, dependency and interdependency, dis-organization, self-management endorsing communal progression. The part of leadership and management is

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vital in implementing the planned organizational change (Andrews, Cameron and Harris, 2008, p. 300).

3. Resistance to Change

3.1 Lewin’s Theory of Planned Change Kurt Lewin’s work on organisational change has been dominating the practice and theory

of change management for over decades. The key elements of his approach to planned change include Field theory, Group dynamics, action research and his 3-step model of planned change (Burnes, 2004, p.977). Lewin’s 3-step model is his key contribution to the management literature (p.985). For Lewin, the integrated approach using all the four above mentioned elements was the key to analyse, understand and bring about change in an organisation.

Successful change, according to Lewin, involves three steps; unfreezing, moving (or change) and refreezing. The model assumes that change will face resistance; therefore, implementing change without preparing the employees will most likely result in failure. Unfreezing is ensuring employees’ readiness and openness to change. Next step is moving towards change i.e. executing or implementing the planned change. Refreezing means making sure that the change is permanent and becomes a norm and a part of the organisational culture (Baesu and Bejunaru, 2014, p.150).

Figure 2: Lewin’s 3-step Model of Planned Change Source: Baesu and Bejunaru (2014 p.150)

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3.2 Reasons of Resistance to Change There are three dimensions in which resistance to change can be considered, behaviour,

emotional factors and beliefs or attitudes (as cited in Mutihac, 2010, p. 23). Resistance to change is considered as a risk of failure for the planned and systematic organizational change. It is a human behaviour of resisting the change, as it pressurises people to do something in a new manner. There are many reasons due to which the resistance occurs in organisations:

3.2.1 UncertaintyIn times of change, there is an uncertainty of being unable to work accordingly to the

newly changed environment and effect on the performance. This is why employees usually hesitate to participate in change process. Since the change is generally because of the development and advancements according to the external surroundings, employees consider it difficult to adjust with those changes (Lunenberg, 2010, p. 4).

3.2.2 Fear of Personal LossSuitable change can be beneficial for the overall organization, but for few employees, the

change is costly for them in terms of losing powers, respect, income, quality of work or other benefits which will not be adequately offset by the rewards of change. Employees perceive change as it will decrease their decision-making powers, approachability to information, independence, and the intrinsic features of the job (Lunenberg, 2010, p. 4).

3.2.3 Group resistanceThe employees can group themselves as their mutual understanding about the change is

to resist. If the majority of employees are reluctant towards the change, it will become very difficult for an organization to implement change strategies (Lunenberg, 2010, p. 4).

3.2.4 DependenceToo much dependence can be very dangerous in any aspect of life. Dependence is also a

reason of resistance to change. If employees depend on the leadership too much, they will resist changing as long as the leadership personally endorses the change (Lunenberg, 2010, p. 5).

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3.2.5 Lack of Trust on ManagementChange process is totally based on the trust of management and employees on each other.

Communication, networking and motivation from top management to employees are keys to building trust. If there is a lack of trust of employees on management or management on employees, the change process cannot be implemented which will develop the resistance (Lunenberg, 2010, p. 5).

3.2.6 Awareness of Weaknesses in Proposed ChangeEmployees may resist change due to their knowledge about the possible glitches in the

planned change. In this case, employees should acknowledge the management about their concerns so the management can take their recommendations to reorganize their change procedure to be more effective (Lunenberg, 2010, p. 5).

3.3 Impact of Resistance on Organisational ChangeIt is unfortunate that the term resistance generally has a negative perception. It is

obviously a delusion. Resistance is the most effective reaction sometimes in a particular scenario. If employee’s beliefs, values, attitude and behaviours are delivering with positive ways of meeting the needs of an organization as a whole, then it is appropriate and vigorous to resist the change.

Certain changes, however, could disturb the whole organization and cause it to become less productive. In this case, it is not in the best interests of an organization to resist change. Therefore, sometimes resistance is considered as a problem and sometimes it is the solution to a problem (Lunenberg, 2010, p. 5).

3.4 Overcoming ResistanceAccording to Hultman (2014), resistance to organizational change can be generally

overcome by following these steps:

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Figure 3: Steps for Overcoming Resistances Source: Hultman (2014, p.11)

3.4.1 Define the changeIt is crucial to be comprehensive, concrete and particular as much as possible in defining

the change. Not only the outcomes and final results but the whole process and the long-term benefits of change should be described from top to the lowest level of the employees of organization (p.11).

3.4.2 Determine causes of resistanceAfter defining the change process, reasons of resistance to change should be determined.

Management has an ability to sense the upcoming resistance before it arises in the process or change, so the reasons of the resistance in context of the organizational environment should be determined as addressed with the employees (p.11).

3.4.4 Develop the strategyThe third step to avoid the change resistance is development of a strategy. After

determining the causes of resistance, a strategy should be developed accordingly to remove the causes of resistance so that the organization can overcome the possible resistance to the planned organizational change (p.12).

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3.4.5 Implement the strategyThe implementation of the strategy is very important to avoid the probable resistance to

organizational change. Application of the strategies successfully is based on the previous steps. If the definition, determination and development of strategy have been done correctly, it becomes easy to implement the strategy effectively (p.17).

3.4.6 Evaluate results of strategy Implementation of the strategy is not the end. The results and outcomes produced by

those strategies are important and need to be evaluated. The resistance affects the whole process of change and the implementation of the planned organizational change can fail due to the resistance (p.18).

4. Employee’s Involvement

In employee’s involvement, each employee is considered as a distinctive human being, not just a part of organizational machinery; and every employee is engaged in assisting in achievement of organizational goals. Employee’s contribution is sought and appreciated by the management. Management acknowledges the employee’s contributions and efforts in running the organization. Employee Involvement in organizational activities has become a very important topic in the last decade. Everyone has access to technology, finance and new processes of employment; it is just the level of involvement of an employee that makes the difference. If an organization wants to lead, it will have to include its employees in debates and in making decisions. Today, many businesses are paying attention towards involvement of employees so as to make their employees look important and consider environment in which they feel free to assist in the decisions and actions which influence their job (Zafar, Butt and Afzal, 2014, p. 206).

Furthermore, it is not aimed, nor is it an instrument, as implemented in several organizations. Rather, it is a management’s views of how people are most enabled to contribute in continuous improvement and the on-going successes of their work in organization. Involvement of employees is a ‘lighter’ course of contribution and is emphasizes on being more flexible and assumes a harmony of anxieties between leadership and employees (Zafar, Butt and Afzal, 2014).

4.1 How Employee Involvement Helps Achieve Organisational ChangeSense-making refers to the activities to interpret and develop a series for events. Sense-

making becomes very significant for management to accomplish for the purpose of managing change effectively, which in return makes employee involvement vigorous in the change process

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efforts as it can lead towards the required sense-making. Managers, though, have to communicate their perspectives, mainly in the mid of the change process in organization, in a manner which gives their employees certainty (Georgiades, 2015, p. 9-10). This sense-making causes the flow of efforts in organizational changes. As the employees are involved in organizational activities and decision making through effective information sharing and communications, the chances to achieve a successful organizational change are high.

According to the Dunne (2013), there is a positive relation between organizational change management and degree of employee’s involvement in organizational activities. The implication for both managers and employees is the existence of hunger for active involvement in change management process and will be effective if the support and structures are offered to employees. Though, it is necessary that plans must be developed at top management level and must be considered as strategic objectives of the organization (p. 17).

4.2 Increasing Employee InvolvementEmployee involvement begins with a change in management’s attitude (Dunne, 2013).

Employees who are loyal, proud of their work and have valuable ideas are the ones who are involved by their management in the organizational activities and decision-makings. This helps in promoting a smooth flow of activities for the planned organizational change. Employee involvement can be achievement in the following ways:

4.2.1 Giving Employees ResponsibilitiesGiving the responsibilities to the employees is one of the key aspect by which the

employees can be empowered and involved in the business and communicated by the management about the strategic goals of the organization. It will increase employee involvement as well as motivation, which helps in implementing the organizational change smoothly (Dunne, 2013).

4.2.2 Employee’s Training To Accept Change And Reduce ResistanceEmployees should be trained on a continuous basis in order to make them involved in

organizational activities. Usually the employees in organizations lack the skills to change on the continuous basis even if the change helps the organization survive and thrive in the market. Management should implement the training policies by which the employees can be trained to accept the change according to the external environment. It can lead towards reduction of change resistance as well which will ultimately help the organization in implementing the change process effectively (Dunne, 2013).

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4.2.3 Communication and FeedbacksCommunications and feedbacks both from management to employees and employees to

management side are necessary in order to successfully run an organization. Effective communication and feedbacks result in improvement in processes of a business. It will decrease the resistance of change and promote the change activities. Employees should be provided feedback from management as it can motivate them to work more effectively and make more efforts to achieve the organizational goals (Dunne, 2013).

4.2.4 Giving Rewards and RecognitionsProviding rewards and acknowledgement to the employees from their management is

very important. It also assists in encouragement of employees to work and make efforts to innovate and change according to the outside business environment. Employees tend to work more effectively when provided the rewards and recognitions by their management.

By above literature, it can be concluded that employee involvement is one of the key element in the achieving the organizational goals. Organizations generally work on long term goals. These long term goals can only be achieved by changing according to the external environment of the corporate world. Change is inevitable and organisations must be open to change. Today, change is considered only as to reorganize or reengineer the structure of the organization. It is a wide notion with the approaches of how and why the organization should change, and how it can be profitable for business in their long term goals.

5. Conclusion

There is a great role of leaders and managers of the organizations in implementing these concepts of change and execute the policies and strategies to achieve the shift efficiently and take the business to the next level. Involvement of employees in organization is very important. It can be increased by the trust between the management and the employees. The association between the management and the employees depends on the trust and reliability, which results in employee’s active participation in planned organizational change (Sørensen, Hasle and Pejtersen, 2011, p. 417). The managers should keep all the external and internal factors in mind when developing a strategy for planned change and strategically and systematically remove resistance to change so that employees can be involved in the process of change.