Improving Organizational Performance The Case of Coco Coir ...

Improving Organizational Performance

The Case of Coco Coir Business Integration and Development

Incorporated (COCOBIND) in Irosin, Sorsogon, Philippines

Research Report

MST 80433 Thesis Management Studies

Eduarda M. Lacsa

MSc Student

Wageningen University, the Netherlands

2010

Improving Organizational Performance

The Case of Coco Coir Business Integration and Development,

Incorporated (COCOBIND) in Irosin, Sorsogon, Philippines

MSc Thesis (MST 80433 – 33 ECTS)

Management Studies Group of Wageningen University

Prepared by: Eduarda M. Lacsa

MSc Student, 611013495040

Scientific Advisor: Dr. (Nel) P.M. Wognum

2nd Scientific Advisor: Dr. Jaques Trienekens

Wageningen University

Wageningen, The Netherlands

16 July 2010

Abstract

The Coco Coir Business Integration and Development Incorporated (COCOBIND) is a business

organization registered with the Securities and Exchange Commission (SEC). It intends to contribute

to the improvement of the economic well-being of the coconut farmers in the Bicol Region and

Samar provinces in the Philippines by providing employment and livelihood opportunities through

the use of coconut husk in the production of coco coir products. The organization has the source of

raw materials, facilities and equipment, skilled workers and market opportunities. But in the last five

years, it incurred losses and suffered ‘on and of’ operations. This study aims to provide

recommendations to improve the performance of COCOBIND by describing and analyzing its

organizational performance based on key performance indicators (KPIs), and based on the desired

situation. Desk research and case study strategy were employed to find holistic information on the

study. The results revealed that symptoms of insolvency in connection with cash flow are evident as

reflected in the financial performance of the organization. Problems in relation to customers,

internal business process and learning and growth aspects, competitors and markets were also

identified. However, its performance based on the goals has not been well described because of the

absence of measurable objectives. The recommendations formulated in response to these problems

are: Generate additional capital for operation and improve financial control, Increase volume of

production and improve asset utilization and human resources, Strengthen relationship with current

customers and establish new markets to increase market share, Maintain machineries and

equipment in good condition, Enhance skills of workers in the production of quality coco fiber and

Redefine long-term direction, and formulate measurable objectives, business strategies and plans

for the organization. These recommendations were also intended to contribute to saving COCOBIND

from insolvency in connection with cash flow and improve its performance.

Keywords: organizational performance, key performance indicators, performance measures, internal

environment, external environment, desired situation and coco coir products.

Improving Organizational Performance: The Case of Coco Coir Business

Integration and Development (COCOBIND) in Irosin, Sorsogon, Philippines

Wageningen University 2010 i

Preface

My involvement in community development work particularly the establishment of rural

based business enterprises exposed me to the situations, and problems of these organizations. This

experience made me interested to know more about organizational dynamics and performance. I

have been part of COCOBIND in the initial stage of its operation because the NGO office that I

worked before is one of its members. The people in the community appreciated greatly the

establishment of COCOBIND because of the employment opportunities that it provides. In my initial

communication with the management staff and workers, I learned how they sincerely wish to make

this organization viable. With these, and my personal commitment to help improve the

performance of COCOBIND, I chose to conduct the study ‘Improving Organizational Performance:

The case of Coco Coir Business Integration and Development, Incorporated in Irosin, Sorsogon,

Philippines.’

This study could not have been completed without the involvement and generous support of

many individuals. First of all, I would like to express my gratitude to Dr. (Nel) P. M. Wognum, my

scientific advisor, for providing valuable feedbacks to the documents submitted, and to Dr. Jackques

Trienekens, my second advisor, for providing the final comments to my report.

Likewise, I thank the management staff, the board and workers of COCOBIND for

cooperating in the interview. My gratitude also to the management staff for allowing me to use the

audited financial statements, emails, minutes of meetings and other documents as source of

information.

To my friends here in Wageningen, who provided moral support and encouragement from

the start until I finished the writing of this report and to Cynthia, who helped me finalize the layout

of this report, my sincere thanks to all of you.

Finally, I would like to thank my daughter Zha and my son Edmon for their love and

understanding. I also thank my brother, my mother, my sister and her husband for always being

there for my kids while I am away for my studies. Their encouragement and moral support helped

me get through all the difficulties that I had while writing this research report.



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Wageningen University 2010 iii

Executive Summary

Coconut is among the major sources of income in the Philippines, being the second largest

coconut growing country in Asia. Coconut husk, the waste from copra making is a source of

additional income for coconut farmers. The production of coir products is one of the initiatives

identified to alleviate poverty in the Philippines. As such, civil society organizations, private groups

and the government exerted efforts to establish support mechanisms that will facilitate the

processing of coconut husks into coco coir (fibre) and the production of coir based handicrafts.

To contribute to the improvement of the economic well-being of the coconut farmers, the

Coco Coir Business Integration and Development, Incorporated (COCOBIND) was organized and

registered with the Securities and Exchange Commission (SEC). COCOBIND is a business enterprise

owned and managed by 5 organizations from various sectors which includes three non-government

organizations which are the Aquinas University Foundation Inc., (AQFI), Foundation for a Sustainable

Society, Inc., (FSSI), and the Lingap Para Sa Kalusugan ng Sambayanan, Inc., (LIKAS), a federation of

farmers which is the Sandigan Ng Magsasaka (SANDIGAN), and one coco coir processor and

exporter, the Soriano Multi-purpose Fiber Corporation (SMPFC). It is governed by a board of trustees

composed of representatives from the five organizations.

COCOBIND is located in Sorsogon province, the second largest coconut producing province

in the region. This ensures the availability of husks, the major raw material used in the production of

coco fiber, geonets and plant box. The organization has the machineries and equipment, and human

resources needed in production. It has 3 management staff, 10 workers in the plant involved in

stitching and decorticating operations, 40 handicraft workers (also in the plant) and 200 household

workers employed in geonets production. The production of coco coir products provides additional

income to farmers and contributes to the reduction of wastes. Local and international market

opportunities for coco coir products are also available. With these factors, it was projected that

COCOBIND will sustain its operations and gain profit in 2005 to 2009. But the organization has

incurred million pesos in losses and experienced an ‘on and off’ operations. The company failed not

only generating profit but also achieving its noble objective of enhancing the lives of coconut

farmers and their families. In this light, this research is conducted.

Chapter 2 presents the research design of the study. This study is a descriptive practice

oriented research which adopts desk research and case study strategy. Content analysis was

intensively used to generate data from organizational documents and literatures including case

studies. To complement the secondary information collected, data were also gathered through

interviews and observation methods. Face to face interview was conducted to 20 respondents.

Three sets of questionnaires were prepared. The first set was administered to 11 respondents

comprised of 3 out of 3 management staff, 3 out of 5 board members and 5 out 10 workers in the

plant involved in stitching and decorticating operations. The other two question lists were asked to 1

customer, who is not a member of COCOBIND and 1 expert. Five workers (2 from handicraft and 3

from geonets) and 2 agents were also interviewed to validate and/or confirm some information

regarding the terms and conditions in the production of geonets and handicrafts. A questionnaire

was not prepared for this.



Wageningen University 2010 iv

In the analysis of results, secondary data from the 11 case studies and results from interview

with the expert, and information from additional literatures were used. In the review of cases, best

practices of other organizations in relation to financial perspective, customer perspective, internal

business process perspective and learning and growth perspective, competitors and markets were

identified and used as benchmark. The problems and opportunities for improvement were

determined from the findings using the why-why analysis. Slack et al. (1998) described why-why

analysis as a simple but an effective technique for understanding the causes or reasons for the

occurrence of problems. Prioritization matrix was employed to determine which of these problems

have to be prioritized. This research aims to provide recommendations to improve the performance

of COCOBIND by describing and analyzing its organizational performance in relation to the internal

and external environment based on defined key performance indicators and desired situation.

In Chapter 3, literatures are reviewed to identify the theories and concepts used. The study

of the different performance measurement approaches resulted to the identification of the

framework appropriate for this study and the determination of KPIs which were classified according

to broad categories, the internal and external environment. As to the KPIs formulated for the

internal environment, the four-perspective BSC was adopted as basis. BSC was chosen because

holistic assessment of the performance of an organization is achieved with the use only of the four

perspectives as criteria. For the external environment, the two perspectives identified were

competitors and markets. The KPIs and measures for these areas were likewise determined. Finally,

the goals of COCOBIND were defined based on the review of COCOBIND documents. These served as

basis for evaluating the performance of the organization in relation to the desired situation.

Chapter 4 presents the current situation of COCOBIND. As to the internal aspect, analysis of

the financial perspective showed that symptoms of insolvency in connection with cash flow and

weak internal control are evident. Relationship with customers is mostly based on trust. Marketing

of coir products is limited to sub-contractors and low buying price for handicrafts is a problem. The

findings also revealed that the inability of the organization to produce quality coco fiber was due to

defects in the decorticating machine. Likewise, due to lack of capital, repairs and maintenance, new

product development (NPD) and training of management staff were not prioritized. COCOBIND has

fixed assets such as the building, delivery trucks, decorticating machine, stitching machine, twining

and handloom equipment; and human resources but these are underutilized. In relation to the

external environment, the organization lacks understanding of the activities of its competitors and

market opportunities are left untapped. The organization’s current situation in relation to desired

situation was not well described since measurable objectives were not available.

In Chapter 5, the findings revealed the problems and opportunities for improvement. The

four priority areas for improvement are: Unsettled /late payments of obligations, Underutilized

assets and human resources, Inability to maintain the production of quality coir fiber, Capability of

management staff not fully developed, and Not updated long-term direction, and absence of

measurable objectives, business strategies and plans.

Chapter 6 presents the recommendations formulated in response to the areas for

improvement. The six recommendations formulated are: Mobilize financial resources and improve



Wageningen University 2010 v

financial control, Increase volume of production and improve asset utilization and human resources,

Strengthen relationship with current customers and establish new markets to increase market share,

Maintain machineries and equipment in good condition, Enhance skills of workers in the production

of quality coco fiber , and Redefine long-term direction, and formulate measurable objectives,

business strategies and plans for the organization.

In conclusion, COCOBIND is almost at the point of insolvency in connection with cash flow as

indicated by decreasing profitability, decreasing sales, decreasing liquidity and sharp cash reduction.

An in-depth analysis of its causes and influencing factors in the internal and external environment

has to be done to be able to come up with effective decisions and avoid bankruptcy (Altman, 1999

cited by Mackevicius and Sneidere, 2008). Financial measures are outcome indicators that result

from the activities in the customer, internal business process and learning and growth perspective,

which are considered the drivers of performance (Kaplan and Norton, 1996). Improvement of its

current performance is possible with the commitment of management staff to pursue a more

proactive approach in the management of the organization and the implementation of the

recommendations proposed in this study. Moreover, the long term success of the organization

depends on the commitment of the members of the organization to hold on to the overall purpose

of the organization.



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TABLE OF CONTENTS

Executive Summary iv

Chapter 1 Project Context 1

Chapter 2 Research Design 3

2.1 Conceptual Research Design 3

2.1.1 Research Objective 3

2.1.2 Research Framework 3

2.1.3 Research Issue 5

2.1.4 Definition of Concepts 5

2.2 Technical Research Design 5

2.2.1. Research Material 5

2.2.2 Research Strategy and Methods 7

2.3 Summary 9

Chapter 3 Theoretical Background 11

3.1 Definition and Importance of Performance Measurement 11

3.2 Performance Measurement Methods and Approaches 12

3.2.1 Financial Performance Measurement 13

3.2.2 Sink and Tuttel Model 13

3.2.3 Performance Pyramid 14

3.2.4 Balanced Scorecard 14

3.3 Additional Literatures to Define KPIs 17

3.3.1 KPIs in Relation to the Internal Environment 18

3.3.2 KPIs in Relation to the External Environment 24

3.3.3 The Key Performance Indicators and Performance

Measures Selected 25

3.4 COCOBIND Goals 31

3.5 Summary 31

Chapter 4 The Current Situation 33

4.1 The Key Performance Indicators and Performance Measures 33

4.2 Performance of COCOBIND in Relation to the Internal Environment 35

4.2.1 Financial Perspective 35

4.2.2 Customer Perspective 39

4.2.3 Internal Business Process 41

4.2.4 Learning and Growth Perspective 44

4.3 Performance of COCOBIND in Relation to the External Environment 45

4.3.1 Competitors 45

4.3.2 Markets 46

4.4 Performance in Relation to Desired Situation 47

4.5 Findings 48

4.6 Summary 50

Chapter 5 Problems and Opportunities for Improvement 51

5.1 Best Practices of Organizations 51

5.1.1 Financial Perspective 51

5.1.2 Customer Perspective 52

5.1.3 Internal Business Process 52



Wageningen University 2010 viii

5.1.4 Learning and Growth Perspective 54

5.1.5 Competitors 54

5.1.6 Markets 55

5.2 The Problems and Causes 55

5.3 Problem Prioritization 59

5.4 Summary 60

Chapter 6 Recommendations for Improvement 61

6.1 Recommendations to Improve performance 61

6.2 Importance of the Recommendation and Expected Results 62

6.3 Implementation Plan 64

6.4 Summary 68

Chapter 7 Conclusions, Recommendations and Reflections 69

7.1 Conclusions in Relation to the Accomplishment of the Research Objectives 69

7.2 Recommendations for Further Research 70

7.3 Reflections 71

REFERENCES

APPENDICES



Wageningen University 2010 ix

List of Tables

Number Page

2.1 Types of Data, Data Sources and Method of Accessing 6

3.1 KPIs and Performance Measures Selected 26

4.1 KPIs and Performance Measures Used 33

4.2 Assets, Liabilities and Financial Ratios 36

4.3 Summary of Findings 48

5.1 Problems and Causes 55

5.2 Prioritization Matrix 59

6.1 Recommendations to Improve Performance 61

6.2 Implementation Plan 65

List of Figures

Number Title Page

2.1 Research Framework for Improving Organizational Performance 3

3.1 Sink and Tuttel Model (1989) 13

3.2 The Performance Pyramid 14

3.3 Quality and Profitability 20

4.1 Annual Sales and Income 35

Abbreviations

AQFI- Aquinas Foundation Incorporated

BSC- Balanced Scorecard

CDM- Clean Development Mechanism

COCOBIND-Coco Coir Business Integration and Development, Incorporated

CDR-Certified Emissions Reductions

DA- Department of Agriculture

DENR- Department of Environment and Natural Resources

DOLE- Department of Labor and Employment

DOST- Department of Science and Technology

DPWH- Department of Public Works and Highways

DTI-Department of Trade and Industry

FIDA- Fiber Indusrty Development Authority

FSSI- Foundation for a Sustainable Society, Incorporated

LIKAS – Lingap Para Sa Kalusugan Ng Sambayanan, Incorporated

SANDIGAN- Sandigan Ng Magsasaka (Bulwark of Farmers)

SMPFC- Soriano Multi-Purpose Fiber Corporation

NPD- New Product Development

ROA- Return on Assets

ROFA- Return on Fixed Assets

ROS- Return on Sales

PO- Purchase Order

SMART-Strategic Measurement Analysis and Reporting Technique

SEC- Securities and Exchange Commission



Wageningen University 2010 x



Wageningen University 2010 1

Chapter 1 Project Context

The Philippines is the second largest coconut growing country in Asia and the Pacific region

(next to Indonesia) in the years 2005 and 2006. It has 3,243,000 hectares (32.43 sq. km.) planted to

coconut with total production of 14.056 billion and 12.6 billion nuts in 2005 and 2006 respectively

(Yogaratnam, 2009). Coconut is among the major sources of income of farmers in the country. It is

known as the ‘tree of life’ because of its many uses.

Coconut husk, the waste from the production of copra, (copra refers to the smoked coconut

meat by which oil is extracted), is a source of additional income for coconut farmers in the

Philippines. The coco-coir extracted from husk is used in the production of twines (ropes), geonets,

mats, plant box and other types of handicraft. Coco-coir is one of the most eco-friendly products

with excellent water absorption and retention, making it an ideal plant growing medium and soil

conditioner (FSSI official website, 2009). The Fiber Industry Development Authority (FIDA) in the

Philippines mentioned that coir has unique physical and technical characteristics which make it

suitable for use in the fishing industry. It floats in water, resistant to bacteria and salt water, thus

making it appropriate as marine cordage and for use in commercial marine culture (WINNER 2009).

In 2005, a Filipino entrepreneur won for the Philippines first prize in the First World Challenge

contest sponsored by BBC World Television in London for its coco nets, a coco coir product used as a

means to control erosion (Ganchero and Manapol 2007).

The production of coir products is one of the initiatives identified to alleviate poverty in the

Philippines. Civil society organizations, private groups and the government exerted efforts to

establish support mechanisms that will facilitate the processing of coconut husks into coco coir

(fibre) and production of coir based handicrafts. Coco coir is one of the products with high market

demand not only in Asia but in industrialized countries as well, due to the growing trend for the use

of environment-friendly products (Winner, 2009).

In 2004, the Coco Coir Business Integration and Development, Incorporated (COCOBIND)

was organized and in the following year it was registered with the Securities and Exchange

Commission (SEC). The organization was formed with the assistance of the Foundation for a

Sustainable Society, Inc., (FSSI). COCOBIND is a business organization owned and managed by 5

organizations which includes three non-government organizations which are the Aquinas University

Foundation Inc., (AQFI), Foundation for a Sustainable Society, Inc., (FSSI), and the Lingap Para Sa

Kalusugan ng Sambayanan, Inc., (LIKAS), a federation of farmers which is the Sandigan Ng Magsasaka

(SANDIGAN), and one exporter, the Soriano Multi-purpose Fiber Corporation (SMPFC). The plant is

located in the province of Sorsogon, the second largest coconut producing province in the Bicol

region.

COCOBIND aims to contribute to the economic well-being of the coconut farmers in the Bicol

Region and Samar provinces by providing them employment and livelihood opportunities through

maximized utilization of coconut husks.” It intends to achieve this objective by producing,

manufacturing, processing, and / or selling of coconut coir or peat products such as coconut coir,

stitched fiber (mats), geonets, coco peat, and bioengineering services such as designing, production

and installation of erosion control nets. It is one of the four companies operating in the Bicol region.




COCOBIND is governed by a board of trustees composed of one representative each from

the five organizations. The members of COCOBIND support the management staff in the business

operations. SANDIGAN assists in the promotion of coco coir business by encouraging its farmer

members to sell husks to COCOBIND and identifies individuals who are interested to be trained as

workers. LIKAS provides training assistance on geonets making to household workers in the

communities and link them to COCOBIND for the marketing of their products. SMPFC on the other

hand, is tasked to assist COCOBIND in marketing. FSSI provides COCOBIND technical assistance in

the management of the company through the appointed Office-in-Charge Manager (OIC Manager),

who is tasked to manage of the day-to-day operations.

The OIC Manager heads the Management team. He oversees all the functions of the

organization which include production, marketing and sales, finance and administration. In total,

COCOBIND has 3 regular employees (OIC manager, bookkeeper, and cashier) and 10 workers in the

plant who are involved in the decorticating and stitching operations. There are forty out of fifty

trained workers who are skilled in handicraft production. Additional plant workers are hired when

there are big orders. About 300 household workers in the communities have already been trained on

geonets production and 200 of them are actively involved in the job. COCOBIND has the facilities,

machineries and equipment for the processing of coir and the production of plant box. The

processing of coco fiber and production of plant box or bio-tray are done in the plant. Some of the

coco fiber produced is sold as baled fiber and others are made into handicrafts.

In terms of market, the record of Fiber Industry Development Authority (FIDA) shows that in

2005, the Bicol region had a market share of 1.4 percent for coco coir products in the Philippines. In

2006 there was an uptrend in the demand for coir particularly in the export market. Recently, the

demand for coco coir has actually increased not only in Asia but in industrialized countries as well

due to the growing demand for environment-friendly products. In Western Europe, market

potential for coir fiber, rope and coco peat has gone up tremendously (WINNER, 2009).

According to the OIC Manager, there has been big demand for coco coir products from

COCOBIND since 2007. For coco fiber alone, 200 tons of coir is needed by one company in the

Philippines which exports them to Taiwan. In 2009, Philippine market needs 500,000 square meters

of geonets and 2 exporters need continuous supply of the same product for Japan and China market.

Unfortunately, COCOBIND accepted only purchase orders of small volume from current customers.

As mentioned earlier, COCOBIND is located in Sorsogon, the second largest coconut

producing province in the region. This ensures the availability of husks which is used as raw material

is the production of coir products. The organization has also the machineries and equipment and

skilled workers. Coco coir production provides additional income to coconut farmers and livelihood

opportunities to households in the communities. It also contributes to the reduction of waste. Local

and international market opportunities are available for coir products. With these factors, it was

projected that COCOBIND will be able to sustain its operations and gain profit in 2005 to 2009.

However, the organization has suffered an ‘on and off’ operations and incurred million pesos in

losses. The company failed not only generating profit but also achieving its noble objective of

enhancing the lives of coconut farmers and their families. It is in this light that this research is

conducted.




Chapter 2 Research Design

This chapter presents the research design of the study. Research design refers to the logical

structure of inquiry. It pertains to the tasks that need to be done to ensure that the data collected

results to answering the research questions (Vaus de, 2007). The research design of this study is

composed of two sets of activities which are: the conceptual research design which determines the

what, why and how much to study and the technical research design which details the where and

when to do the research project (Verschuren & Doorewaard (2005).

The study is a descriptive practice-oriented research because based on exploration, no

hypotheses can be found that should be tested and based on the knowledge that the organization

need, hypothesis is not required (Ellram, 1996). In the following section the two components of the

research design which are the conceptual research design (2.1) and technical research design (2.2)

are detailed, and finally the summary of the chapter (2.3) is presented.

2.1 Conceptual Research Design

The conceptual design consists of four elements. These are the research objective (2.1.1),

research framework (2.1.2), research issue (2.1.3) and the definition of concepts (2.1 4).

2.1.1 Research Objective

The main objective of this research is to provide recommendations to improve the

performance of COCOBIND by describing and analyzing its organizational performance in relation to

the internal and external environment based on defined key performance indicators and desired

situation.

2.1.2 Research Framework

Figure 2.1 Research Framework for Improving Organizational Performance

(1) (2)

(3)

Performance

Measurement

Methods/ Approaches

Additional literature:

profitability and liquidity,

operations function,

human resource

development, customer

strategy & relationships,

competitors and markets

Key Performance

Indicators (KPIs)

(Internal and external

environment)

COCOBIND goals

COCOBIND documents

Current performance of

COCOBIND in relation

to the internal

environment based on

KPIs

Current performance in

relation to the external

environment based on

KPIs

Current performance

based on desired

situation

Key Problems and

Opportunities for

Improvement

Recommendations to

improve performance

Selected

performance

measurement

method

(5)

(4)




Research Framework Formulation

The framework of the research is stated as (1) the study of performance

measurement methods/approaches and scientific literatures and the goals of COCOBIND

which results to the (2) selection of appropriate performance measurement method and

formulation of key performance indicators in relation to the internal and external

environment and definition of the goals by which (3) the current performance of COCOBIND

is evaluated. The analysis of results yields to the (4) identification of key problems and

opportunities for improvement, and (5) formulation of appropriate recommendations to

improve the performance of the organization.

2.1.3 Research Issue

The research issues formulated are presented in the following section in question

form. Verschuren & Doorewaard (2005) proposed that research questions should qualify the

efficiency and steering function characteristics. Efficiency refers to the degree of knowledge

that yields answer to the questions and contributes to realizing the research objective.

Steering function refers to the extent to which the research issue throws light on what

activities still need to be performed in the course of the research project.

Central Research Question:

What recommendation(s) are appropriate to improve the performance of COCOBIND

based on a description of the organization’s performance according to defined key

performance indicators in relation to the internal and external environment and desired

situation?

Sub-questions

1. What relevant key performance indicators (KPIs) can be derived from performance

measurement approaches and additional literature, and what are the goals of the

organization by which the performance of COCOBIND can be evaluated?

1.1 What performance measurement method is most appropriate to use in the

evaluation of the performance of COCOBIND?

1.2 What KPIs and measures can be derived from literature, and organizational goals can

be used to analyze the performance of COCOCBIND?

2. What is the current organizational performance of COCOBIND based on KPIs in relation

to the internal environment and external environment and based on desired situation?

2.1 What is the current performance of COCOBIND based on KPIs in relation to the

internal environment?

2.2 What is the current performance of COCOBIND based on KPIs in relation to the

external environment

2.3 What is the current performance of COCOBIND based on desired situation?

3. What key problems and opportunities for improvement can be identified based on the

analysis of the current performance of the organization?




3.1 What problems in relation to the internal and external environment can be

identified based on the analysis of the performance of COCOBIND?

3.2 What opportunities for improvement can be identified based on the analysis of the

performance of COCOBIND?

2.1.4 Definition of Concepts

The following are the definition of the concepts used in this study:

Balanced Scorecard (BSC) is a performance measurement approach which takes a holistic

view of the accomplishments of the organization with the use of four perspectives which are

financial, customer, internal business process and learning and growth perspective in the

assessments of its performance.

Key performance indicators (KPI) refer to the basic criteria derived from literature that is

applicable for analyzing the performance of COCOBIND.

Organizational Performance refers to how well the organization performs in based on

defined KPIs relation to the internal and external environment and desired situation.

Internal environment pertains to the factors within the organization based on the four

perspectives of the balanced scorecard that affect the performance of COCOBIND.

External environment concerns with the two factors outside the organization which are

competitors and markets that influence COCOBIND performance

Desired situation- describes the ideal values of KPIs and affecting factors that are intended

to satisfy the goals of COCOBIND.

Coco coir products-refers to all products made from coco fiber.

2.2 Technical Research Design

The technical part of the research design determines what needs to be done to

arrive at a sound answer to the research issues in a given time frame (Verschuren &

Doorewaard, 1999). It is comprised of three areas which are the research material (2.2.1),

and research strategy (2.2.2).

2.2.1. Research Material

According to Verschuren and Doorewaard (1999), there are two types of information

sources. These are data sources and knowledge sources. Data sources deals with the

question where to gather the relevant information needed in the study. Data sources are

further classified into five sub-groups namely, individual people, media, reality, documents

and literature. Knowledge sources are those studies or articles which were previously

undertaken that provides theoretical background to the study. The sources of information

chosen for this research were based on the feasibility criteria for the final project which take




into account the availability and results of information to be obtained. The following table

presents the type of data used, source of information and the method of accessing them.

Table 2.1. Type of Data, Data Sources and Method of Accessing

Research

Question (RQ)

Type of Data Data Sources Accessing Methods

Performance

measurement

methods/approaches

Literature

-Performance measurement

methods/approaches

- Electronic search for

scientific literature (books,

journals, articles, conference

papers)

Research

Question 1

KPIs in relation to the

internal environment

Literature

-Financial management e.g.

profitability and liquidity ratios

-Operations function

-Marketing

-human resource development

- Electronic search for

scientific literature books,

journals, articles, conference

papers)

COCOBIND Goals Organizational document Content analysis


external environment

Literature

-Competitor and markets

Electronic search for scientific

literature books, journals,

articles, conference papers)

People

-Management staff, workers

and board

Face-to face interview using

pre-structured questionnaire

Research

Question 2

Description of COCOBINDs

performance based on


internal Environment

Description of COCOBINDs

performance based on


external Environment

Organizational documents

-Financial reports

-Developments and

management plans and reports

-Minutes of meetings

-Emails

Content analysis

Desired Situation Organizational documents Content analysis

Problems and

Opportunities for

Improvement

Literature

-case studies and other types of

research

-Results from research question

2

-Result of interview with

customer and expert

Content Analysis

Interview with pre-structured

questionnaire

Observation and informal

talks with household workers

Research

Question 3

People

-Expert

-Customer

Face to face interview with

pre-structured questionnaire

Recommendation

s to improve

performance

Answers to research question

1,2, and 3




2.2.2 Research Strategy and Methods

This study adopted a desk research and case study strategy. Desk research is a

strategy whereby the researcher uses the materials produced by others, either as a source of

knowledge or source of data (Verschuren and Doorewaard, 2005). Case study is a method

developed in a qualitative research framework which intends to develop a holistic

understanding of one or few phenomena within a case or cases (Vaus de, 2006).

Desk research

Desk research strategy was used in the review of literatures which are intended to

search for appropriate performance measurement method than can be adopted in the

evaluation of the performance of COCOBIND. Additional literatures were reviewed to find

benchmark information such as the best practices of other organizations. Benchmarking is

appropriate because results can serve as a means for identifying improvement opportunities

(Beamon, 1999). This strategy involves the process of measuring an organization’s internal

processes then identifying, understanding, and adapting outstanding practices from other

organizations considered to be best-in-class (Beamon, 1999). Paramenter (2010) defined it

as ongoing process to search for international better practices, compare against them, and

then introduce them, modify where necessary to make it work for the organization.

Case study

A single case approach is adopted for this study since this involves only the Coco

Coir Business Integration and Development (COCOBIND). COCOBIND is chosen because this

is relatively the biggest coco coir producing organization in the province which is owned and

managed not by individuals but by organizations. The phenomenon studied in this research

is organizational performance. A phenomenon refers to the activity of interest that is taking

place in the case. Case study strategy is adopted for this research because of the following

advantages: a) possibility to gain overall picture of the research object b) flexibility reasons

and c) results can easily be recognized in the field (Verschuren & Doorewaard, 2005). The

use of this strategy will provide more detailed information and results about the current

performance of COCOBIND which are relevant inputs in problem identification and

formulation of opportunities for improvement, and recommendations for improvement.

Methods used

Content analysis method was adopted in the review of COCOBIND documents which

include development reports, emails, audited financial reports and minutes of meetings.

This is a more reliable method in obtaining accurate information particularly from reports

than asking the respondent on the subject (Verschuren and Doorewaard, 2005). For the

financial reports, calculation for the liquidity and profitability ratios for the years 2005 and

2009 was made to complete the information. Total asset turnover ratio was computed for

the five years operation as these were not available in the documents. Eleven case studies of




other organizations were reviewed to find best practices which were used as benchmark

information for analyzing the performance of COCOBIND.

Face-to-face interview was conducted to 20 respondents. Three sets of pre-

structured questionnaire were prepared. The first set was pilot tested to two persons to

check the applicability of the questions. The revised question list was administered to 11

respondents composed of all the 3 members of the management staff, 5 out of 10 workers

in the plant involved in stitching and decorticating operations and 3 out of 5 board

members. The two other sets of questionnaire were asked to one expert, and one customer

who is not a member of COCOBIND. Only one expert on coco coir production in the region

was interviewed because that person in the only one directly involved in coco coir business

for more than 10 years and has had valuable experience in the management and marketing

of coir products in the local and internal markets. As to the number of customers, only one

(who is not a member of COCOBIND) was interviewed. Information from customers who are

also members of COCOBIND such as AQFI, and LIKAS has already been noted during the

interview with the representative to the board from these organizations. Information from

SMPFC (also a member of COCOBIND) as a customer has been gathered from emails and

minutes of meetings. Five workers (2 for handicraft and 3 for geonets) and two geonets

agents were also interviewed to validate/confirm some issues derived from content analysis

and interviews with the management staff, board and workers regarding the terms and

conditions in geonets production. No questionnaire was prepared for this. To complement

the information collected from content analysis and interviews, observation of the processes

and activities was done. Moreover, in order to achieve depth, various method of accessing

information was adopted. These include interviews, content analysis and observation. The

sources of information used were people, literature, organizational documents and reality.

Triangulation of methods and sources were employed to gain holistic understanding of the

case and achieve internal validity (Verschuren and Doorewaard, 2005).

In the analysis of results the ‘why-why’ analysis framework was employed. This is a

tool used to understand the reasons for the occurrence of the problem. This is done by

knowing first the problem and asking why the problem happened, followed by identifying

why those reasons have occurred. The process of asking why those reasons happened is

continued until no more causes or answers can be generated from asking ‘why’ (Slack,

1998). To identify the key problems that need to be solved first, prioritization matrix was

used. The matrix helped to reduce the number of considered opportunities to a realistic and

manageable number. Prioritization matrix is a general tool used to arrive at a consensus

regarding an issue (Management Sciences for Health, 1998 cited by Lau et al., (2003).

Case study strategy is widely criticized for lack of external validity because it does

not apply beyond those in the study. However, case studies do not aim to achieve valid

statistical generalization beyond a particular case. Instead, case studies strive for theoretical

generalization which entails generalizing from a study to a theory. Thus, the right question to

ask is ‘What does this case tells us about a specific theory instead of what does the study tell

us about the general population.’ Case study strategy is intended to help develop, refine and

test theories (Vaus de 2006). Besides, the emphasis of case study is not on counting and




calculating based on observations but on comparing and interpreting results (Verschuren

and Doorewaard, 2005).

2.3 Summary

This chapter has presented the research design of the study. It provided the details

on the what, why and how much to study as explained in the conceptual design. The details

on the materials needed, and the strategies and methods adopted were reflected in the

technical research design. This study is a descriptive practice oriented research which adopts

desk research and case study strategy. Literatures and case studies on best practices of

other organizations and documents of COCOBIND were intensively used as sources of

information. To analysis the findings, the ‘why-why’ analysis and prioritization matrix were

used. Triangulation of sources and methods were adopted to find holistic information and

achieve internal validity.




Chapter 3 Theoretical Background

This chapter presents the theories that support this study and the concepts used. In

this chapter, literatures on performance measurement methods and approaches and

theories related to financial management, operations management, marketing, human

resources development and business environment were reviewed to find key performance

indicators for the internal and external environment and the corresponding measures.

According to Gouveia et al., (1996) these measures allow organizations to closely look at the

actual state of business and give feedback on how to deal with the future. COCOBIND

documents were also analyzed to define the goals of the organization. This chapter has five

sections: Definition and Importance of Performance Measurement (3.1), Performance

Measurement Methods and Approaches (3.2), Additional Literatures to Define KPIs, (3.3)

COCOBIND Goals (3.4), and the Summary of the Chapter (3.5).

3.1 Definition and Importance of Performance Measurement

Performance measurement is defined as the acquisition and analysis of information

about the actual attainment of company objectives and plans, and about factors that may

influence this attainment (Kersens-van Drongelen & Bilderbeek, 1999). Interest in

performance measurement and management has increased in the last few years (Neely &

Adams, 2001 cited Visser et al., 2001) and a lot of different frameworks and processes for

designing performance measurement systems (PMS) have been developed. Most of these

existing approaches consist of a design approach to derive performance indicators, a

framework to present the indicators and an underlying theory (Visser et al., 2001).

Neely (2002) added that the interest in measurement has been that organizations

using balanced performance measurement system as the basis for management perform

better that those who do not. Also, understanding organizational performance is a

necessary step towards an assessment process which enables an organization to understand

its situation and identify problems which are necessary in formulating appropriate

recommendations for improvement. This is one of the reasons why every organization has to

do something to measure and communicate how well it performs its work. Several

approaches have actually been developed to serve as criteria to respond to difficulties in

measuring organizational performance (Lusthaus, 2002).

However, although existing performance frameworks add value because they all

provide unique perspectives on performance, there is no best way to view performance

(Neely and Adams, 2000 cited by Visser, et al., 2001). Thus, the need to analyze the

organizational context, identify the purpose for measuring performance and to break these

down into desired functions and subjects of PMS (Visser et al., 2001). Specifically, Kueng

(2000) proposed steps for identifying performance indicators which are: 1) define high-level

process goals, 2) derive performance indicators, 3) derive sub-goals, 4) refine and modify the

goals.




3.2 Performance Measurement Methods and Approaches

Literatures provide various methods and frameworks in performance measurement.

Performance measurement is multifaceted and describes elements related to results and the

processes creating the results (Neely, 2002). It is defined as the extent to which an

organization as a social system fulfills its objectives (Hassard and Parker, 1993; cited by

Lusthaus, 2002). There are four basic characteristics that should be present in performance

measurement systems; (1) inclusiveness, the measurement of all pertinent aspects, (2)

universality, comparison of aspects under various operating conditions, (3) measurability,

the data required should be measurable and (4) consistency, the measures should be

consistent with the organization goals (Beamon, 1999; cited by Rosenthal, 2006). In the

following section the four performance measurement methods which are the Financial

Performance Measurement Method, Sink and Tuttel Model, Performance Pyramid and

Balanced Scorecard are presented.

3.2.1 Financial Performance Measurement

Traditionally, despite changes in the business environment, management teams

mainly rely on financial metrics in the assessment of organizational performance. Non-

financial metrics such as customer satisfaction and job satisfaction were not given

importance (Eccles, 1991; Sinclair and Zairi, 1996; cited by Kueng, 2000). Financial measures

specifically return measures includes return on equity (ROE), return on capital (ROC), return

on assets (ROA), return on sales (ROS) , price/cost margin and stockholder return (Capon et

al., 1990). Profit margin (also known as ROS) measures how much the company earns

relative to its sales. These measures determine the company’s ability to withstand

competition and rising costs, falling prices or declining sales in the future (Ross et al., 1993;

cited by Tangen, 2003). ROA which is a measure developed by DuPont in 1919, is a financial

model for performance measurements (Zairi, 1994) that determines the company’s ability to

utilise its assets. ROE measures the income that investors get from investment (Tangen

2003).

By the 1980's it was realized that traditional measures are not enough to manage

organizations (Johnson, 1983; Kaplan, 1987; cited by Kennerly and Neely, 2003) given the

fast pace of change in the environment and technological advancement that happened in

the 1980’s and 1990’s (Zairi, 1994). Although financial measures reflect performance that

results from activities, it does not fully describe how the performance was achieved and how

it can be improved (Kennerly and Neely, 2003). Financial measures are concerned with cost

elements and quantify performance based only in financial terms (Ghalayini et al., 1997 cited

by Tangen, 2003). Besides financial reports are results of decisions that were made earlier

(Maskell, 1991 cited by Tangen, 2003). The shortcomings of traditional measures have been

recognized in both the academic world and by most industrialists. The concern about these

limitations has resulted to the development of new PMS which incorporate both the

financial and non-financial measures that truly reflect the organization's competitive

situation (Eccles, 1991; Neely, 1999; cited by Kennerly and Neely, 2003). Among these are

the sink and tuttel model, performance pyramid and the balanced scorecard.




3.2.2 Sink and Tuttel Model

One of the performance measurement systems developed in response to the

limitations of the financial metrics is the sink and tuttel model. This approach identifies

seven interrelated performance criteria which are as follows: 1) effectiveness which is

measured in terms of the ratio of actual output to expected output; 2) efficiency, which

simply means “doing things right”, and is defined as a ratio of resources expected to be

consumed to resources actually consumed; 3) quality, where quality is an extremely wide

concept. To make the term more tangible, measures of quality has to be defined. 4)

productivity, which is defined as the traditional ratio of output to input; 5) quality of work

life, which is an essential contribution to a system which performs well; 6) innovation, which

is a key element in sustaining and improving performance; and 7) profitability/budgetability,

which represents the ultimate goal for any organisation (Sink and Tuttel, 1989; cited by

Tangen, 2004). The model is illustrated below.

Figure3.1. Sink and Tuttel Model

Source: Sink and Tuttle (1989)

The seven performance criteria mentioned in the Sink and Tuttel model are still

relevant despite changes that took place in the industry. It is however criticized for failure to

consider flexibility and the customer perspective (Tangen, 2004).

3.2.3 Performance Pyramid

Performance pyramid or the strategic measurement analysis and reporting

technique (SMART) system links performance measures at different levels in an organization

to ensure that each department work towards the same goals (Cross and Lynch, 1992; cited

by Tangen, 2004). The SMART system has four- level pyramid objectives and measures

(Gahalayini and Noble, 1996) which starts with the corporate vision. This is translated into




business unit objectives which are the short term target of cash flow and profitability. The

model suggests operational measures which are customer satisfaction, flexibility, and

productivity. At the department level four key performance measures which include quality,

delivery, cycle time and waste are defined (Tangen, 2004). The performance pyramid model

is shown below.

Figure3.2. Performance Pyramid

Source: Cross and Lynch (1992)

The main advantage of performance pyramid is its attempt to integrate corporate

objectives with operational performance indicators. It tries to align all measures to different

departments towards the attainment of its corporate goals. On the contrary, it was

mentioned that this system does not provide mechanism to identify key performance

indicators, nor does it explicitly integrate the concept of continuous improvement (Ghalayini

et al., 1997 cited by Tangen, 2004).

3.2.4 Balanced Scorecard

Researches revealed that organizations using balanced performance measurement

systems as the basis for management perform better than those that do not. The most

popular of these balanced approaches in the 1990's is the balanced scorecard (BSC) (Kaplan

and Norton, 1992; cited by Tangen, 2003). BSC supplements the traditional financial

measures with three additional perspectives which are customer, internal business process,




and learning and growth (Kueng, 2000). As such, BSC covers four areas in which performance

measures are devised (Lingle and Schiemann, 1996; cited by Neely, 2002). The four

perspectives of BSC that Kaplan and Norton (1996) proposed answers the questions:

1) To succeed financially, how should we appear to our shareholder (financial

perspective)?

2) To achieve our vision, how should we appear to our customers (Customer

perspective)?

3) To satisfy our shareholders, what business processes must we excel at (internal

business perspective)?

4) To achieve our vision, how can we sustain our ability to change and improve

(learning and growth perspective)?

Moreover, recently Parmenter (2010) proposed two additional perspectives in the

balanced scorecard which are the employee satisfaction perspective and environment &

community perspective. According to the author, employee satisfaction perspective is

viewed far too important to be considered as subsection of internal business process.

Environment and community perspective pertains to increasing awareness on green issues,

reducing costs through minimizing waste, creating positive press and increasing higher staff

morale by implementing green initiatives. For this study, only the original four perspectives

of the BSC are considered.

Financial perspective

The BSC approach retains measure of financial performance, the lag indicators that

report on the result of past actions (Kaplan and Norton, 2001). This perspective is relevant in

evaluating the costs and profits of organizations. The metrics identified for this perspective

are: material acquisition costs, non-quality costs, warehousing costs, manufacturing unit

costs, cost of carrying inventory, logistics costs, transportation costs, cash flow, EBITDA,

Income, Economic value added (EVA), operating ratio, return on investment (ROI), revenue

per employee, return on asset (Gouveia et al., 1996). Although financial measures (such as

operating income, return on investment, and economic value added) are not perfect

measures but they are at least well understood and provide clear, unambiguous, and

objective goals on which organizations may focus (Kaplan & Norton, 1996).

Customer perspective

This aspect identifies the factors most critical for future and current success.

Customer perspective consists of generic outcome measures which include customer

satisfaction, customer retention, new customer acquisition, customer profitability and

market and account share in targeted segments. Market and account share may be

measured in terms of sales; customer retention can readily be measured in terms of the

number of existing customers retained or are loyal to the organization; customer acquisition

could be measured either by the number of new customers or the total sales to new




customers; and finally, customer satisfaction may be measured in terms of repeat purchase

behavior by customers.

Internal business process perspective

Internal processes perspective pertains to the efficient use of resources and

harmonious internal functioning of the organization. Business processes have to be clearly

understood to find out how they can be improved. Some authors agree that a performance

measurement system should not only serve as a warning about performance problems but

should also communicate the reasons for the problems (Rose, 1995, cited by Kueng, 2000).

According to the resource-based view, accessing and managing resources are indicators by

which organizational effectiveness may be assessed. The performance of the organizations is

measured based on the level of vulnerability of the organization e.g. Organization needs

control over resources used in production which is possible through establishing links with

other organizations (Daft, 2004).

Likewise, this perspective considers the sub-goals which include mechanism for

efficient communication, information management and decision making. Internal business

process perspective determines the critical internal processes that organizations must excel,

and have the greatest impact on customer satisfaction and the accomplishment of the

objectives of the organization. This involves determining new processes that will enable the

organization to excel and meet customer and financial objectives (Daft, 2004). The critical

internal business processes enable the business unit to deliver on the value of customers in

targeted market segments and satisfy shareholder expectations of excellent financial

returns. This requires focus on internal processes that brings greatest impact on customer

satisfaction and achieving financial objectives (Kaplan and Norton, 1996).

Learning and growth perspective

Organizational learning and growth perspective describes the infrastructure that

organizations must build to create long-term growth and improvement. It comes from three

sources which are people, systems and organizational procedures and the requirements

needed to achieve its target performance. This includes re-skilling of employees, enhancing

information technology and systems, and aligning organizational procedures and activities.

For this perspective generic employee-based outcome measures are identified which are

employee satisfaction, employee retention, employee training and employee skills (Kaplan

and Norton, 1996).

In general, Kaplan and Norton (1996) added that a properly constructed balanced

scorecard illustrates a measurement system that reflects the relationships among objectives

in various perspectives in order that they can be managed and validated. This means making

the causal relationships between perspectives explicit. A good balanced scorecard consists

of core outcome measures and performance drivers of these outcomes and tells a story

about strategy. The four perspectives provide guidance to managers to focus only on

measures which are important and achieve a more holistic assessment of the




accomplishments of the organization (Kaplan and Norton, 1992 cited by Tangen, 2004). One

limitation of the BSC is the non-inclusion of competitor perspective in the framework.

As mentioned earlier, the sink and tuttel model, perfomance pyramid and balanced

scorecard are integrated performance measurement systems developed to address the

limitations of performance assessments using mainly the financial performance measures.

The sink and tuttel model and performance pyramid are relevant but these were not

considered for COCOBIND since these approaches use too many criteria in measuring

performance. The organization is still in the process of systematizing its operations and

objectively verifiable indicators are not available. For this study, the balanced scorecard was

adopted because information based on the scorecard achieves holistic assessment of current

operating performance of an organization with only the four perspectives used as criteria.

The adoption of these perspectives limits the number of measures to most critical ones, thus

reducing information overload (Kaplan and Norton, 1992 cited by Tangen, 2004). These

perspectives are the basis for defining the KPIs for the internal environment used in this

study.

3.3 Additional Literatures to Define KPIs

As mentioned earlier the BSC only provides the general guidelines on the four

perspectives. Additional literatures were reviewed to identify the KPIs and measures, and

determine the perspectives and measures for the assessment of the external environment of

COCOBIND. KPIs are a set of measures focusing on aspects of organizational performance

that are the most critical for the current and future success of the organization. KPIs, actually

tells us what to do to increase performance dramatically. Moreover, extra care is needed in

determining KPIs as most often, Key Result Indicators (KRIs) are mistaken for KPIs. The

distinguishing characteristics of KRIs are that they are the result of many actions (examples

are customer satisfaction, net profit before tax, profitability of customers, and employee

satisfaction return on capital employed) (Parmenter, 2010). The author proposed seven

characteristics of KPIs as follows:

- Nonfinancial measures (e.g. not expressed in money)

- Frequently measured (e.g. daily or weekly)

- Acted on by CEO and senior management team (e.g. CEO calls relevant staff to know

what is going on)

- Clearly indicate what action is required

- Measure tie responsibility down to the team

- Have significant impact (e.g. affect one or more of the critical success factors and

more than one BSC perspectives

- Encourage appropriate action (e.g. have been tested to ensure they have positive

impact on performance

Two broad categories of the environment were used as guide in defining the KPIs.

Environment is defined as the relevant physical and social factors considered in decision

making (Duncan, 1972 cited by Daft et al., 1988). Environments create both problems and

opportunities for organizations. And that organization depends on the environment for




scarce and valued resources, and must cope with unstable, unpredictable external events.

Perhaps more than any other factor, the environment affects organizational structure,

internal processes and managerial decision-making (Duncan, 1972; Pfeffer and Salancik,

1978, cited by Daft et al., 1988).

The two categories of factors affecting the growth and performance of a firm are

factors related to the ‘internal environment’ and factors related to the ‘external

environment (Acar, 1993). The internal environment consists of forces operating within the

organization such as the company's objectives and goals, nature of the organization's

products and/or services, communication processes and networks within the organization,

and the educational background of employees. The external environment pertains to the

factors outside the company, such as customers, competitors, suppliers, governments, and

trade unions (Duncan, 1972 cited by Tung, 1979). Thus, the KPIs defined for this study is

categorized into: KPIs in relation to the internal environment; and KPIs in relation to the

external environment.

3.3.1 KPIs in Relation to the Internal Environment

In the following literatures, KPIs and measures related to the internal environment

were identified.

Financial management

Empirical studies have revealed the usefulness and recognized the significant role of

financial ratios in the evaluation of performance and financial condition of an organization

(Chen and Shimerda, 1981). Among these ratios, profitability measures such as Return on

Investment (ROI) and Return on Sales (ROS) or profit margin are considered important

measures of performance (Woo and Willard 1983, cited by Chakravarthy, 1986). Other

common measures of financial performance are Return on Assets (ROA) and the ratios of

short-term solvency which are the Current and Quick Ratio. The ratios of short-term

solvency measure the ability of the firm to meet its financial obligations such as paying its

bills. A firm will only avoid default in the payment of its obligations if it has enough cash

flow. The current assets are the basic sources for which to pay these obligations (Ross et al.,

2008).

ROI compares income (after all expenses, income taxes and minority interests, but

before provisions for common/or preferred dividends) with total investment (long-term

debt, preferred stock, minority interest and common equity). It reflects the extent of

utilization of the organization’s resources over time (Denison, 1985). In most corporate

organizations, the ROI is typically set between 10 to 20 percent and any project with returns

higher than these may be pursued (Dust, 1996 cited by Thorsett, 2001). Moreover,

improving ROI may be done either by increasing profit or by decreasing investment.

Reducing investment may be done by delaying the replacement of old machineries (which

has low book value) or gradually obsolete a manufacturing process by replacing worn-out




machinery of the same technology rather than with updated technology (Hayes and

Wheelwright, 1984).

Another measure of managerial performance is ROA. It is the ratio of income to

average total assets, both before tax and after tax. This ratio can be augmented by

increasing profit margins or asset turnover (Ross et al., 2008). Profit margin is a measure of

performance which indicates the ability of the organization to produce a product or service

at high or low cost (Ross et al., 2008). Boubakri and Cosset (1998) prefers this ratio over

ROA and return on equity because it is less sensitive to inflation and other accounting

conventions.

As to accounting liquidity, the common measures used are the current ratio and

quick ratio. Current ratio measures the firm’s ability to settle short term obligations. The

current ratio is calculated by dividing the current assets by the current liabilities. Quick ratio

is the percentage of quick assets to current liabilities. Quick assets is computed by

subtracting inventories from current assets. Quick ratio represents the firm’s ability to pay

off current liabilities without relying on sale of inventories (Ross et al., 2008).

Financial indicators as a measure of performance, remain a fundamental

management tool that reflects the organization’s goal of achieving profitability, despite

comments that that too much emphasis on financial measures, threatens the organizations

long-term viability (Shaw, 1999). The financial indicators used in this study which are ROA,

profit margin, current ratio and quick ratio were complemented with the three other

perspectives of the balanced scorecard to make it more relevant as a measure of

performance. These measures were chosen because of the availability of financial reports,

which is the source of the information needed. Based on these concepts, the financial

indicators were formulated and measures were identified.

Operations management

Operations management refers to the activities, decisions and responsibilities of

operations managers who manage the arrangement of resources which are devoted to the

production of goods and services within an organization. Operations function is central to

the organization (but not necessarily the only and most important) because it produces the

goods and services, which is done through a transformation process (Slack et al, 1998). In

this study, the operations function was used as basis for describing the internal business

processes aspect of the organization.

Slack added that operations have five performance criteria, of which one of them is

quality. According to the manufacturing-based definition, quality refers to the degree to

which a specific product conforms to a design or specification (Gilmore, 1974; cited by

Garvin 1984). Quality is an important concern for organizations because of the effect it has

on demand and the performance of the organization in the long term (Hill, 1991). Moreover,

“zero defects” has become a standard objective in many manufacturing quality systems




(Buchanan and Gillies, 1990). The production of good quality products reduces cost of

rework, scrap and returns, and most importantly satisfies customer (Slack, 1998).

Garvin (1984) mentioned that quality has eight elements which are performance,

features, reliability, conformance, durability, serviceability, aesthetics and perceived quality.

Moreover, for any type of product, these elements have to be defined in order to be

measured. There are two types of measures that operations used to describe quality

characteristics which are variables and attributes. Variables are measured in terms of

continuous variable scale such as length, diameter, weight; and attributes are measured

based on judgment e.g. right or wrong, it works or does not work etc. (Slack et al., 1998).

The figure below shows how quality leads to profitability in terms of market gains and cost

savings point of view.

Figure3.3 Quality and Profitability

I. Market gains

Likewise, productivity is a measure where larger values of outputs to inputs are

associated with better performance (Coelli et al., 2005). Productivity refers to the output

achieved in relation to the inputs used. This is expressed in terms of ‘cost for a unit of

production,’ ‘units produced per employee’ or ‘resource cost per employee’ (Dwyer, 1996;

Daft, 2004). For this factor, the measurement to be used is based on the ratio of the outputs

achieved divided by the inputs required. Moreover, the figure derived using this ratio is not

useful to managers unless compared with historical data or other organizations. Establishing

trends or changes in productivity data where there is an increase or decrease are more

relevant to organizations (Fawcett et al., 2007).

Another key measure of operations performance is plant utilization. It indicates the

proportion of the capacity that has been used to produce value-added goods or services. Its

importance is based on the opportunity cost argument which says that any lost production

time could be used to produce more outputs which would generate more profit. However,

measuring utilization can be misleading because low utilization level could be due to low

Lower Service Costs

Improved performance

Features, reliability,

etc.

Improved reputation

for quality due to

increased advertising

Increased market

share

Experience-based

Scale Economics

Higher Prices

Increased profits

Increased

Productivity

Lower Rework and

Scrap Costs

Improved Reliability

or Conformance

Lower Manufacturing Costs

Lower Service

Costs

Increased profits

II. Cost Savings




demand, machine breakdown or absence or lack of raw materials. Moreover, emphasis on

high utilization can result in the build-up of work-in-process inventory (Slack et al., 1998).

Moreover, responding to customer demand is also an important area that

organizations have to deal with. Weir (2000) proposed that aligning marketing and

manufacturing strategies can make responding to customer possible. There are five

alternative responses to markets/demand that manufacturing companies may choose from.

These are: design to order; engineer to order; make to order; assemble to order; and e) make

to stock. In design to order, manufacturing companies create new product designs and

manufacture a product to meet the specific needs of customers.

As to engineer to order strategy, changes to standard products are offered to

customers and these are only made to order. Moreover, make to order pertains to

manufacturing a standard product only on receipt of a customer order. As regards assemble

to order, components and subassemblies have been made to stock. On receipt of an order,

the needed parts are drawn from the work-in-progress and assembled to order. Finally, for

the make to stock, finished goods are made in advance of demand in line with sales forecast.

Orders from customers are met from inventory (Hill, 1993). Additionally, products with high

inventory, with short and more reliable times and unpredictable demand are suited for

make to order production while products affected by backordering, set-up and control costs,

with general and more predictable demand best suit make to stock production (Perona,

2009).

Inventory is another important aspect of operations. It pertains to the raw materials

to be used in production, work -in-process and finished goods (Ross et al., 2008). Work-in-

process (WIP) shows the quantity of products that is waiting to be processed while inventory

refers to the products available in the warehouse (Lian, 2006). Inventory is created to

compensate for the differences in timing between supply and demand. This imbalance

between the rates of supply and demand at various points in the operation resulted to the

types of inventory which are: buffer inventory, cycle inventory, anticipation inventory and

pipeline inventory (Slack et al., 1998).

Based on the operations management literature, the researcher defined the KPIs

related to quality, productivity, and inventory, capacity utilization both for the machine and

labor. Since the COCOBIND is still in the state of systematizing its operations, the KPIs

selected were only limited to the ones mentioned. Based on these generic measures, specific

indicators were defined to serve as guide in describing the performance of the organization.

Marketing

Marketing management is the art and science of choosing target markets and

getting, keeping, and growing customers. In the study of marketing, set of processes for

creating, communicating and delivering value to customers and for managing customer

relationships in ways that benefit the organization and its stakeholders are dealt with (Kotler

and Keller, 2006). Marketing focuses on the needs of the customer and therefore has to




begin with analyzing customer requirements Tidd, 2005). “Staying close to the customer” is

a necessary measure of sales and marketing (Shaw, 1999).

Customers are important intangible assets of a firm which have to be valued and

managed (Gupta and Lehmann, 2001). In relation to this Lehmann and Winer (2005)

suggested different strategies, in which results of its activities determine sales and form

high level implementation of basic strategy. Some authors argued that customer satisfaction

is one of the measures considered as investment in firm-specific assets that are not fully

captured in current accounting measures. It is categorized among the nonfinancial

indicators of investments in "intangible" assets which may be better predictors of future

financial performance than historical accounting measures, and should supplement financial

measures in internal accounting systems (Deloitte Touche Tohmatsu International, 1994 &

Kaplan and Norton, 1996; cited by Ittner & Larcker, 1998). Specifically, customer satisfaction,

improves financial performance by increasing the loyalty of current customers, decrease

advertising expenses through word-of-mouth advertising and enhancing the reputation of

the organization (Ittner & Larcker, 1998). Concretely, Fornell (1992) states that ‘For

customer satisfaction, success and failure are evaluated primarily by changes in customer

retention.’ This indicator is important to understand the organization’s capability to respond

to the requirements of buyers.

One way to respond to the needs of buyers is through product development.

Theoretically, it is possible for the firm to exist even without significant developments to its

products. However, since success is dependent on the ability to compete with others, firms

can achieve them only by ensuring that the firm’s products are superior to the competition.

Such is actually exceptional to the norm. Moreover, new product development offers

potential benefits. On the average, new products are increasingly taking a larger slice of the

firm’s sales (Cooper and Kleinsmidt 1993, cited by Trott, 2008).

From the literatures on marketing provided significant information on the

importance of focusing on the needs of customers. Specifically, it highlights customer

satisfaction as one of the key predictors of financial performance which is possible through

customer loyalty and establishing close relationships with the customer. Likewise, the

development of new products also offers great potentials for organizational growth. These

aspects are considered in the identification of KPIs and measures for this study.

Human resources development

Traditionally, human resource (both as a labor and a business function) has been

viewed as a resource to be minimized and a potential source of efficiency gains (Becker and

Gerhart, 1996 cited by Lepak and Snell, 1999). Given pressures for both efficiency and

flexibility (Powell, 1990 cited by Lepak and Snell, 1999) firms explored the use of different

employment modes to allocate work (Rousseau, 1995; Tsui, Pearce, Porter &Hite, 1995 cited

by Lepak and Snell, 1999). In addition to employing internal-full-time employees, many firms

depend more on external workers such as temporary employees, contract laborers and the

like.




Internal employment benefits the firm with greater stability and predictability of a

firm’s stock of skills and capabilities (Pfeffer & Baron, 1988 cited by Lepak and Snell, 1999),

better coordination and control (Jones & Hill, 1988; Williamson, 1981), enhanced

socialization (Edwards, 1979, cited by Lepak and Snell, 1999). Although, internalization may

increase the stability of a firm's stock of human capital, but it also incurs bureaucratic costs

which results from administering the employment relationship (Jones & Wright, 1992; Rous-

seau, 1995). It also constrains firm's ability to adapt to environmental changes, particularly

those that influence the demand for labor.

External employment may enable firms to minimize overhead and administrative

costs (Davis-Blake & Uzzi, 1993; von Hippel, Mangum, Greenberger, Heneman, & Skoglind,

1997; Welch & Nayak, 1992, cited by Lepak and Snell, 1999), balance workforce

requirements (Pfeffer, 1994, cited by Lepak and Snell, 1999), and enhance organizational

flexibility (Miles & Snow, 1992; Snow et al., 1992, cited by Lepak and Snell, 1999). With

external employment, organizations may be provided with more flexibility in terms of

number and types of workers to be employed (Davis-Blake & Uzzi, 1993; Pfeffer & Baron,

1988; Tsui et al., 1995, cited by Lepak and Snell, 1999). Moreover, continued reliance on the

use of external skills and capabilities on the short term may hinder the development of core

skills and capabilities critical for long-term firm performance (Bettis et al., 1992; Lei & Hitt,

1995, cited by Lepak and Snell, 1999).

Human resources are frequently "underutilized" because employees often perform

below their maximum potential. HRM practices influence employee skills through the

acquisition and development of a firm's human capital. The implementation of proper

recruitment procedures which provide opportunity to a large pool of qualified applicants,

paired with reliable and valid selection criteria will have a substantial influence over the

quality and type of skills new employees possess. Employee development may also be

possible through formal and informal training experiences, such as basic skills training, on-

the-job experience, coaching, mentoring, and management development (Bailey, 1993 cited

by Huselid, 1995).

Additionally, skills development is an important element of any strategy in order to

improve competitiveness within a firm. When people acquire skills they can produce more

output for a given amount of time and effort (Lange et al., 1999). Given the fast changing

technology and customers’ tastes better educated workers provide the flexibility needed to

switch production between sectors and branches, and to restore balance through

innovation, retraining and relocation (Godfrey, 1997 cited by Lange et al., 2000).

However, the effectiveness of even highly skilled employees will be limited if they

are not motivated to work. HRM practices can affect employee motivation by encouraging

them to work both harder and smarter. Some efforts to direct and motivate employees

include the use performance appraisals that assess individual or work group performance,

linking these appraisals to incentive compensation systems, promotion, providing employee

with merits, and other forms of incentives intended to align the interests of employees with

those of shareholders (Huselid, 1995, cited by Lepak and Snell, 1999).




In regard to the human resource management literature, the focus is on the

development of employee as human capital and employee motivation. These factors are

critical for long-term performance and success of the organization. In relation to this study,

concepts related to employee development are used.

3.3.2 KPIs in Relation to the External Environment

External environment refers to the factors and phenomena that exist outside the

company that influence decision making (Daft, 1998). The external factors have been viewed

to have a strong impact on small firm viability and growth. It is considered as the source of

events and changing trends which "create opportunities and threats for individual firms"

(Lenz 1980 cited by Swamidass, 1987). Among the factors considered as determinants of

small firm creation and success are the general economic conditions as well as fiscal and

regulatory influences (Cooper, 1979; Boskin, 1984; Chilton, 1984; cited by Covin and Slevin,

1989). General environmental dimensions such as level of industry stagnation and dynamism

may also affect firm performance (Peterson, 1985; Miller and Toulouse, 1986; cited by Covin

and Slevin, 1989). Organizations have to be updated with what is going on in the

environment in order for managers to respond to market changes and other developments.

Business environment

In strategic management point of view, business environment is composed of three

layers: the Macro-environment, which the highest level; Industry or sector which forms the

next layer; and the competitors and markets (Johnson et al., 2008), which are considered the

first layer. Competitors and markets which comprise the first layer are closest to the

organization and affect the day-to-day operation of the organization (Bourgeois, 1980; cited

by Daft, 1988). For this study, the first layer was considered in describing the performance of

COCOBIND in relation to the external environment (Johnson et al., 2008). The choice was

based on the reason that these sectors changes significantly and may have potential

influence on the performance of the COCOBIND.

Competitors

As regards the competitors, this is captured by the concept of strategic groups which

Johnson et al., (2008) proposed. Strategic groups are organizations within an industry with

similar strategic characteristics, following similar strategies or competing on similar bases. In

identifying strategic groups, organizations may be characterized in terms of scope of

activities and resource commitment. As to the scope of activities, organizations may be

described in terms of the extent of product diversity; geographical coverage; number of

market segments served and distribution channels. In terms of resource commitment

characteristics such as extent of branding; marketing effort, extent of vertical integration;

product or service quality; technological leadership and size of the organization may be

considered (Johnson et al., 2008). Moreover, it has to be noted that under reasonable

assumptions, more competition will raise the probability of bankruptcy at any given level of




managerial effort. Managers have to work harder to avoid this outcome (Schmidt 1996; cited

by Nickell et al., 1997).

Markets

The concept of market segment is useful in analyzing customer needs. A market

segment is a group of customers who have similar needs that are different from customer

needs in other parts of the market. Determining the market segment, will lead to the

identification of strategic customers. Strategic customer pertains to the person(s) at whom

the strategy is focused because they have the greatest influence on demand. In relation to

this, it is important to identify the strategic customers so that managers would know which

group to target (Johnson et al., 2008) and how to deal with them. The main concern here is

to know what is happening in the market and how it influences the organization for instance

changes in the buying pattern and preferences of customers.

3.3.3 The Key Performance Indicators and Performance Measures Selected

Generally, there are two ways of drawing out performance indicators. The first is

using a generic set of appropriate performance indicators and picking up the right ones and

the second is starting from scratch. For this study, the first option is chosen for efficiency

reasons e.g. there is no need to ‘reinvent the wheel’ (Kueng, 2000). In general, the goal for

measuring the performance of COCOBIND is to provide holistic, comprehensive and accurate

feedback on the current performance of the organization. Based on this, make a diagnosis of

the problems identified and formulate recommendations.

As mentioned earlier, KPI identification starts with goal definition. Based on the

results of the interview with the management staff and review of documents, the overall

purpose of the organization is stated but detailed goals and strategies of the different

business areas are not well defined. Based on the information, KPI’s and measures were

selected from the performance measurement approaches and methods and from additional

literature. KPIs have to be a multi-dimension set measuring all relevant performance

measurement areas, structured to give a general view of the success of the organization

aligned with business goals (Kaplan, 1996; cited by Gouveia et al., 1996). The KPIs chosen for

this study and the corresponding performance measures are presented in the following

table.




Table 3.1. The KPIs and Performance Measures Selected

Environment Category/

Performance

Perspective

Source of KPIs KPIs Performance Measures

Internal Environment

Financial Management

- Profitability and

liquidity

1. Generate profit from

operations

-Annual sales

-Net income

- Profit margin

2. Effective use of assets -Net income

-Amount of assets

-Return on Asset

Financial

3. Capable to pay short

term obligations and

current liabilities

-Amount of current assets

-Amount of Current liabilities

-Amount of quick assets

-Current ratio

-Quick ratio

Marketing 4. Repeated and

expanded sales from

customers

-types of products sold

-terms and conditions of sales

Customer Perspective

5. Stay close to the

customer

-types and number of

customers

- benefits derived from the

relationships

6. Keep quality of

products according to

the preference of

customers

-Percent of defective products

- Problems on product quality

- types of machineries used

-production level of machines

-product produced

-# of workers employed in the

plant

-problems in relation to the

current level of machine

utilization

Operations

Management

7. Fully utilize machine

capacity, and household

workers capacity

-# of household workers

-quantity produced per day

-factors affecting the current

level of workers productivity

8. Keep appropriate level

of inventories

- volume of product inventory

maintained

-basis for determining the

level of stocks

-type of inventory

-problems related to

maintaining inventories

Internal Business

Process

9. Develop new products

in response to market

demand

- sources of new product

ideas and concepts

-types of new products




Environment Category/

Performance

Perspective


developed and marketed

-problems in product

development

10. Continuous skills

development for

household workers

-types of skills development

provided to workers

- # of workers trained

-Activities done to monitor

performance of household

workers

Learning and Growth Human Resource

Development

11. Provision of

education and training

to management staff

-types of education and

training provided to staff

-monitoring of staff

performance

Environment

perspective

External Environment

Competitors 12. Adapt to changes,

opportunities and

threats of competition

-# of direct competitors

-characteristics of

competitors in terms of scope

of activities and resource

commitment

-opportunities that can be

taken advantaged of in

competition

-threats from competitors

Market

Strategic Management

- Competitors and

markets

13. Adapt to changes,

opportunities and

threats in the market

sector that may

influence organizational

performance

-market trends in the local

and international markets

-market opportunities

- threats from the market

environment

In the following section, each of the KPIs is discussed. Based on financial

management literature, three KPIs were identified which are: a) Capable to generate profit

from operations, b) Effective use of assets and, c) Capable to pay short term obligations and

current liabilities.

Profitable operations

Profitability pertains to the ability of the organization to produce a product or

service at high or low cost. As shown in the table, the data required are the net income and

sales. These are then used in calculating the profit margin which is expressed as the

percentage of net income to sales. Ross et al. (2008) explains that there is no completely

clear way of determining profitability because accounting measures does not provide a

benchmark for making comparisons. But in economic sense, a firm is profitable only when




investors get higher profit than they can achieve on their own in the capital markets. This is

an important KPI to consider because if a company is not earning profit then, this is a signal

to look into the causes and implement appropriate interventions to address them.

Effective use of assets

This KPI indicates how well the organization is utilizing its assets in production. The

information needed to determine the levels of its utilization are total sales, net income and

amount of assets (average). From this measures asset turnover ratio and finally ROA is

computed. This KPI is relevant because underutilization of assets means lost opportunities

for the company.

Capable to pay short term obligations and current liabilities

This pertains to the ability of the company to meet financial obligations. To measure

capability to pay, financial data such as amount of current assets and liabilities, quick assets

are needed. Eventually, current ratio and quick ratio which are the most widely used

measures for accounting liquidity are determined.

In terms of customer perspective, these are two KPIs defined. These are a) repeated

and expanded sales from customers and b) staying close to the customer.

Repeated and expanded sales from customer

Customers’ purchases from the company represent sales. The amount of sales

depends on the frequency and the quantity of purchases the customer makes every time

they buy. As to this KPI, the measures needed are the number of customers, the amount of

sales generated from them, the frequency of purchase and the customer strategy adopted

to improve sales.

Stay close to the customer

Staying close to the customer is about personal relationship of the firm with the

customer to stay competitive. Close relationships with the customer, enables companies to

get feedback which is an input to improving product quality and/or the services offered. The

measures identified for this KPI are the number of customers with long-term relationships

with the company, strategy to maintain customers and benefits derived from the

relationships.

In relation to internal business process perspective, the four KPIs formulated are a)

Keep quality of products according to customer preference b) Fully utilize machine capacity,

and household workers capacity and c) Keep appropriate level of inventories and d) Develop

new products in respond to market demand.

Keep quality of products according to customer preference




As mentioned earlier, producing high quality products is an important concern for

organizations because of the effect it has on demand and the performance of the

organization in the long term (Hill, 1991). It reduces cost of rework, scrap and returns, and

most importantly satisfies customer (Slack, 1998). As such keeping quality of products is a

relevant KPI for this study. The measures used for this aspect are the frequency of doing

quality checks, frequency of maintenance check up for machineries, percent of defective

products, and problems on product quality.

Fully utilize machine capacity and household workers capacity

As mentioned earlier, the importance understanding capacity utilization is based on

the opportunity cost argument which says that any lost production time could be used to

produce more outputs which would generate more profit (Slack et al., 1998). For this KPI,

specific measures which are production level of machines based capacity, types of

machineries used, product produced, number of workers employed in the plant, proportion

of the machine capacity used, reasons for the current level of machine utilization. The result

for using these measures is a description of how well the capacity of machines and the

workers are utilized.

Keep appropriate level of inventories

Inventories as used in this study means the stored accumulation of the transformed

resources in an operation. Companies maintain inventories because the timing of demand

and supply do not always match (Slack et al., 1998). In order to describe how COCOBIND

keep inventory at appropriate levels, the following measures are required: volume of

product inventory maintained, basis for determining the level of stocks, type of inventory,

and problems related to keeping inventories.

Develop new products in response to market demand

As mentioned in earlier discussion Trott (2008) cited that that in theory firm can

exist even without significant developments to its products. But because of competition,

success is only possible only if firms outperform competition. For this reason, the KPI

‘develop new products in respond to market demand proves relevant. The measures used

for this KPI are: source of new product ideas or concepts, types of new products developed

and marketed and problems in product development.

In regard to learning and growth perspective, three KPIs are formulated. These are

a) develop new products in respond to market demand b) continuous skills development for

household workers and c) provision of education and training to management staff.




Continuous skills development

It is important to note that workers are important resource needed to achieve

competitive advantage (Stewart, 1997 cited by Lepak and Snell, 1999). It is in this context

that continuous improvements of their skills are necessary to improve productivity. To find

out how this works with COCOBIND, the following measures are types of training provided,

number of workers trained and activities done to monitor performance of household

workers are used to guide in the description of its performance in line with continuous skills

development.

Provision of education and training to management staff

Training of people within an organization is considered one of the most important

factors in the successful implementation of improvement programs and strategies. The

training provided can be a general one or directed to specific tasks to be performed (Sohal et

al. 1999). In this study, education and training provided to management staff, benefits from

the training and how this are monitored are the measures used to describe the performance

of COCOBIND in relation to the provision of education and training to management staff.

As mentioned earlier there are two areas covered for the external environment.

These are the competitors and markets. The KPI formulated for these areas are: adapt to

changes, opportunities and threats of competition; and adapt to changes, opportunities and

threats in the market sector that may influence organizational performance respectively.

Analyzing the environment is vital for organizations in order to anticipate and if possible

influence environmental change (Johnson et al., 2008).

Adapt to changes, opportunities and threats of competition

Analyzing and collecting information about competitors is vital in order to make

decisions. Finding information may range from internet surfing to digging through trash

cans. It may also tap intelligence professionals to dig information on the competitor’s new

products, manufacturing costs and training methods (Daft, 2004). In relation to this study,

measures which include number of direct competitors, characteristics of competitors in

terms of scope of activities and resource commitment, opportunities that can be taken

advantaged of and threats from competition are dealt with. The information gathered are

needed to figure out how COCOBIND is influenced by competition.

Adapt to changes, opportunities and threats in the market sector that may influence

organizational performance

Just like with the competitor sector, organizations have to be updated with what is

going on in the environment so it can respond to market changes and developments. For this

KPI, the measures identified are market segment served, access to market information,

market trends in the local and international markets, market opportunities, and threats from

the market environment.




3.4 COCOBIND Goals

Organizational goals are commonly used as a standard for assessing organizational

performance. Most often, goals of the organization are constant. This requires sourcing of

data from official documents, work activity records, organizational output, or statements by

organizational spokesmen that will provide basis in defining the goals (Thompson and

McEwen, 1958). In this research, the goals of COCOBIND are defined to serve as bases for

describing the desired situation of the organization and basis for finding out the extent of

deviation of outcomes from the goals.

As to organizational purpose, COCOBIND aims to contribute to the economic well-

being of the coconut farmers in the Bicol Region and Samar provinces by providing them

employment and livelihood opportunities through maximized utilization of coconut husks.”

It intends to achieve this objectives by producing, manufacturing, processing, and / or selling

of coconut coir or peat products such as coconut coir, stitched fiber (mats), geonets, coco

peat, and bioengineering services such as designing, production and installation of erosion

control nets (Articles of Incorporation and By-Laws, 2005). Based on the business plan the

objectives and target impact of COCOBIND are as follows:

Objectives

1. Continuous market and product diversification and quality development to ensure

project viability and sustainability

2. Continuous upgrading of technology for greater operational effectiveness and

efficiency

3. Building of functional partnerships with coco coir industry stakeholders from

possible technology enhancement and reciprocal sharing of resources.

Target Impact of the Project

1. Aggregate income in the amount of 540,000.00 pesos (12,000 USD) for the coconut

farmers and husk collectors from the collection of husks.

2. Employment of at least 45 persons for the decorticating operations

3. Employment of at least 19 persons for the stitching operation

4. Livelihood opportunities (geonets-weaving and twining) for 1000 households

In the business plan for 2006, COCOBIND projected gross revenue of 10.3 million pesos

(288,900.00 USD).

3.5 Summary

In the review of literature the theories and concepts used has been identified. The

study of the different performance measurement approaches resulted to the identification

of the framework appropriate for this study and the determination of KPIs which were

classified according to broad categories, the internal and external environment. As to the

KPIs formulated for the internal environment, the four-perspective BSC which Kaplan and

Norton proposed was adopted as basis. BSC was chosen because holistic assessment of the

performance of an organization is achieved with the use only of the four perspectives as




criteria. For the external environment, the two perspectives identified were the competitors

and markets. The KPIs and measures for these areas were likewise determined. Finally, the

goals of COCOBIND were defined based on the review of COCOBIND documents. These

served as basis for evaluating the performance of the organization in relation to the desired

situation.




Chapter 4 The Current Situation

This chapter presents the current situation of COCOBIND based on the results

obtained from desk research and case study. The information gathered is organized based

on the KPIs and performance measures formulated earlier and based on the desired

situation. This section answers research question II ‘What is the current organizational

performance of COCOBIND based on defined KPIs and desired situation?’ This chapter is

composed of the following sub-topics: The KPIs and performance measures selected (4.1),

Performance of COCOBIND in relation to the internal environment (4.2), Performance of

COCOBIND in relation to the external environment (4.3), Performance of COCOBIND in

relation to desired situation (4.4), Findings of the study (4.5), and the Summary of the

chapter (4.6).

4.1 The Key Performance Indicators and Performance Measures

This table was developed in chapter 3 based on the knowledge derived from the

review of literature. It illustrates the KPIs and performance measures used to evaluate and

describe the performance of COCOBIND.

Table 4.1. KPIs and Performance Measures Used

Environment

Category/

Performance

Perspective



Profitability and

liquidity

1. Capable to generate

profit from operations

-Annual sales

-Net income

- Profit margin

2. Effective use of assets -Net income

-Amount of assets

-Return on Assets

Financial

3. Capable to pay short

term obligations and

current liabilities

-Amount of current assets

-Amount of Current liabilities

-Amount of quick assets

-Current ratio

-Quick ratio

Customer strategy and

customer relationships

4. Repeated and

expanded sales from

customers

-# of customers

-types of products sold

-terms and conditions of sales


5. Stay close to the

customer

-types and numbers of

customers

- benefits derived from the

relationships

Internal Business

Process

Operations function 6. Keep quality of

products according to

customer preference

-Percent of defective products

- Problems on product quality




Environment

Category/

Performance

Perspective


( e.g. products

manufactured in the

plant and produced by

households)

- types of machineries used

-production level of machines

-product produced

-# of workers employed in the

plant

-problems in relation to the

current level of machine

utilization

7. Fully utilize machine

capacity, and household

workers capacity

-# of household workers

-quantity produced per day

-factors affecting the current

level of workers productivity

8. Keep appropriate level

of inventories

- volume of product inventory

maintained

-basis for determining the

level of stocks

-type of inventory

-problems related to

maintaining inventories

New Product

Development

9. Develop new products

to anticipate and

influence demand

- sources of new product

ideas and concepts

-types of new products

developed and marketed

-problems in product

development

Learning and Growth Human Resource

Development

10. Continuous skills

development for

household workers

-types of skills development

provided to workers

- # of workers trained

-Activities done to monitor

performance of household

workers

11. Provision of

education and training

to management staff

-types of education and

training provided to staff

-monitoring of staff

performance


Competitors 12. Adapt to changes,

opportunities and

threats of competition

-# of direct competitors

-characteristics of

competitors in terms of scope

of activities and resource

commitment




Environment

Category/

Performance

Perspective


-opportunities that can be

taken advantaged of in

competition

-threats from competitors

Market 13. Adapt to changes,

opportunities and

threats in the market

sector that may

influence organizational

performance

-market trends in the local

and international markets

-market opportunities

- threats from the market

environment

4.2 Performance of COCOBIND in Relation to the Internal Environment

In this section the results from content analysis, interviews and observations in

relation to the internal environment are used to describe the performance of COCOBIND.

The description is organized based on the KPIs and measures indicated in the table for the

internal environment which follows the four perspectives of the BSC.

4.2.1 Financial Perspective

The performance of COCOBIND on financial perspective is described based on the

three KPIs which are a) Capable to generate profit from operations b) Capable to pay

obligations and c) Effective use of assets.

Capable to earn profit from operations

Figure 4.1 Annual Sales and Net Income

-2000000

-1000000

0

1000000

2000000

3000000

4000000

5000000

2005 2006 2007 2008 2009

Am

ount

(Ph

p)

Sales and Income

Annual Sales

Net Income

As shown in the figure above, the sales of COCOBIND declined drastically from 4.7

million pesos in 2006 to 1.4 million pesos 2009. In 5 years of operation (e.g. from2005 to

2009), the organization has incurred a cumulative loss of 2.2 million pesos (48,900.00 USD).




In 2007, the organization earned a minimal net income of 233,659.93 pesos (5,192.00 USD.

Big losses were posted in the years 2005 and 2006 which amounts to 1.06 million (23,555.00

USD) and 1.04 million pesos (23,111.00 USD) respectively. The sales earned were not

sufficient to cover its operating expenses. As mentioned in the GA report for 2008, the net

loss incurred in 2005 and 2006 is attributed to high labor cost in the production of plant box

because the stitching machine was not working. Transport and selling cost were also high.

Table 4.2 Assets, Liabilities and Financial Ratios

2009 2008 2007 2006 2005

Assets and Liabilities

Quick Assets 38,408.43 359,525.54 522,116.05 268,251.04 71,385.36

Current Assets 643,386.68 848,472.62 810,427.13 408,532.88 939,810.10

Fixed Assets 5,731,767.46

6,002,648.07

7,210,547.26 6,280,399.34 7,353,456.04

Total Assets 6,375,154.14

6,851,120.69

7,210,547.26 6,688,932.22 8,293,266.14

Current

Liabilities

880,617.76 530,841.95 464,162.62 290,475.26 550,203.63

Financial Ratios

Quick Ratio 4% 68% 112% 92% 13%

Current Ratio 73% 160% 175% 141% 170%

ROA -4% -.5% 3.% -14% -12%

Net Profit

Margin

-19% -2% 9% -22% -65%

ROFA -16% -1% 4% -17% -13%

Total Asset

Turnover

22% 26% 35% 62% 19%

In 5 years of operation, the organization’s Net Profit Margin (net income/ revenue)

reached as low as negative 65 percent to nine percent. The Return on Assets (ratio of net

income to average total assets) is within negative 12 percent to positive three percent in the

same period. The Return on Fixed Asset (ratio of net income to average fixed assets) is

within negative 17 percent to four percent.

In the business plan for 2006 it was reflected that the organization needs an

additional capital of 5 million pesos (111,000 USD). Investment fora were conducted to raise

the money but only a small amount was generated. COCOBIND also tried PO financing from

a cooperative and short term loans from other organizations to finance its handicraft,

geonets and fiber production. The amount generated from these initiatives was not enough

to make COCOBIND financially capable. The company continued its operations based on

available funds. Moreover, PO financing charges high interest rates which may not be

covered if the loan is used in handicraft production. Generally, these products usually have

low mark-ups and paid in post dated checks for a period of one month or more.

The results indicated that COCOBIND is not capable of generating profit from its

current assets as evidenced by negative profit margin, negative ROA and low to negative




ROFA. The board did not do further action on the lack of capital for operation despite the

knowledge that the required level of capital has not been achieved based on the business

plan. The management implemented alternative measures to funding such as the ‘ride-on-

to-operation’ financing scheme but this was only good to ensure that jobs are provided to

workers in the communities but not an effective strategy to support the entire operation of

the organization and generate profit.

Capable to pay its current obligations

As reflected in the financial ratios computed for 2005 t0 2009, the company’s

current ratio (percentage of current assets to current liabilities) declined from 170 percent in

2005 to 73 percent in 2009. This indicates that the company’s ability to pay its short term

obligations decreased. In 2009, COCOBIND does not have enough current assets to meet its

current liabilities as indicated by its current ratio of only 73 percent.

Generally, the organization is not financially capable to support its operations. The

interview revealed that payment of premiums to the Social Security System and Pag-ibig are

overdue, salaries and wages of employees are not paid on time, Payment for electric bills is

delayed, and big purchase orders are not accepted. This information is also reflected in the

liabilities section of the statement of financial condition of the organization. It was also

observed, that production of ordered products particularly the plant box is started only

when down payment from the customer is already received.

In 2009, individuals were encouraged to invest in the production of geonets on PO

basis. This type of investment was named ‘ride-on-to-operation’ financing scheme because

transactions are not recorded in the books of account of the organization. COCOBIND gets

only the sale from the fiber used and 5 percent share from the net income for the

management fee. As observed when geonets were already paid by customers, the

Administrative Asst./Cashier makes a computation of the deliveries. After deducting the cost

of the fiber and the management fee, the remaining amount of income earned and the

capital is given to the investor. This information was also validated in an interview with the

two agents. The evaluation of ‘ride-on-to operation’ financing scheme has yet to be

evaluated as to its feasibility and control. Moreover, COCOBIND does not consider accessing

loans from banks for additional capital because of the stringent loan requirements. The

assets which are usually required as collateral for loans, are not yet transferred in the name

of the organization. The current financial situation may not also qualify the organization to

apply for loans.

As shown in the results, COCOBIND is not capable to pay its obligations. It lacks the

capacity to generate funds from internal and external sources. The inability to settle

obligations may eventually lead to loss of market share. Workers may not be willing to work

at all if they are not paid for their labor on time. Likewise, production may be impaired if

supplies of raw materials and electricity bills are not paid. The organization may also face

legal charges for non-payment of the premium for employee benefits. COCOBIND has also

administrative concerns to attend to such as the proper documentation of its assets. Assets




that are properly documented can be used as collateral for accessing loans from external

sources.

Effective use of asset to generate sales

The Statement of Financial Condition of the COCOBIND revealed that the total assets

of the organization decreased from 2005 to 2009. There was no increase in the current

assets, and the property, plant and equipment. The company’s Total asset turnover (ratio

of total operating revenue to average total assets) for five years falls within 19 percent to 62

percent. The highest turnover was in 2006 which indicates that the company was more

effective in using its assets during the period. The turnover of assets in 2009 is only 22

percent which shows that the utilization of assets was very low. This situation is also the

result of the reliance of COCOBIND to current customers which volume of orders is too small

to be able to maximize the use of its assets. Moreover, knowing only the difference

between what the asset is capable of producing and what it actually produces is (Ellis, 1998)

is not enough to come up with appropriate program of action to respond to the issue on

underutilization and generate sales.

Additional information collected in relation to the financial perspective

Additional concern identified in relation to the financial status of COCOBIND is weak

internal control. This is due to the non-separation of duties within the organization. The

Administrative Asst./Cashier was also tasked to record the business transactions of the

company. Business transactions were not properly recorded. The audit found that cash

advances in the amount of 403,852.08 pesos (8,956 USD) were not liquidated. The staff

responsible for these advances has already resigned from the company before the problem

was discovered. It was only in 2009 that a new bookkeeper was hired for the organization.

It was also revealed that the inability to conduct board meetings regularly due to

dependency on the availability of FSSI resulted to delays in decisions on important concerns

of the organization. For instance, the weak internal control system of the company has long

been recognized but no concrete solution has been done on the matter. Just as the

discussion regarding the plan of the management to borrow a non-collateral loan from a

certain organization has been delayed due to postponement of the schedule of board

meetings.

Based on the description of the financial performance, COCOBIND was not able to

generate profit in the last five years. The revenue from sales is too low to be able to cover its

operating expenses. It is also not capable to pay its obligations due to lack of capacity to

generate funds from internal and external sources. This situation is in line with the findings

in the study, Insolvency of an Enterprise and Methods of Financial Analysis for Predicting It

that was done for Latvian enterprises by Mackevicius & Sneidere (2010) which showed that

decreasing profitability, decreasing sales, decreasing liquidity and sharp cash reduction are

among the symptoms of insolvency in relation to cash flow. These symptoms and influencing

factors may be revealed two to three years before bankruptcy. In addition, COCOBIND is also




weak in internal control. Board meetings are not conducted regularly resulting to delays in

decision making.

4.2.2 Customer Perspective

As Gupta and Lehmann (2001) mentioned customers are important intangible assets

of the company which have to be valued and managed. For the purpose of this research, two

KPIs are chosen which are a) Repeated and expanded sales from customers and b) Staying

close to customers.

Repeated and expanded sales from customers

The major products produced by COCOBIND include baled coco fiber, geonets and

plant box. Baled coco fiber refers to the fiber extracted from coconut husk, dried and packed

in 50 kilograms. Geonets (coconets) are woven coco fiber twines that are produced with the

use of handlooms. It is used to control the erosion of slopes. Pant box is p As shown in the

General Assembly Report for 2008, COCOBIND sells its products to eleven

organizations/groups in the Philippines. Three of them (SMPFC, LIKAS and AQFI) are

stockholders of the company, five are private companies and the rest are group of geonets

producers in three municipalities in the province of Sorsogon. There are also walk-in clients

particularly for handicrafts. It was also mentioned in the report that from 2007 to first

quarter of 2009 that handicrafts contributed 43.30 percent to the total sales of the

company, the biggest compared to the sales for other coir products. But there is no record

that shows how often these customers placed order to COCOBIND. Moreover, the sale

generated from current customers is not enough to generate profit for the organization. At

present there are lots of inquiries for coir products both for local and international markets

but these were not taken advantage of. The board resolved to expand its market and review

its cost and pricing structure.

It was revealed in the interviews that sometimes there is conflict between the

management and the board on the selection of customers particularly for non-members of

COCOBIND. The board does not want COCOBIND to transact business with Juboken. The

board claimed that Juboken has had bad reputation in its transactions with other

organizations before, which is the non-payment of orders. COCOBIND is also not

consistently enforcing price policies. For instance, the organization accepted the PO from

SMPFC even without the approval from the board on the price of the product. The price was

too low to meet the 50 percent mark-up that the board set for coir products. SMPFC

explained that this is a strategy to penetrate the international market and establish long

term relationship with them. Moreover, only SMPC follows the policy on 50 percent

advance payment on orders.

The low buying price of SMPFC for plant box was validated in an interview with AQFI.

COCOBIND and AQFI produce the same product but sell them to different sub-contractor.

COCOBIND sells the plant box to SMPFC at 39 pesos per piece (.87 USD) while AQFI sells

them to Granville at 69 pesos (1.53 USD) each. Thus, there is a price difference of .66 USD.

According to the OIC Manager, the plant box produced by AQFI and COCOBIND were




intended for the same end user, Rana Creek, a company based in the United States which is

involved in green roofing project. It was revealed in an interview with a board member that

SMPFC consider selling the plant box at a low price as a strategy to win a 2 to 3 year market

contract with the buyer. It was added that in case this strategy materialize, COCOBIND will

benefit from the long-term contract. As of the writing of this report, there is no update yet

on the negotiation of the contract.

Moreover, SMPFC and AQFI has dual role in COCOBIND e.g. as member of the

organization and as buyer of coir products. AQFI and SMPFC sit in the board through their

representatives and therefore participate in decisions made for COCOBIND. This set up

requires the ability to balance their interests as members of COCOBIND and that of their

respective organization. As originally envisioned, the joining together of different sectors to

form COCOBIND was intended to create volume in production and capture wider market for

the coir products.

The results reflected that COCOBIND market for coir products is limited to sub-

contractors who in turn sell them to local and international markets. However, in general the

sales generated from sub-contractors were not enough to generate profit for the

organization. Moreover, the difference in the buying price of sub-contractors for the same

product needs validation. A review of the role of the members to COCOBIND is needed as it

may affect decision making. The absence of policy on the selection of customers created

conflict between the management and the board. The management has not been consistent

also in the implementation of on pricing policies and terms of payment of products sold.

Stay close with the customer

Staying close with customer enables organizations to access timely feedback from

the customer. One of COCOBINDs customers (SMPC) complained about the quality of wet

fiber. It was mentioned that the fiber contains hard particles and its moisture content is too

high. The problem was discussed with the board and it was recommended to validate the

issue first before taking action. AQFI was assigned to do the task but no follow up meetings

were done to discuss the findings. COCOBIND delivered additional fiber as demanded by

SMPFC in payment to the difference in weight.

It was revealed in the interview that COCOBIND relationship with customers is

informal since this is not supported with contracts. The organization relates only with the

customer when there are orders for the product. In most cases, orders placed by sub-

contractors are not supported with written POs. According to the OIC Manager this has

been the practice of the organization ever since. It was added that customers loyalty with

COCOBIND has already been established as customers keep coming back to buy coir

products. Moreover, it is only with SMPFC that relationship of COCOBIND extends beyond

marketing. SMPFC shares with the organization its expertise on decorticating, drying and

baling in order to make coir production more efficient. It also offers assistance on the

proper maintenance of the decorticating and stitching machine.




As reflected in the results, mutual trust is the basis of relationship between

COCOBIND and the customers. The organization has not been critical about basic protocol in

market engagement. The absence of purchase order may have worked for the organization

in previous transactions but may not be a good practice in the long term. Purchase order is

important since it details the agreement between the buyer and seller. With the PO proper

recording of transactions are ensured. Moreover, the absence of record of individual

customer makes it difficult to determine the frequency that customers buy coir products

from COCOBIND. Close relationship with customer made possible the sharing of experiences

in production efficiency.

4.2.3 Internal Business Process

Daft (2004) mentioned that internal business process perspective involves

determining critical processes that will enable the organization to excel and meet customer

and financial objectives. This includes anticipating and influencing customer’s future

requests (Kaplan and Norton, 1996). In the analysis of the performance of COCOBIND in

relation to this perspective, five KPIs are considered. These are a) Keep quality of products in

conformance with customer preference b) Fully utilize machine capacity, and household

workers capacity c) Keep appropriate level of inventories d) Develop new products to

anticipate and influence market demand.

Keep quality of products according to customer preference

In terms of internal business process, insuring the quality of products is one critical

aspect to deal with. Results of the interview revealed that the quality of coir products is

checked based on the specification of the customer. This is usually agreed upon between

COCOBIND and the customer before the PO is accepted. For handicrafts produced in the

plant a person is in-charge for checking the quality. As to the geonets produced by

households in the community, the team leader/agent is in-charge of checking its quality.

Quality of geonets is rechecked when delivered to the plant.

In the inspection made by SMPFC, the repair of the decorticating machine and

conduct of seminar on the production of quality fiber and proper machine maintenance

were recommended. It was also found that COCOBIND does not have written policy on

machine maintenance. The two workers tasked on repairs and maintenance only do

troubleshooting when there are problems with the machine. And even if problems have

already been detected and parts for replacement have been identified, these are not acted

on immediately because the organization does not have budget for this. At present, the

decorticating machine and stitching machine are due for major repairs.

Another initiative done to improve quality is the implementation of the technology

for technical assistance on Cleaner Production Systems Installation with the Department of

Science and Technology (DOST). It is part of the Environment Management System (EMS)

which is intended to eliminate waste of resources through the efficient and effective

production system and promote the use of materials that are not hazardous to the




environment. Effective and efficient use of resources is expected to result in providing

quality products that customer desires.

The results presented imply that COCOBIND has systems installed to ensure product

quality. However, the lack of budget has been identified as the major reason for the inability

of COCOBIND to timely respond to problems on the repairs and maintenance of machineries.

This concern has to be acted on immediately to save the organization from opportunity gaps

and ensure the production of good quality products. Since coco fiber is the basic raw

material used in the production of geonets and handicrafts, ensuring the quality of coco

fiber is highly critical.

Fully utilize machine capacity, and household workers capacity

COCOBIND has the building, machineries and equipment, which comprise its fixed

assets. It has a stitching machine (e.g. 1958 model stitching machine from Germany) which

is used in the production of fiber mats or liners. COCOBIND is the only coco coir producer

who has this machine in the region. The mats or liners produced by the machine are used in

the production of plant box. The 5-year old decorticating machine was purchased from

SMPFC. The stitching and decorticating machine already need repair. The organization also

has 2 trucks used in the delivery of coco coir products. Its baling equipment, handlooms and

twining equipments are in good condition. In terms of production, the decorticating machine

has a capacity of 1 ton per day and the stitching machine can produce 3,000 sq. m. of thin

fiber mats or liners per day.

However, these fixed assets are underutilized as indicated by the low return on fixed

assets in the past five years. Results of the interview revealed the estimated utilization level

of these assets which are as follows: stitching machine-30 percent, twining and handloom

equipment-25 percent and decorticating machine 13 percent. Depreciation costs top the

list in the operating expenses of the company. High expenses in repairs and maintenance

was also noted. The board recognizes underutilization of assets as one of the causes for the

net loss incurred in 2005 which amounts to 1.06 million pesos (23,600.00 USD).

As reflected in the 2008 General Assembly report, COCOBIND has about 516 workers

involved in husk collection, decorticating, drying, baling and stitching. They earn between

Php150 pesos (3.3 EUR) to 200 pesos (4.4 EUR) per day. As of 2009, COCOBIND has 200

household workers engaged in geonets production, 40 workers involved in handicraft/ plant

box production and 10 workers involved in the stitching and decorticating operations.

Geonets producers (e.g. working by two’s) can finish around 2 to 3 rolls (e.g. 100 to 300

meters) per week. Minimum output of handicraft workers is 30 pieces per day.

According to the expert, there are opportunities for volume orders particularly for

coco fiber and geonets in China. For instance, China imports coco fiber for the production of

coco coir mattresses in the last quarter of the year. This implies that production have to be

done earlier in the year. However, the expert remarked that the volume of order is usually

big that it is beyond the capacity of one producer to be able to supply the requirements. If

COCOBIND will take advantage this kind of opportunity, important strategic decisions have




to be made within the organization not only on matters that relates to production but on

governance as well.

The results showed that COCOBIND has human resources and fixed assets that can

be utilized for the production of coir products. However, the organization has not been

proactive to find ways to maximize the utilization of its resources and assets to reach a

profitable level of production. There is no market forecast and production plan prepared.

Production is dependent on the demand of current customers which volume is not even

enough to cover its operational expenses.

Keep appropriate levels of inventory

The person in-charge for product inventory maintains only records of the finished

products from the workers and those delivered to customers. Based on observation, the

types of inventory maintained in the company are cycle and pipeline inventory. According to

Slack (1998) cycle inventory are stocks created when products are produced by batch e.g.

the stages of operation cannot be done simultaneously. Pipeline inventory are the products

in transit. These are delivered, once the PO is completed. The results of interview revealed

that the company does not produce products to anticipate demand and/or produce buffer

stocks.

The results indicate that at present, product inventory is not an issue with

COCOBIND since production is only limited to the orders placed by customers. The cycle and

pipeline inventory happen only as an incidence of the production process. Had there been a

production plan, the organization would have determined the appropriate level of product

inventory for the organization.

Develop new products to anticipate and influence market demand

New product development offers potential benefits to companies. New products are

taking big slice of the firm’s sales (Cooper and Kleinsmidt 1993, cited by Trott, 2008). Results

of interview and content analysis revealed that COCOBIND developed new designs of coir

products with the assistance of the Department of Trade and Industry (DTI). The products

were exhibited in the “OK BIKOL Trade Fair” held in Metro Manila. DTI appreciated the

designs and quality of products displayed. COCOBIND was offered financing facilities for

working capital, purchase of fixed assets and/or business expansion. The participation to the

fair resulted to inquiries and requests for new samples and orders in small volumes.

However, the organization did not respond to these requests since it has no budget for

Research and Development (R&D).

From the results presented, it is clear that new product development (NPD) is not a

priority of COCOBIND. NPD is not part of the regular activities of the organization and

budget is not allocated. The positive response from participation in the trade fair could have

been an opportunity for future market if taken advantage of. But taking NPD seriously does

not only require financial support but human resources as well. Moreover, the linkage that




COCOBIND has established with DTI would be advantageous to the organization if it decides

to pursue NPD.

4.2.4 Learning and Growth Perspective

The learning and growth perspective represents the human side of the organization

(Gouveia, 1996). This involves investment in people, systems and in order to achieve the

objectives of the financial, customer and internal business process (Kaplan and Norton,

1996). For this perspective, two KPIs are chosen as basis for analyzing the performance of

COCOBIND. These are a) Continuous skills development for household workers and b)

Provision of education and training to management staff.

Continuous skills development for household workers

In 2006, COCOBIND expanded its operation by increasing its product lines to include

erosion control materials; processed coco-peat, stitched fibers (e.g. plant liners, plant pots).

In terms of the development of workers’ skills, COCOBIND conducts training on geonets and

plant box production. There are already about 300 household workers trained on geonets

production and 50 workers trained on plant box production. Plant box workers are based in

the plant. Out of the 300 household workers trained on geonets in the communities, 200 are

active and highly skilled already. Forty out of 50 trained on plant box workers are actively

involved. There is no need to conduct geonets training every time because the technology

can easily be learned even from co-workers. LIKAS, one of the members of COCOBIND partly

supported the expenses for the training. Some Barangay Councils were also tapped to

provide financial support. However, for the production of coir fiber where only few people

were trained on the job, training of new workers is needed every time a worker leaves for

other job opportunities.

According to the GA report in 2008, the organization has mobilized about 516

workers. These include workers involved in husk collection, decorticating, drying, baling,

geonets and handicraft production. In general, workers earn between 150 to 200 pesos (3.3

to 4.4 USD) per day. The workers were organized into an association and registered with the

Department of Labor and Employment (DOLE).

The results revealed that COCOBIND has the required number of workers trained in

handicraft and geonets production. Increasing the number of skilled workers for both types

of products is not a problem since the technology can easily be learned from co-workers and

through observation and regular practice. Given the lack of job opportunities in the place,

availability of workers for handicraft and geonets production is assured. Moreover, workers

relationship with COCOBIND is not formalized as there is no contract signed with the

organization. Workers are paid on piecework basis. This practice is commonly adopted for

short term, irregular and household based types of work.




Provision of education and training to management staff

In regard to staff development, results of the interview reflected that there was no

education and training provided to staff. Formal staff performance evaluation is also not

conducted. The board appointed the Production and Quality Control Supervisor as OIC

Manager. The board believes that work experience is enough for the OIC Manager to handle

management function. Staff manual is also not available to serve as basis for the monitoring

and evaluation of performance. Monitoring of staff performance is limited to the daily

activities of the organization. Board meetings are the only venue for discussing the problems

of the organization. However, as mentioned earlier these are not conducted regularly.

The provision of education and training for the management staff is not a priority of

COCOBIND. Work experience was the only basis for promoting staff to higher position as

performance evaluation is not conducted. Although experience is relevant as it is considered

a result of an on-the-job training, this may not provide all the necessary knowledge and skills

the management may need in running the business effectively. Accredited training from

outside the organization is necessary (Lange et al., 2000). Related management skills such as

planning, budgeting, forecasting, monitoring and evaluation are needed but these require

knowledge from outside the organization. The management staff has not been exposed to

these kinds of training.

4.3 Performance of COCOBIND in Relation to the External Environment

As mentioned earlier the external environment is viewed to have strong impact on

small firm viability and growth as it is the source of events and changing trends which create

opportunities and threats for individual firms (Lenz 1980 cited by Swamidass, 1987). In the

following section COCOBIND is described in relation to two factors in the external

environment: competitors and markets.

4.3.1 Competitors

Juboken is the only possible competitor of COCOBIND for coir products in the Bicol

region. It is the leading bioengineering company in the Philippines. It is involved in the

production of various products which include Coconet, Cocolog/fascine, Cocomat, Fiber

tube, Plant pallet, Cocopot, Cocopeat (Blocks, Bricks, Tiles, etc.), Pads, Coco wattle, Plant

Liner, Plant hanger, Door mat, Grow pole, and various other coir-based products. Dr. Justino

Arboleda, who owns Juboken is also the owner and CEO of Coco Technologies Corporation

(COCOTECH). With COCOTECH, Juboken becomes even more competitive in the marketing of

its products. COCOTECH engages in the manufacture and marketing of coconut husk derived

and related products such as baled fiber, erosion products and coir pads; and designs and

implements bioengineering and erosion control installation. It sells its products to Japan,

Europe and the US, and to local buyers (COCOREEN website).

Additionally, it was observed that Juboken’s operation is bigger than COCOBIND in

terms of production and market coverage. It is strong in research and development and




actively involved in product diversification. Juboken plans to backward integrate by

expanding its operation through the establishment of production plants in different parts of

the region. With this strategy, Juboken will become even more competitive. The company

will have the capacity to create volume for its products. Likewise, Juboken is the only

company accredited with the Department of Public Works and Highways (DPWH). Coir

products and other natural fibers also faces competition with synthetic fibers which are low

in price, more durable and high in strength compared to coir products (Boceta, 1997 cited by

Rosairo st al., 2004). But with the growing trend to go natural, the use of coco fiber products

is expected to increase.

The extent of competitive rivalry between COCOBIND and Juboken is not felt at

present, probably because the former is not in full operations. However, the expansion plan

of the company is one thing that COCOBIND has to watch out for. COCOBIND does not

consider plans and strategies of its competitor and the possible implication of this to its

operation in the future. But with the increasing demand for natural products in the local and

international, taking share in the market would depend on the type strategy adopted.

4.3.2 Markets

The results of content analysis and interviews revealed that there is big market

opportunity for coir products both in the local and international market. The demand is

increasing as a result of the green movement and shift of consumer preference for natural

products (Ajithkumar, 2002). In Europe the use of coir geotextiles are preferred to control

the erosion of river beds and collapse of embankment; coir is used in Switzerland to

reinforce ski runs. It is also used in making car upholstery, pads for bed mattresses and

furniture cushions.

There is also a growing export market for dust in Europe, North America and Middle

East. The ornamental industry has created the demand for dust which is used as soil

conditioner (Aragon, 2000). Additionally, high priorities are given in the use coir for

landscaping public areas and highway sides in Korea and Japan. There is also increased

demand for coir geotextiles in Saudi Arabia and China for the rehabilitation of desert lands

(Endaya et al., 2006). The Coco Coir Sub-sector Study conducted by the FSSI (2009) revealed

that with the continuously increasing global awareness for sustainable environment, the use

of coco fiber in the control of land erosion and rehabilitation of the fertility of agricultural

lands and other industry applications is expected to drive market demand for coco fiber. This

will create a demand gap of almost 290,000 metric tons. If the requirements of China for

geonets in the rehabilitation of the 500,000 sq. km. agricultural lands is included demand

gap will be in million tons.

The Clean Development Mechanism (CDM) of the Kyoto Protocol is an opportunity

for the coir industry. With the CDM, developed countries may trade with developing

countries for the implementation of their environment-friendly projects and earn Certified

Emission Reductions (CERs). CDM is an initial measure for reducing carbon dioxide emissions

(Endaya et al., 2006). The issuance of Memorandum Circular No. 25 and Administrative




Orders no. 43 and 11 of the Department of Agriculture (DA) in the Philippines directing all

national local government agencies, bureaus, and other instrumentalities, including

agricultural institutions and councils, to use coco peat or coir dust for soil conditioning, use

of coconut fiber for erosion control; use of containers made from indigenous materials

respectively, can push the demand for the product (Endaya et al., 2006).

However, market for coir products in the Philippines is not fully developed unlike in

India or Sri Lanka. There is also lack or limited awareness on international market

opportunities such as the EU and US markets. Likewise, there is lack of knowledge and

orientation in exploring international market opportunities (FSSI, 2009). Coir products is also

not prioritized in the domestic market due to lack of serious and positive action on official

directives to use coir and coir products in the activities of various government departments

such as the Department of Agriculture (DA), Department of Environment and Natural

Resources (DENR) and the Department of Public Works and Highways (DPWH) (Endaya et al.,

2006). As mentioned in the interviews, the market situation of COCOBIND is complicated.

Stable market for coir products has not been established. Products are sold to sub-

contractors/agents. SMPFC who is tasked to assist COCOBIND in selling the products has not

mobilized continuous market for coir products.

The results revealed that COCOBIND is not proactive in exploring its market

opportunities. These opportunities are not tapped to the advantage of the organization as it

remains dependent with current customers for product orders. The passage of the Philippine

government on directives favoring the use of coir products for erosion control and other

uses will increase the demand for the product in the local market. This would however

require establishing linkage with the government agencies and meeting accreditation

requirements to be able to transact business with them. As to the international market,

COCOBIND has no direct contact with consolidators and/or end users. Besides, COCOBIND

has not established its name yet with foreign buyers. Transacting with them directly may

not be possible.

4.4 Performance in Relation to Desired Situation

As mentioned in Chapter 3, the overall purpose of COCOBIND is to contribute to the

economic well-being of the coconut farmers in the Bicol Region and Samar provinces by

providing them employment and livelihood opportunities through maximized utilization of

coconut husks.” It intends to achieve this objectives by producing, manufacturing,

processing, and / or selling of coconut coir or peat products such as coconut coir, stitched

fiber (mats), geonets, coco peat, and bioengineering services such as designing, production

and installation of erosion control nets.

Based on the results, COCOBIND has provided employment to coconut farmers and

their families as they were involved in the coir business either as supplier of husks and/or as

workers in the plant or in the households. In 2009, COCOBIND has 253 workers and

employees which include the 3 management staff and 250 workers involved in decorticating,

drying, baling, geonets and handicraft production. This number is way below the target of




1064 workers e.g. 45 persons for the decorticating operations, 19 for stitching operations

and 1000 households for geonets production as indicated in the business plan.

In addition, it was revealed in the GA report that as of 2008, 6.66 million pesos

(146,666 USD) were paid for the labor of workers. Moreover, there was no update on the

number of coco farmers engaged in husk collection. Employment of workers is not

continuous because of the on and off operations. In addition, the organization has already

has started the integration of Environmental and Cleaner Production which helped in

tracking and controlling financial costs and environmental impacts. Moreover, the

organization does have clearly defined strategies that support the vision, mission and

objectives of the organization and provide guidelines on how to achieve the goals. The

objectives are also not measurable. According to Johnson et al. (2008) objectives are targets

expressed in quantifiable terms such as sales, profit levels, market share, and growth rate

and so on.

The results reflected that the accomplishment is far from the expected results. Not

to mention the difficulty of determining the level of performance because of absence of

measurable objectives. The vision and mission which were developed in 2004 has not been

reviewed in terms of its adaptability to the environment.

4.5 Findings

Based on the description of the current performance of COCOBIND, the findings are

presented in the following table:

Table 4.3 Summary of Findings

KPI Findings


Financial Perspective

Capable to generate profit from

operations

Negative profit margin, negative ROA, negative to low

ROFA; symptoms of insolvency (in relation to cash flow)

are apparent e.g. decreasing profitability, decreasing

sales, decreasing liquidity and sharp cash reduction

Lack of capital for operation

Capable to pay obligations unsettled obligations/late payments of obligations

Low capacity to generate funds

Assets cannot be used as collateral for loans

Effective use of assets Assets are underutilized

Low volume of orders from current customers

Others Weak internal control

Irregular conduct of board meetings; delays in decisions


Repeated and expanded sales Mutual trust as the basis of relationship

Product marketing through sub-contractors

Low price relative to other sub-contractor for the same

product




KPI Findings

Absence of policy on the selection of customers

Not consistent in the implementation of policy on pricing

and terms of payments

Stay close with customer Mutual trust developed between COCOBIND and

customers

PO not required to all customers

Absence of summary record per customer

Informal relationship with customers

Internal Business Process

Keep quality of products according to

customer preference

90 percent of geonets and plant boxes produced are of

good quality

Poor quality of coco fiber

Lack of budget for repairs and maintenance

Fully utilize machineries and workers

capacity

Skilled workers and fixed assets are available

Use of resources not maximized

Production is limited to orders placed by current

customers

Market forecast and production plans not prepared

Keep appropriate levels of inventory Product inventory to anticipate demand not maintained

Cycle and pipeline inventories occurred only as an

incidence of the production process

Develop new products to anticipate and

influence demand

NPD not a priority

No budget for R&D

Learning and growth perspective

Continuous skills development for

workers

Developed skills of workers on coir processing, geonets

and handicraft production

Workers not formally hired; paid either based on output

or on daily basis

Provision of education and training to

management staff

Knowledge and skills limited to experience gained from

work experience

Education and training not a priority

Performance evaluation not conducted

No staff manual


Competitor Has one possible strong competitor for coir products in

the region

Lacks understanding of the plans and strategies of

competitor

Markets Market opportunities are untapped

Dependence to current customers

Products marketed to sub-contractors

No linkage with international buyers

Desired situation

Vision, mission and objectives Vision and mission needs to be revisited in relation to

environmental changes




KPI Findings

Objectives not measurable

Absence of defined business strategies that support the

vision, mission and objectives

4.6 Summary

In this chapter the performance of COCOBIND in relation to the internal and external

environment and desired situation has been described. Internally, the financial performance

of COCOBIND indicates symptoms of insolvency in relation to cash flow, and weak internal

control. Relationship of COCOBIND with customers is mainly based on trust since no

contracts are signed for their transactions. Marketing of products is limited to sub-

contractors who are also dependent on demand for the products. Although systems to

ensure product quality are installed, there are still complaints on the quality of coco fiber.

This problem is attributed to defects in the machineries. Other concerns such as repairs and

maintenance of machineries, NPD, training of management staff were not prioritized due to

lack of capital. The board has not been proactive in responding to organizational concerns.

COCOBIND has fixed assets and human resources but these are underutilized. In relation to

the external environment, COCOBIND lacks understanding of the plans and strategies of its

competitor. Market opportunities are not tapped for the benefit of the organization. In

relation to the desired situation, the absence of measurable objectives made it difficult to

describe the current situation of the organization regarding this area.




Chapter 5 Problems and Opportunities for Improvement

This chapter analyses the results presented in chapter 4 and draws out the problems

and opportunities for improvement. Best practices of organizations, interview with the

expert and literatures were considered. The result of the assessment answers research

question III, ‘What key problems and opportunities for improvement can be identified based

on the analysis of the current performance of the organization?’ This chapter is divided in

three sections: Best Practices of Organizations (5.1), The Problems and Causes (5.2), Problem

Prioritization (5.3), and the Summary of the chapter (5.4).

5.1 Best Practices of Organizations

The study conducted by Made in Britain and Made in Europe Consulting group found

that most successful companies were those that adopted best practice to improve

operational performance in every area of manufacturing (Voss et al., 1995 cited by David &

Kochhar, 2002). Best practice is described as the best ways to perform a business process

(Heibeler et al. 1998 cited by Davies & Kochhar, 2002). This section presents the best

practices of other organizations which are used as benchmark in analyzing the performance

of COCOBIND.

5.1.1 Financial Perspective

A research on Successful Marketing Practice found that high performing companies

maintain tight financial control in all areas that matter in operation (Goldsmith and

Clutterbuck, 1984 cited by Brooksbank, 1991). The author also found that a company can

improve profitability by a strategic focus based upon increasing sales volume; or by

improving productivity e.g. earning more profit from the same sales volume. But findings in

most studies revealed that most successful firms have the tendency to focus more on

increasing volume instead of improving productivity (Brooksbank, 1991).

In terms of profitability, Ross et al., (2008) revealed that there is no completely clear

way of determining the profitability of a firm because accounting measures do not provide

benchmark for making comparisons. In economic sense, firm is considered profitable only

when investors get higher profit than they can achieve in the capital market. As to short-

term liquidity, it has been mentioned that current ratio is one of the measures used. Lev

(1969) proposed a numerical value of 2.0 for the current ratio. This value suggests that an

organization has 2 units of current assets for every one unit of current liability to be settled.

Moreover, for financial ratios to be relevant measure of performance, it has to be computed

over several years to get the historical perspective and compared to financial ratios of other

organizations with the same operating activities (Ross et al., 2008). Unfortunately, industry-

wide financial ratio averages appropriate for this study are not available.




5.1.2 Customer Perspective

The research, ‘Best practice implementation of total quality management: Multiple

crosscase analysis of manufacturing and service organizations,’ conducted for eight sample

organizations in Australia, revealed the relevance of customer focus, both internal and

external e.g. staying close to the customer as a practice. All of the eight organizations

studied have exerted effort to develop closer ties to customers. These ties enabled the

organizations to quickly respond to changes in the market and pick up more differentiated

signals and address the needs of the different segments of the market (Terziovski et al.,

1996). Also, the study of 20 Asian companies conducted by Sohal (1998) showed that

orientation towards customers was evident among these organizations. Efforts initiated to

get closer to customers are the regular conduct of market studies and providing them

assistance on some difficulties.

Additionally findings of Ranasinghe (1999) in the study, ‘Five Best Management

Practices in High Performing Companies in the Trading Sector of Sri Lanka,’ showed that

long-term personalised relationship with the customer had high overall impact with respect

to customer value addition, internal process improvement, current performance and future

of the organization. Taking care of people and being fair to them also had high impact in the

areas mentioned in most of the companies. Specific to Hayleys Exports (a coco fiber

manufacturing company), dealing directly with customers without going through agents was

practiced. The customers are personally known to the company and some of them have

been dealing with the company for many years already. With close relationships maintained,

feedbacks are obtained from customers. In the case of Singer (Sri Lanka) the opening of

Singer Mega Shop enhanced the company’s market presence. This enabled them to achieve

14 percent in turnover and 14 percent increase in net current assets in 1997.

5.1.3 Internal Business Process

Also in the study of Ranasinghe (1999), it was found that Richard Pieris Exports

Limited (RPEL), which in a business of manufacturing and exporting food jar sealings,

benefited from the conduct of production planning. The company worked on a three-month

production planning cycle implemented through three shifts a day with built-in mechanism

for quality control. RPEL maintained machine efficiency rate of 96 percent, production

efficiency rate of 90.3 percent and capacity utilization rate of 83 percent.

The study of Turpin (2005) identified best practices which was named the ‘seven

golden rules of customer service.’ One of these rules is Measure and communicate quality

standards. According to Turpin (2005) employees have to know the role expected of them

and be aware of customer expectations. Customers are more likely to form the image of the

company which is developed through personal interactions with the employees of the

company rather than through advertising campaign. In this sense, measuring customer

perceptions and reactions to product or a service is an essential ingredient of any customer




satisfaction program. Since customer satisfaction keeps changing over time, it must be

measured and assessed regularly (Turpin, 1995).

Solis et al. (1999) mentioned that the demand for quality has become the single

most critical factor for business to survive given the highly growing competitive market. The

research done by Terziovski (1996) showed that improvements in quality lead to increases in

productivity, performance and profits. In the study of the American Quality Foundation on

quality processes of organizations in Canada, Germany, Japan and the US, indicated that

quality is a crucial factor in strategic performance. Roth & Miller (1992) have identified zero

defect as best practice of organizations in terms of quality performance. Ranasinghe (1999)

found that obtaining quality certification just as what Hayleys Exports Ltd did contributed to

maintaining quality products. Similarly, the Five Successful Factors for Chinese Companies

Abroad, found continuous improvement of manufacturing productivity and quality as key

success factor (RolandBerger, 2007). Moreover, quality improvements provides indirect

benefits more than the direct benefits in terms of lower scrap, rework and inventory holding

costs ( Ittner, 1994 cited by Terziovski, 1996).

Ranasinghe (1999) also found integrating diagnostic and interactive controls through

a blend of technical and human systems as best practice. The study revealed that the five

organizations studied have their own technical systems in place. These are budgeting, target

setting, control and monitoring with computer aided information systems that form part of

diagnostic control. CEOs and divisional heads also adopted interactive controls through

formal and informal meetings to see for themselves how things are going. It was also found

that each company review monthly performance targets based on budget. Monthly

accounts and daily or weekly progress reports were the basis for the review of performance.

The practice of integrating diagnostic and interactive controls helped the CEOs to empower

their subordinates while focusing on weak links.

As to New Product Development (NPD), one of the success factors considered is

senior management commitment to new products e.g. resources are allocated, management

strongly involved in the key go or kill and spending decisions for new projects (Cooper &

Kleinschmidt, 1995). Similary, Madison (1995) found adequate resources as best practice

and identified additional practices which include active management of NPD portfolio use of

empowered team and dedicated NPD teams. Successful firms provided the necessary

resources to product innovation; R&D budgets and people were in place for new products.

The research of Mercer Management Consulting and R&D Management proposed for

customer-centered and disciplined NPD process. According to Griffin (1997), NPD processes,

policies and methods should be updated over time. Otherwise firms will find themselves

lagging behind. Kuczmarski & Associates found that more successful companies focused

more effort on new-to-the-world and new-to-the -company products and devote more time

in concept screening and testing.




5.1.4 Learning and Growth Perspective

As to human resources development, the best practice common to the five

companies studied in Sri Lanka is Develop core skills and recognize achievers. The CEOs of

the said companies had a common understanding that corporate responsibility means

helping people to grow by developing their competencies through training. The findings also

revealed that the feature common to the five companies was the emphasis on linking

training with performance evaluation and career advancement. The implementation by

these companies on the policy of promoting high performing employees to higher positions

is observed to have contributed to employee motivation and productivity. The CEOs shared

on the view that the current practices pertaining to human resources development and

career advancement have contributed to enhancing organizational performance and added

value to customer. In Hayleys Exports the practice of remunerating the employees according

to their productivity was adopted. Workers who are more efficient earn more than the

normal wages (Ranasinghe, 1999). In a study of 80 british companies, it was found that

companies which are more formalized in regard to procedures for recruitment, training, job

definition, individual performance appraisal and wage or salary reviews have a high return

on sales (Child (2007).

Likewise, Turpin (1995) found the relevance of training and retraining of managers

and employees. The author also mentioned that good training=positive service

attitude=motivated employees=decreased staff turnover=improved service quality=satisfied

customers. In the study of Australian companies, Sohal (1998) revealed that training of

people within an organization is considered the most critical factor in the successful

implementation of improvement programs and strategies. The training can be technical and

directed specifically to the tasks to be performed, or it can be more general. Skills such as

problem solving and leadership allow people to exert an influence beyond their immediate

duties. These skills are absolutely essential for achieving a culture of continuous

improvements for the organization.

5.1.5 Competitors

According to Brooksbank (1991) a research by Modiano and NiChionna showed that

avoidance to head- on competition is a competitive approach that more successful

organizations adopt. They choose to defend their market positions by taking advantage of

their strength relative to its competitors. The author added that the study of Clifford of the

American companies revealed that there are high performing companies who chose markets

that are small and not so attractive to large competitors. These companies intentionally

avoid those where market power would leave them at a greater competitive disadvantage.

Johnson et al. (2008) consider this as the blue ocean strategy because of the low rivalry

involved.




5.1.6 Markets

Brooksbank (1991) found in the research on Successful Marketing Strategies that

successful companies are more oriented towards gathering information on marketing such

as conduct of customer satisfaction surveys. The author concluded that high performing

companies extensively used marketing intelligence gathering system which involves

salesperson in the gathering process. This enables the company to get updated information

on market trends and feedback from customers.

5.2 The Problems and Causes

Based on the results and findings presented in Chapter 4 the problems were

identified. This was done with the use of ‘why-why’ analysis framework. From the list of

findings, the key problems were chosen and written on the first column of the table. Then

for each problem the question ‘why the problem happened?’ was asked. This was followed

by asking the question ‘why those reasons have occurred?’ The answers to the ‘why’

questions were also found in the list of findings. The process of asking why those reasons

happened was continued until no more causes or answers can be generated from asking

‘why’. The answers were then written in the second and third column of the table. The

results are presented in the following table.

Table 5.1 Problems and Causes

Problem Why? (causes/reasons for the problem)

Unsettled /late

payments of obligations

Lack of capital for operation Low income generated from sales

- Low volume of sales

- Orders from current customers

dependent on demand

Not capable to generate funds

- Assets not properly documented

- Stringent bank requirements

No response from the board on the

problem about lack of capital

- Board meetings not conducted

regularly; pre-occupied with the

activities of their own

organization

Weak internal control Cash requested not used to pay financial

obligations

No separation of duties

Underutilization of

assets and human

resources

Low volume of production Reliance on current customers for

product orders

New markets not

developed

Lack of understanding of market

opportunities

Poor linkage with government agencies

for local market




Problem Why? (causes/reasons for the problem)

Inability to produce

quality coir fiber

Defective /misalignment in

the machines

Repairs and maintenance not acted on

time

No written policy on repairs and

maintenance

No budget for the repair

Expertise of maintenance person limited

to trouble shooting

Lack of training on the

production of quality coco

fiber

Need for training not identified earlier

No budget

Low buying price for

handicrafts

Marketing done with sub-

contractors

No direct contacts with consolidators

and/or end users

Lack of capital to produce in volume

SMPFC provides down payment on

products ordered

Inconsistent

implementation of pricing

policy

Members of COCOBIND demand flexible

pricing

Management not strict in the

implementation of pricing policy

Issue on pricing not acted on time at the

board level

Knowledge and skills of

staff in management not

fully developed

Training not provided Not a priority; no budget

The board considers experience gained

from the job considered sufficient to

provide the needed expertise

Performance evaluation not

conducted

No manual of operation; no work policies

Long-term direction of

the organization not

updated; absence of

measurable objectives,

business strategies and

plans

Review of the long-term

direction of the

organization not

conducted; objectives

business strategies and

plans not prepared

In-depth assessment of the organization’s

performance not prioritized

Targets limited to the requirements of

purchase order; annual plans not

necessary




Unsettled/ late payments of obligations

COCOBIND lacks the capital to support its operations. According to Paranque (1996)

there are two categories of resources that an organization can use to finance itself. These

are the internal and external resources. The external consists of shareholder contribution

and loans from credit institutions. The internal ones are generated from the organization’s

activities and sales. These enable the firm to pay its loans, renew or increase its output

capacity, and allocate part of its earnings for the dividend and equity of shareholders.

COCOBIND has low capacity in generating both types of resources. Indicators of this are the

inability of the organization to settle its obligations, delayed payment of employees’ salaries

and inability to pay the fixed expenses of the organization. The non-acceptance of orders

requiring big capitalization is another manifestation of this problem.

Decision making for COCOBIND relies heavily with the board of trustees. Based on

projections reflected in the business plan for 2006, the company needs Five million pesos

(111,100.00 USD) to make the operations profitable. Even if only a small amount was raised,

the organization continued to operate based on existing capital. Had the issue been

discussed earlier, appropriate funding options have been identified and missed

opportunities such as on sales, market and profit would have been avoided. In an interview

with the expert, it was mentioned that this problem is most often the case for companies

where decisions greatly depends on the board.

COCOBIND has weak internal control since it started its operation in the last quarter

of 2004. Part of the cash advances were not used to settle obligations of the organization. A

bookkeeper was not hired because of lack of resources. The Administration assistant/

Cashier was also the one tasked to do bookkeeping jobs. This results to improper recording

of transactions and generation of not accurate financial reports. It was also found that big

amount of cash advances remained not liquidated. According to Doyle et al., (2007) staffing-

related internal control problems are more pervasive in small, financially weak firms. The

author also added that weak internal control results to untimely identification and resolution

of certain accounting matters and failure to perform timely and effective reviews. A new

bookkeeper was hired in late 2009. The performance of the organization in maintaining

internal control is yet to be seen.

Underutilization of assets and human resources

This problem has been due to low production level and inability to develop new markets

for coir products. COCOBIND relies mainly on purchase orders placed by current customers

who are also dependent on demand. Production stops when there are no orders leaving the

machineries and equipment idle until new orders are placed. Ellis (1998) in the research

about asset utilization mentioned that sales demand factor is among the reasons for

underutilization of assets. This creates opportunity gap resulting to loss of opportunities.

The elimination of the cause of losses in asset utilization is one of the most cost-effective

methods for increasing plant profitability.




Inability to maintain quality of coco fiber

The inability of COCOBIND to timely respond to the repairs and maintenance problems

of the machineries affected the quality of coco fiber. This concern is not prioritized due to

lack of budget. Also the skills of the maintenance person are only limited to trouble shooting

of machine related problems.

Low buying price for handicrafts

Coco coir producers rely mainly with sub-contractors who in most cases deals with

several middlepersons before the products are finally sold to the end user. According to the

expert, export requirement for coco coir products is beyond the capacity of just one

company. In the case of COCOBIND it does not have enough capital to produce in volume.

Also, there is no product consolidator in the Philippines who can combine the products and

facilitate marketing in volume. In the case of Vietnam, the government acts as the

consolidator of coir products. The management has not been consistent in the

implementation of pricing policy due to members demand for flexible pricing. Low buying

price of plant box has not been clarified due to the inability of the board to convene for a

meeting and discuss the issue.

Capability of management staff not fully developed

The skills of management staff are limited to their work experience as the

organization does not provide them any training. Education and training is not a priority of

COCOBIND due to lack of funds. In the study SMEs and barriers to skills development: a

Scottish perspective, Lange at al. (2000) revealed that although it is clear that on-the-job

training is effective for most SMEs, employees learn in the context in which their skills are

used. But to achieve competitiveness does mainly depend on skills acquired in on-the-job

training but on formal trainings where employees gain accredited experience and knowledge

from outside their organization. Financial constraint was identified as one of the barriers to

skills development particularly with small firms. Financial barriers refer to those barriers

directly relating to the cost or perceived cost of training and learning. Moreover, the study

Predicting and Understanding Organizational Structure, Child (1973) found that companies

achieving a high return on sales were more formalized in regard to procedures for

recruitment, training, job definition, individual performance appraisal and wage or salary

reviews.

Not updated long-term direction, and absence of measurable objectives, business strategies

and plans

The long term direction of the organization has not been reviewed since its

formulation in 2004 as in-depth assessment of the organization’s performance has not been

prioritized. Thus, its adaptability to current trends has not been validated. Plans and budget

for instance for one year and forecasts are not prepared because production targets are

limited to the requirements of the purchase order. Forecasts which are good inputs to the

market plan and provide a more accurate basis for setting the budget are also not prepared.




Besides, the management staff may not have the knowledge and skills to prepare them.

According to Willemain et al. (1994) without timely and accurate forecasts, systematic

approaches to increasing production would be at stake.

5.3 Problem Prioritization

To come up with the list of priority problems, prioritization matrix was used. The

criteria included in this matrix and the process of prioritization was patterned from the work

of Houser (2001). The criteria used were a) urgency of the improvement need, b) impact to

the organization, management interest, and d) frequency of occurrence. Urgency of

improvement means that the problem needs attention as soon as possible; Impact refers to

the extent to which the problem affects the organization; Management interest pertains to

the willingness of the management to respond to the problem and frequency refers to the

rate of recurrence of the problem. The problems were rated against the criteria using the

rating scale from 0 to 5 (e.g. no impact – moderate impact – major impact). Each criterion

was assigned relative weights according to importance of the problem. Urgency of

improvement, impact to the organization and management interest was given a weight of

10. Since frequency is not as important as the three others, a lower weight which is 5 was

given. The score obtained for each criterion was multiplied by the pre-determined weight to

get the weighted score. The results which include the rate per criteria and the weighted

score are presented in the following table.

Table 5.2. Prioritization Matrix

Problem/Criteria Urgency

(x10)

Impact

(x10)

Mgt.

Interest

(x10)

Frequency

(x5)

Weighted

Score

Unsettled /late payments of obligations 5

50

5

50

5

50

5

25

175

Underutilized assets and human resources 5

50

5

50

4

40

5

25

165

Inability to maintain production of quality coir

fiber

5

50

4

40

3

30

3

15

135

Low buying price for plant box 3

30

4

40

5

50

2

10

115

Capability of management staff not fully

developed

4

40

3

30

3

30

4

20

120

Not updated long-term direction; absence of

measurable objectives, business strategies

and plans

5

50

3

30

5

50

3

15

145

Rating scale 0 ------- 1 ------ 2 --------- 3 --------- 4 ---------5

No impact Moderate Impact Major impact

The four problems with high scores which are: Unsettled /late payments of

obligations, Underutilized assets and human resources, Inability to maintain production of

quality coir fiber, Not updated long-term direction; absence of measurable objectives,

business strategies and plans were considered the priority problems of COCOBIND.




5.4 Summary

In this chapter the problems of COCOBIND and priority areas for improvement were

identified. The problems were drawn based on the analysis of the results and findings in the

previous chapter and the best practices of other organizations, and with the use of ‘why-

why’ analysis framework. And with the application of prioritization matrix, the four priority

problems which are a) Unsettled /late payments of obligations, b) Underutilized assets and

human resources, c) Inability to maintain the production quality coir fiber, d) Capability of

management staff not fully developed, and f) Not updated long-term direction, and absence

of measurable objectives, business strategies and plans were determined. In the next

chapter, these problems are considered the areas for improvement by which

recommendations are formulated.




Chapter 6 Recommendations for Improvement

This chapter presents the recommendations for the improvement of COCOBIND

performance. This answers the general research question ‘What recommendation(s) are

appropriate to improve the performance of COCOBIND based on a description of the

organization’s performance according to defined key performance indicators in relation to

the internal and external environment, and the desired situation?’ This chapter covers four

aspects: (6.1) Recommendations to improve performance (6.2), Importance of the

recommendation and effects to COCOBIND (6.3), Implementation plan (6.4), and the

summary of the chapter (6.5).

6.1 Recommendations to Improve performance

The adoption of the recommendations of this study would entail a lot of effort on

the part of COCOBIND board and the management staff. The commitment of the

stockholders e.g. FSSI, LIKAS, SMPFC, SANDIGAN and AQFI to support the management staff

in the operation has to be evaluated in terms of efficiency and effectiveness. It may not also

be possible for the staff to implement the activities related to these recommendations since

there are only 2 full-time and one part-time staff who handle the entire operation.

Moreover, the OIC Manager, committed to discuss the results of this research to the board,

and support its adoption.

In the table below, the areas for improvement and the corresponding

recommendation are presented. The four areas for improvement were the priority

problems identified in Chapter 5. Addressing these concerns is expected to contribute to the

improvement of COCOBIND performance and save the organization from threats of

insolvency.

Table 6.1. Recommendations to Improve Performance

Area for Improvement Recommendations

1. Unsettled /late payments of obligations Generate additional capital for operation and

improve internal control

2. Underutilization of assets and human

resources

Increase volume of production and improve

asset utilization and human resources

Strengthen relationship with current customers

and establish new markets to increase market

share

3. Inability to maintain the production of

quality of coco fiber

Maintain machineries and equipment in good

condition

Enhance skills of workers in the production of

quality coco fiber

4. Not updated long-term direction,

absence of measurable objectives,

business strategies and plans

Redefine long-term direction, and formulate

measurable objectives, business strategies and

plans for the organization




6.2 Importance of the Recommendation and Expected Results

Generate additional capital for operation and improve internal control

This recommendation entails evaluating the existing financial structure of

COCOBIND to identify appropriate options for generating additional capital for operation.

Given the current situation of COCOBIND, additional funds will address problems related to

liquidity. Laitenin (2002) defined liquidity as the ability of the firm to pay its bills when they

become due. With the additional capital, COCOBIND will be able to accept big purchase

order and pay its obligations. According to Dr. Arboleda, since coco coir production is a

capital intensive business, additional fund is needed to finance second level processing

which is the production of geonets, plant box and other types of handicrafts. First level

processing refers to the production of coco fiber. Moreover, collecting additional capital

contribution from the members of COCOBIND is one possible source of funds. External fund

sourcing such as applying for loans with banks and other institutions may be done later

when the organization has already transferred its assets in its name, enhanced its operation

and improved its credit worthiness status.

As to improving internal control, the hiring of part-time bookkeeper in 2009 solved

the staffing related problem on internal control which is the non-segregation of duties.

Financial policies, systems and procedures have to be reviewed to ensure preparation of

accurate reports. Regular monitoring and evaluation of financial transactions have to be

done also for timely identification of problems. As mentioned earlier in the research on

Successful Marketing Practice, high performing companies maintain tight internal control in

all that matter in business operations (Goldsmith and Clutterbuck, 1984 cited by

Brooksbank, 1991) to achieve good financial performance. The conduct of annual audit by

external auditing company is a good practice of COCOBIND that has to be maintained. It may

also adopt computer aided accounting system to generate timely and accurate financial

reports.

Increase volume of production to improve asset utilization

It was mentioned in previous discussions that sales demand factor is one of the

causes of underutilization of COCOBINDs assets and human resources that results to

opportunity gaps. Low demand, results to low production. Asset utilization may be

improved by increasing production volume. This would entail forecasting demand to

determine the needs of the market in a given period. Forecast enables organization to

determine the expected sales under certain conditions and within a given period of time

(Lehmann & Winer 2005). With forecast COCOBIND will be able to determine capacity

needs, set its budget, prepare production plan and provide basis for monitoring and

evaluating its performance.

Strengthen relationship with current customers and establish new market linkage to increase

market share




As revealed in the interview, trust between COCOBIND and current customers have

already been established. But strengthening their relationship is necessary so that customers

would remain loyal to COCOBIND. This can be done by getting closer to the customer to

obtain feedbacks particularly on product quality and service provision. With closer

relationships, exploring possibilities to work together with the customer for common benefit

is possible such as improving production efficiency and product quality. However, it is

important to determine what type of relationship COCOBIND has to build with customers.

Fawcett et al. (2007) proposed the Pareto principle or the 80/20 rule in determining which

customers has to be valued more e.g. by classifying customers according to sales volume.

Pareto principle suggests that 80 percent of the sales are generated by 20 percent of the

customers. COCOBIND may apply this principle and improve its relationship depending on

the type of customers e.g. more efforts to most important customers.

Increasing market share is necessary to respond to low sales volume which directly

affects the level of asset utilization. According to Kotler and Keller (2006) growth in sales or

market share involves two strategies- market penetration and market development. Market

development entails selling the product to new segments or converting non-users and these

requires intensive promotion and advertising activities. Market penetration refers to

increasing volume of sales with existing customers and the competitor’s customers.

COCOBIND may adopt a combination of these two strategies. With the growing trend in the

use of natural products, its current customers may also increase their demand which is

advantageous to COCOBIND if its relationship with current customer is maintained.

Moreover, marketing directly to consolidator or at most to end user may be

explored to get better price for coco coir products. COCOBIND may look into the big

difference in the price of plant box produced by COCOBIND and that of AQFI which were

intended to the same end user. Reducing the number of intermediaries may reduce price

cuts and thus, increase price. Strong collaboration of COCOBIND with other coco coir

producers in the region is needed to create volume and facilitate marketing of coco coir

products. Masiello (1988) in the study Developing Market Responsiveness Throughout Your

Company, proposed 7 steps to respond better to market. These are a) management

commitment and communication b) management strategy sessions and rough planning c)

research/focus groups d) identification of business issues e) cross-functional training/work

sessions f) mission definition g) system formalization and implementation.

Maintain machineries and in good condition to produce quality coco fiber

According to Slack et al. (1998) maintenance refers to the way in which the

organization tries to avoid failure by taking care of their physical facilities. Keeping

machineries in good condition contributes to the production of quality products. With

quality products the cost of rework, scrap and returns are reduced and most importantly

customer’s satisfaction is achieved. The production of quality coco fiber is highly important

because it determines the quality of geonets and handicrafts which uses coco fiber as major

raw material. COCOBIND may adopt preventive maintenance approach to prolong the

effective life of the machine. Preventive maintenance is an approach which attempts to




eliminate or minimize the chances of failure by checking, replacing, cleaning and lubricating

the machines at pre-planned intervals.

Enhance workers skills in the production of quality coco fiber

With skilled workers, mistakes in production process are reduced and the

production of quality products is ensured. According to Slack et al. (1998) quality leads to

profitability in terms of market gains and cost savings point of view.

Redefine long-term direction and formulate measurable objectives, business strategies and

plans for the organization

Mission statement defines the business scope and outcomes that the organization is

trying to achieve. It is important because it communicates legitimacy to employees,

customers and investors, suppliers and stakeholders as to what the organization stands for,

and provides the organization a sense of direction. An organization without legitimacy with

internal and external stakeholders dies. The objectives and plans provide guidelines and

standards of performance (Daft, 2004).

Likewise, business strategy defines how an organization achieves its goals.

According to Daft (2004) the essence of formulating strategy is to determine the activities

the organization has to take considering its competitive environment. This entails analyzing

the environment to know its direct competitors, their objectives and strategies and

activities. This will also enable the organization to determine the strategies to adapt to win

in the competitive market, for instance employing a head-on competition with rivals

(Brooksbank, 1991) or implement a blue ocean strategy as proposed by Johnson et al.

(2008). With all these elements clarified, COCOBIND will be guided towards accomplishing its

goals and how it wants to achieve them.

Moreover, to realize this recommendation, SWOT (strengths, weaknesses,

opportunities and threats) analysis is necessary. According to Johnson et al. (2008) SWOT

explores the relationship between the influences in the external environment and the

strategic capabilities of the organization that most likely impact strategy development.

Moreover, SWOT analysis requires the gathering of information by which Fawcett et al.

(2007) proposed the conduct of effective environmental scanning.

6.3 Implementation Plan

Before this plan can be implemented, preparatory activities have to be done first. As

mentioned earlier, the OIC manager committed to discuss with the board of COCOBIND the

results and findings, and the recommendations of this study. This study may be included in

the agenda of the board in the last quarter of 2010.

The implementation of this plan starts in the first quarter 2011 with the conduct of

Strategic Assessment and Planning, and preparation production plan. The formulation of the




long-term direction is highly critical because this sets the future actions of the organization.

The preparation of forecast and customer driven plan, training of workers, repair of

machineries, and improvement of customer relations are also scheduled in the early part of

2011. The evaluation of the current financial structure and the sourcing of funds come next.

The collection of additional capital contribution from the members of COCOBIND is

proposed to settle its obligation and initially support its production operations. External

funding such loans may only be possible once the organization has already documented its

properties, improved its profitability status and become credit worthy in the eyes of external

funders.

The following table presents the details of the implementation plan.

Table 6.2. Implementation Plan

Area for

Improvement/

Recommendation

Activities

Output

Persons-

in charge

Time

Frame

Costs

(Php)

Unsettled /late payments of obligations

Generate additional

capital for operation

and improve internal

control

Conduct evaluation of

the current financial

structure of the

organization

-Identified the

advantages and

disadvantages of current

financing schemes

-identified appropriate

financing options for

COCOBIND from internal

and/or external sources

Board

treasurer

& mgt.

staff

2nd

qtr

of 2011

Prepare resource

accessing plan

-Written plan on

resource accessing

Board

treasurer ,

& Mgt.

staff

2nd

qtr

of 2011

For the initial operation,

collection of additional

capital contribution from

the members of

COCOBIND is proposed)

- Additional capital

contribution from

members collected

Board

treasurer

& Admin

staff/

Cashier

2nd

qtr

of 2011

Payment of obligations Accounts payable to the

Social Security System,

Philippine Health

Insurance Corporation,

Bureau of Internal

Revenue, and

obligations with other

agencies settled

Admin

staff/

Cashier

2nd

qtr

2011

Prepare documents of

COCOBIND properties

Ownership of land and

building transferred in

the name of the

organization

Admin

staff/

Cashier &

Board

Secretary

2nd

qtr

of 2011

Filing of loan application

and follow up

Additional capital for

operation generated

OIC Mgr. last qtr

of 2011




Area for

Improvement/

Recommendation

Activities

Output

Persons-

in charge

Time

Frame

Costs

(Php)

Review of current

internal control system

-Areas for improvement

identified and

recommendations to

improve internal control

formulated

External

Auditor &

Board

treasurer

2nd

qtr

of 2010

10,000

Recommendations for

the improvement of

internal control

implemented; feasibility

for the use of computer

aided accounting system

considered

-Accurate financial

reports; no cash

shortage

Mgt. staff 3rd

qtr

of 2011

&

onwards

Monitoring and

evaluation

Written monitoring and

evaluation report

OIC Mgr. 3rd

qtr

of 2011

onwards

Underutilization of assets and human resources

Increase volume of

production and

maximize utilization of

assets and human

resources

Conduct production

planning

-Profitable level of

production determined

taking into account the

supply of resources and

the demand of

customers

OIC Mgr.

& prod’n

workers

1st

qtr

of 2011

3,000

For the initial operation,

collection of additional


COCOBIND members is

proposed

-Amount of additional


members agreed upon

Board 2nd qtr

of 2011

-Members paid their

pledged contribution

Admin.

staff/

Cashier

2nd

qtr

of 2011

Implementation of

activities in the

production plan

-Continuous production

of coco coir products

Prod’n

workers

2rd

qtr

of 2011

&

onwards

Monitoring and

evaluation of

accomplishments

-Monthly production

report

-Monitoring and

evaluation report

OIC Mgr.

& Prod’n

operators

2rd

qtr

of 2011

&

onwards

Strengthen

relationship with

current customers,

develop new markets

and increase market

share

-Classify customers

according to volume of

sales

- Type of relationship

with customers

according to

classification determined

Mgt. staff 1st

qtr of

2011

-Prepare customer

record

-Updated customer

record

Ware-

house

person

1st

qtr

of 2010




Area for

Improvement/

Recommendation

Activities

Output

Persons-

in charge

Time

Frame

Costs

(Php)

-Prepare market forecast

and customer-driven

plan

-Written market forecast

and customer-driven

plan

Consul-

tant

2nd

qtr

of 2011

75,000

Inability to maintain production of quality of coco fiber

Maintain machineries

and equipment in

good condition to

produce quality coco

fiber

-Coordinate with SMPFC

for the repair of the

decorticating machine

and other machineries

-Terms and conditions

on the repair of

machineries agreed

upon

OIC Mgr. 1st

qtr

of 2011

-Prepare budget and ask

for the approval of the

board

-Approved budget Admin

staff/

Cashier

1st

qtr

of 2011

-Actual repair of

decorticating machine

and other machineries

-Spare parts purchased;

machine repaired

SMPFC 1st

qtr

of 2011

- Formulate policy on

repairs and maintenance

-Written policy on

repairs and maintenance

Mainte-

nance

person &

prod’n

workers

2nd qtr

of 2011

&

onwards

-Policy implementation -Machine problems

responded on time

Mainte-

nance

person

2nd

qtr

of 2011

&

onwards

-Monitoring and

evaluation

-Written monitoring

report

Mainte-

nance

person

2011 &

onwards

Enhance skills of

workers in the

production of quality

coco fiber

- Coordinate with SMPFC

for the conduct of

training for workers

-Training design

discussed and agreed

upon

OIC Mgr. 1st

qtr of

2011

-Prepare budget and ask

for board approval

-Approved budget Admin

staff/

Cashier

1st

qtr of

2011

Actual conduct of the

training

-7 workers trained on

the production of quality

coco fiber

Mgt. staff 1st

qtr of

2011

5,000

Not updated long-term direction, and absence of measurable objectives, business strategies and plans

Redefine long-term

direction, and

formulate objectives,

business strategies

and plans of the

organization

- Conduct strategic

assessment and planning

workshop using the

SWOT Analysis

framework

-Clearly written vision,

mission and goals

-Business strategies

defined

Board &

Mgt. staff

1st

qtr of

2011

10,000

-Conduct annual

planning

-Written annual plan Mgt. staff 1st qtr

of 2011

3,000

Total cost Php106,000




The amount of 106,000 pesos is needed in the implementation of the activities. As

indicated in the plan, the collection of additional capital from the members of COCOBIND is

one possible option. Grant fund for planning sessions may be accessed through the

assistance of the FSSI. The implementation plan prepared is feasible considering the

commitment of the management staff to support them and the possible sources offunds. As

COCOBIND financial status already shows symptoms of bankruptcy in connection with cash

flow, immediate action from the board is needed to prevent further losses. But long-term

success of COCOBIND depends on the commitment of the members to hold on to the overall

purpose of the organization of contributing to the improvement of the economic well-being

of coconut farmers and their families.

6.4 Summary

This chapter has provided the recommendations to improve the performance of

COCOBIND. Six recommendations were formulated in response to the four priority

problems. These are: Generate additional capital for operation and improve internal

control, Increase volume of production and improve asset utilization and human resources,

Strengthen relationship with current customers and establish new markets to increase

market share, Enhance skills of workers in the production of quality coco fiber, Maintain

machineries and equipment in good condition, and Redefine long-term direction and

formulate measurable objectives, business strategies and plans for the organization. The

importance and expected results of each recommendation were also detailed. Finally, an

implementation plan defining the activities, target output, the person-in-charge and costs

was prepared. This plan is feasible given the commitment of the management staff to

support its implementation and with the possible sources of funds. But long-term success of

COCOBIND coco coir business still rests on the commitment of the members to hold on to

the overall purpose of the organization.




Chapter 7 Conclusions, Recommendations and Reflections

This is the last chapter of the research. It presents the Conclusions in relation to the

accomplishment of the research objective (7.1), Recommendations for further research (7.2)

and Reflections on the conduct of the study.

7.1 Conclusions in Relation to the Accomplishment of the Research

Objectives

As already mentioned, this study aims to formulate recommendations to improve

performance based on KPIs and desired situation. Based on the outputs of the study, this

objective has been achieved. From the review of literature on performance measurement

methods and approaches, the four- perspective balanced scorecard was chosen as guide in

describing the performance of the internal environment of COCOBIND. The additional

literatures reviewed resulted to the identification of factors that comprised the external

business environment, and the KPIs and measures. The outputs of the literature review

answered research question I ‘What relevant key performance indicators (KPIs) can be

derived from performance measurement approaches and additional literature by which the

performance of COCOBIND can be evaluated?’

The KPIs and measures formulated based on literatures have been useful in the

describing the current performance of COCOBIND. The six perspectives and the

corresponding 13 KPIs guided the identification of relevant information from content

analysis, interviews and observation. One of the findings in the internal aspect revealed that

COCOBIND shows symptoms of insolvency in connection with cash flow as indicated by

decreasing profitability, decreasing sales, decreasing liquidity and sharp cash reduction. The

organization is also weak in internal control. The resolution of business issues is highly

dependent on the board.

In addition, the organization relies mainly on sub-contractors for the sale of its

products. Production of quality coco fiber is not maintained due to defects in the machine.

Relationship with customers is mainly based on trust. NPD is also not a priority. Education

and training for management staff is not provided, and performance evaluation are not

conducted. But COCOBIND has fixed assets which can be used, and skilled workers who can

be hired in the production of coir products. In relation to the external environment, the

organization is not using information to understand its competitors and take advantage of

market opportunities. In terms of the desired situation, the vision and mission of the

organization is not updated as no reviews have been done since its formulation in 2004. It

has no clearly defined business strategies and its objectives are not measurable. Given these

results, research question II ‘What is the current organizational performance of COCOBIND

based on KPIs in relation to the internal environment and external environment and based

on desired situation?’ has been answered.

From the description of current performance, summary of findings were presented

in Chapter 4. Based on the findings and best practices of organizations, problems and




opportunities for improvement have been determined. The six problems identified were

analyzed which resulted to the identification of four priority areas which are: Unsettled /late

payments of obligations, Underutilization of assets and human resources, Inability to

maintain quality of coir fiber, and Not updated long-term direction, absence of measurable

objectives, business strategies and plans. These outputs have answered research question

III, ‘What key problems and opportunities for improvement can be identified based on the

analysis of the current performance of the organization?’

Based from the answers in research question I, II, III the recommendations for the

improvement COCOBINDs performance have been formulated. The recommendations are:

Generate additional capital for operation and improve internal control, Increase volume of

production to improve asset utilization and human resources, Strengthen relationship with

current customers and establish new markets to increase market share, Maintain

machineries and equipment in good condition, Enhance capacity of workers in the

production of quality coco fiber and Redefine long-term direction, and formulate

measurable objectives, business strategies and plans for the organization. An

implementation plan was likewise prepared.

In conclusion, COCOBIND is almost in the brink of insolvency in connection with cash

flow as indicated by decreasing profitability, decreasing sales, decreasing liquidity and sharp

cash reduction. An in-depth analysis of its causes and influencing factors in the internal and

external environment has to be done to be able to come up with effective decisions and

avoid bankruptcy (Mackevicius and Sneidere, 2008). Financial measures are outcome

indicators that result from the activities in the customer, internal business process and

learning and growth perspective, which are considered the drivers of performance (Kaplan

and Norton, 1996). Improvement of its current performance is possible with the

commitment of management staff to pursue a more proactive approach in the management

of the organization particularly, the implementation of the recommendations proposed in

this study. Moreover, the long term success of the organization depends on the commitment

of the members of the organization to hold on to the overall purpose of the organization.

7.2 Recommendations for Further Research

Given the situation of COCOBIND, the preparation of a market research is highly

recommended. COCOBIND has opportunities in the local and international market and it has

the human resources, facilities and materials which can be used. An in-depth study is needed

to make sure that COCOBIND strategy and approach to market are truly customer-driven e.g.

not only based on the volume that COCOBIND can produce but based on what and how much

the market requires. The study can also be the basis for determining the possibility for

establishing linkage with other coco coir producers in the region in order to create enough

volume and respond to big purchase orders.




7.3 Reflections

The formulation of the list of KPIs is one of the most important aspects of this study.

The KPIs served as a guide in determining the specific information to be gathered from

organizational documents, interviews and observation. In the context of COCOBIND

operation, the KPIs used for this study was sufficient to make a clear description of its

performance. Moreover, if given more time to stay in the field to collect information,

additional KPIs may be considered for customer and market perspectives.

Content analysis has been an effective method in collecting information from

documents. It has been useful in the gathering of data from reports, emails, minutes of

meetings and other organizational documents. The audited financial reports were the source

of data used in describing the profitability and liquidity performance of the organization.

However, only the ratios on profitability and liquidity for three years (2006 to 2008) are

available. Calculations on the ratios for 2005 and 2009 were done to complete the

information needed. The asset turnover ratio of the organization for 5 years was likewise

computed. There was limited information gathered on documents on non-financial

measures.

Although authors on performance measurement have criticized financial measures

for having a backward looking orientation, these were relevant bases for analyzing the

financial perspective of COCOBIND. The financial measures provided accurate indicators of

the past actions of the organization. Progress reports were also not prepared regularly. One

limitation for describing its performance as against the desired situation is the absence of

measurable objectives. Moreover, the limitation on documents regarding non-financial

matters was complemented with the results from interviews and observation thus, making

the description of performance holistic.

As mentioned earlier, 11 cases have been studied to find practices that work best for

high performing organizations. The information gathered from these cases and interview

with the expert were the bases for identifying the problems and formulating the

recommendations for the improvement of COCOBIND performance. Additional literatures

were likewise consulted. One limitations of this method is that not all best practices that are

related to the performance of COCOBIND were available from literatures. The only one best

performing company involved in coco coir production in the region declined to be

interviewed. The CEO said that he does not see the merit of giving out internal information

considering that the stockholders of COCOBIND consider his company a competitor.

However, given enough time to conduct the research and the willingness of best performing

companies to be interviewed, the use of primary data on best practices is still

recommended.

Another limitation is that best practices derived from literatures are mere

description of successful practices companies have in place. Most literatures do not provide

details on how the best practice can be applied to the type of environment the organization

operates. Also, previous studies revealed that only few researches link practices with




performance. In many instances, the relationship between best practices and improved

performance are to be self-evident (Voss et al., 1997 cited by David & Kochhar, 2002).

In the analysis of results, the use of ‘why-why’ analysis framework has been an

effective tool in clustering the problems and identifying the causes. The prioritization matrix

has been useful also in determining the problems that need to be addressed first. As to the

validity of results, this research has achieved internal validity since triangulation has been

employed. This research adopted triangulation of methods which is the use of interviews,

content analysis and observation; and triangulation of sources which include the use of

people, literature, organizational documents and reality. With the methods used, holistic

understanding of the case has also been ensured.




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COCOBIND Documents

Articles of Incorporation and By-Laws

Audit Report (2005)

Audit Report (2006)

Audit Report (2007)

Audit Report (2008)

Audit Report (2009)

Enterprise Development Plan (2006)

General Assembly Report

Minutes of Meetings




APPENDICES

APPENDIX 1. Results from Content Analysis

A. Internal Environment


Document Analyzed : Financial Reports

Statement of Operation (in Php)

2009 2008 2007 2006 2005

Total

Sales/revenue

1,453,472.89 1,820,387.74 2,462,775.23 4,662,520.26 1,631,335.85

Gross Profit from

Sales

337,236.69 493,493.49 764,64043 -142,811.11 -358,454.40

Operating

Expenses

724,130.84 615,886.69 726,743.44 1,294,104.12 725,726.59

Net

Income/(Loss)

from operation

-386,894.15 -122,393.20) 37,896.99 -

1,436,915.23

-

1,084,180.99

Net Income -288,512.58 -33,394.34 233,659.93 -

1,045,038.89

-

1,057,558.80

Statement of Financial Condition (in Php)

2009 2008 2007 2006 2005

Quick Assets 38,408.43 359,525.54 522,116.05 268,251.04 71,385.36

Current Assets 643,386.68 848,472.62 810,427.13 408,532.88 939,810.10

Fixed Assets 5,731,767.46

6,002,648.07

7,210,547.26 6,280,399.34 7,353,456.04

Total Assets 6,375,154.14

6,851,120.69

7,210,547.26 6,688,932.22 8,293,266.14

Current

Liabilities

880,617.76 530,841.95 464,162.62 290475.26 550,203.63

Financial Ratios

2009 2008 2007 2006 2005

Liquidity Ratio

Quick ratio (Quick

assets/Current

liabilities)

4%

68%

112%

92%

13%

Current Ratio (Current

Assets/current

liabilities

73% 160% 175% 141% 170%

Total Asset Turnover

(Total operating

revenue/Average

total assets

22% 26% 35% 62% 19%




Profitability Ratio

Net profit margin (Net

income /revenue)

-19% -2% 9% -22% -65%

Return on Fixed

Assets (Net income/

Average fixed assets

-16%

-1%

4%

-17%

-13%

ROA (Net income/

Average total assets)

-4% -.5% 3% -14% -12%

Solvency Ratios 2009 2008 2007 2006 2005

Debt to Total Asset

Ratio (Total liabilities/

Total Assets)

14%

8%

6%

4%

Debt to Equity Ratio

(Long term liabilities/

Total Assets)

0% 0% 0% 0%

Inventory of Fixed Assets (as of 2008)

Building (with solar dryer and improvements)

Machineries and equipment

-decorticating machine (1)

-Baling machine (1)

-Stitching machine (1)

Transport Equipment

-1 unit truck (big)

-I unit truck (small)

Other assets: tools, cutter machine, compressor, white board/screen, handlooms, twining

equipment,

grinder, dryer, welding machine, jigsaw and press drill.

Document Analyzed Summary of Audit Findings and Recommendations

Financial Report

2009

Information not available

Financial Report

2008

Recommendations

- Strengthen internal control and maintain the same

- Since the board of trustees members are far and regular schedule of

board meetings is not usually followed, there is a need for the firm to

have a thoroughly screened yearly business plan and budget and

empower the manager to implement the same. This is to hasten decision

making so as not to lose opportunities. Monitoring may be done simply

on variation from plan and budget. For better control, a comptroller or

retainer external auditor may be necessary.

- There is a need to improve the Management Information System. Timely

and reliable reports are the life of the business.

- Adherence to governmental requirements also needs attention. Annual

reports to the Securities and Exchange Commission (SEC) are not

complied with, and payments/filings to the Bureau of Internal Revenue

(BIR) are incomplete. These are mandatory and may add to the good

image of the firm, aside that they are required for the direct contracts if

COCOBIND will bid.




Financial Report Jan

2007- May 2008

Findings/Observations

- No proper maintenance of records and computer hardwares.

- No general ledger for reference of financial transaction books of

accounts.

- No appropriate account title in vouchers.

- Computer code number is not accepted and not in accordance with

generally accepted accounting principles (GAAP) and in general

accounting and auditing standards (GAAS).

- No implementation of internal control system.

- There are no accurate records of Accounts Receivables and Inventory,

hence there is a need for inventory of processed items/products.

- No guidelines on petty cash fund and travel allowances.

- Budget request are duly approved by the Authorized Officer had specific

purpose; detailed expenses for payments are not followed on actual

disbursements

- Monthly schedule of depreciation expenses are not maintained.

- No available subsidiary ledger of payables, receivables and advances

- Columnar books to be used as Books of Accounts are devastated. No

implementation of cost cutting device.

- No restricted fund to be used for the emergency procurement of raw

materials and production supplies when purchase order occurred.

- Liquidation results are not properly prepared in detailing the actual

expenses incurred and there is no unspent portion of the advances.

- Cash Disbursement Vouchers are not filed but the documents are

saturated.

- For the period Jan 2007 to May 2008 cash discrepancies aggregated to a

total of P403,852.08

Financial Report

2007

- Since regular board meeting is not usually followed, there is a need for

the company to have a thoroughly screened annual business plan and

budget and empower the Manager to empower the same. Thiss is to

hasten decision making so as not to lose opportunities. Monitoring may

be done simply on variation from paln and budget. For better control, a

comptroller or retainer external auditor may be necessary

- There is a need to improve Management Information System (MIS)

- Adherence to the SEC requirements also needs attention. Annual reports

to the SEC are not complied with and BIR requirements, filings are not

complete. These are mandatory and may add to the good image of the

firm, besides they are required for direct sales or in contract biddings.

Financial Report

2006

- Discrepancy on figures reflected on vouchers and documents on file was

noted (e.g. for direct labor and salaries, advances and accounts

receivables)

Financial Report

2005

Findings

- No annual financial statement was prepared

- No ledger book, sales book, journal book and journal voucher, deposit slip

and bank statement

- Discrepancy on inventory and retained earnings.

- Discrepancy on retained earnings; discrepancy on vouchers and

documents on file.




- COCOBIND is a joint venture agreement formed on May 25, 2004

- The parties contributed property, plant and equipment as their capital

contribution in the joint venture. However, during the audit, the

documents were not available to ascertain the ownership of pledged

assets

- There is only one personnel in-charge of cashiering and bookkeeping.

Proper check and balance is not properly implemented

- The joint venture was registered with the Securities and Exchange

Commission as a corporation in December 2005.

- Documents for the capital contribution of the parties involved must be

reviewed to ascertain the ownership and facilitate the transfer of the

same to COCOBIND.

- A bookkeeper must be hired to keep records of transaction.

- Major repairs of assets must be capitalized and amortized over the

estimated life of the assets.

Document Analyzed Results

General Assembly

Report 2008

- High sales do not mean profit for the company (e.g. 2006 and 2007). Net

profit margin is -22% and 9.4% in 2006 and 2007 respectively.

- Direct labor is high. A total of Php 4.4 million was paid to workers.

- Production is labor intensive as the stitching machine was not working

hence electrical cost was also low at 4.9% (2005-2006).

- Labor cost decreased from 70.6% to 42% of total sales and overall income is

positive in 2007. Electrical cost was stabilized at 8.7% on the average (2007-

2008)

- Three cost items identified that contributed to high production costs:

transport and selling, electricity and direct labor.

Minutes of the

Board Meeting,

October 11, 2008

- The contracted bookkeeper (temporary) finds difficulty preparing the

interim financial statement for the company due improper recording of

transactions particularly that with the AQFI.

- Higher expense on repairs and maintenance was noted.

- The depreciation cost was not considered in the financial report for Jan-

July 2008

- Resolved to hire replacement for the Cashier and Administrative Assistant

who resigned unexpectedly.

- The Board approved the hiring part-time bookkeeper with monthly

honorarium of Php1,500.00 per month for the project; and the opening

of checking account for the company

Minutes of the

Board Meeting, June

13, 2008

- Approved the hiring of bookkeeper with an honorarium of Php1,500.00

per month with the following responsibilities: reports to the company at

least once a week, prepares monthly interim report, quarterly financial

statement for presentation to the board

- As to product orders paid in post dated checks, it was suggested to

propose a credit limit.

- The Production Supervisor was questioned for accepting orders from

AQFI-Granville without consultation from the Board. It was resolved that

for purchase orders higher than Php200,000.00, approval of the Sorsogon

based board is necessary; for Php 1 million purchase order, consult the

Manager




- Sales from AQFI not reflected in the statement of operation of COCOBIND

(Jan-April 2008).

Minutes of the

Board Meeting,

November 18, 2006

The financial report (January –Oct 2006) presented reflected the following:

- Sales improved and there was slight increase in assets and decrease in

liabilities with SMPFC and AL’s handicraft contributing the big share in

sales.

- As to operating expenses, depreciation top the list at 44%; selling and

hauling-24%; and salaries 14%

Minutes of Board

Meeting, July 01,

2006

On fund sourcing:

- Former VP of the Land Bank of the Philippines, Region V invested in the

form of a preferred share amounting to Php100, 000.00.

- The Board resolved to explore obtaining loan from various financial

institutions.

Minutes of Board

Meeting, June 04,

2006

- In the presentation of the financial report for the January to April 2006,

improved financial performance was reported and that operations became

more efficient.

- Updates on the investors’ forum were discussed eg. one organization

invested Php 60,000 (1,000 EUR) in the company; 2 investors committed

for a preferred share type of investments

- Since the company is confident that funds will be sourced, the renewal of

the services of the management consultant for another 3 months was

approved (starting July 2006).

- The capital structure of the company was likewise reviewed: LIKAS to

complete the documentation of the land invested to the corporation

otherwise the amount shall be deducted its total investments. For

SANDIGAN, additional asset which is drying equipment was proposed as

additional investment to COCOBIND.

Minutes of Board

Meeting, August 10,

2005

- In the financial report presented (as of June 30, 2005) the net loss was

attributed to the following causes: inefficient production, high labor cost,

low mark-up on handicraft products and underutilization of machineries

and equipment

Minutes of Board

Meeting, November

5, 2005

- Five-year development and financial plan which indicates the product

mix, potential market, requirements for additional investment, and

detailed plan of activities presented.

- Plan for the conduct of investors forum in order to generate additional

investments resolved.

Customer perspective


General Assembly

Report 2008

Products and Market (2007 to first quarter of 2009)

Market Products Amount (Php) Percent

SMPFC Fiber and geo nets 1,163,624.95 22.57%

AL Handicraft Handicraft 2,231,871.07 43.30%

Juboken Stitched fiber 458,623.50 8.90%




GAICO Geo nets 323,375.25 6.27%

PITAD Geo nets 193,680.00 3.76. %

AQFI Fiber 44,481.90 0.86%

Great Mooreland Fiber 128,000.00 2.48%

Bulan Twiners Fiber 19,934.00 0.39%

Magallanes Twiners Fiber 11,450.00 0.22%

Bulusan Twiners Fiber 2,156.00 0.04%

LIKAS Coco peat 162,100.00 3.14%

Others/ Walk-in

clients

Handicrafts etc… 415,386.00 8.06%

Total 5,154,682.60 100%

- Handicrafts have great potential in increasing the viability of COCOBIND. In the past five years not

much product and market development was done for handicrafts. Currently, the company is

receiving lots of inquiries for handicrafts from local and international markets.

Minutes of the Board

Meeting, March 5,

2008

- The board recognized the need to look for additional market for the

products and the review of cost and price structure for each product.

Internal Business Process Perspective


Email: 19 October

and 06 November

2009

- COCOBIND participated in the “OK Bikol Trade Fair” held on October 22-

25, 2009 at the SM Megamall that the Department of Trade and Industry

(DTI) sponsored. DTI were impressed with the designs and quality of the

products.

- COCOBIND was offered financing opportunities through the SBC-Retail

Lending Program which are the Working Capital Financing Facility and the

Fixed Asset Financing Facility.

- FSSI paid the booth rental for COCOBIND

General Assembly

Report 2008

- Conducted Environmental Awareness Orientation for workers in August

2006 as a take-off point for the conduct of Environmental Management

Audit (EMA).

- The conduct of EMA started in August 2006 through data gathering on the

‘material and energy flow’ of the plant with the help of a consultant and

participation of the workers. This is intended to make the environmental

performance of the plant more efficient.

Emails, November 20

and 23, 2009

- SMPFC has validated the low quality fiber that COCOBIND produces

during their visit to the plant. There is a big difference in the quality of

fiber that COCOBIND produces compared to that of the SMPFC. The fiber

from COCOBIND contains hard particles. This is due to misalignment in

some parts of the decorticating machine and/or parts for replacement.

- The GM designate of COCOBIND from FSSI concurred with the

observation.

- The following were the problems identified: clearance between the blade

and the cover is too wide and the cover is already too thin. This problems

need major maintenance work

- It was recommended to repair the decorticating machine and also the

conduct of seminar on production of quality fiber the proper maintenance

of the decorticating machine.




- SMPFC informed the Production and Quality Control Supervisor (now the

OIC Manager) on the problem but the latter said that doing the repair

would require big amount of money.

Minutes of the

Board Meeting,

October 11, 2008

- It was resolved to ask the assistance of SMPFC to do some adjustments to

the decorticating machine to maintain the quality of coco fiber.

Coordination with SMPFC is assigned to the board secretary.

- Updates on the EMA installation provided: equipments were purchased,

waste disposal drainage canal destroyed by volcanic eruption being

restored and vegetable garden intended for water waste utilization

restored

PACAP Project

- Decorticating operator deployed to Samar project

- Resolve to change bank signatories for the project

- Approved the Php 10,000.00 petty cash fund for the project in Samar

project

Minutes of the

Board Meeting,

March 5, 2008

- EMA was not fully implemented, funds was utilized in the operations

- To date there are 150 individuals making handmade twines with average

production of 30 hanks per day per apparatus

Minutes of Board

Meeting (with

PACAP), October 4,

2007

Re: Expansion of COCOBIND Project in Lope de Vega Northern Samar with the

Philippine Australia Community Assistance Program

- The assistance approved is under the Focal Community Assistance

Scheme (FOCAS) of PACAP Assistance Program. All purchases from the

PACAP funds will be turned over to the Peoples Organization which will be

organized.

- COCOBIND serves as fund trustee

- The project will operate separately from COCOBIND. But honorarium will

be paid to COCOBIND for technical assistance provided to the project in

Samar.

Minutes of the

Board Meeting,

April 17, 2007

EMA updates presented:

- Environmental budget for the decortications in the amount of Php

186,000.00 prepared. The budget consists of the equipment to be

replaced and/or repaired and labor requirements.

- The material and energy requirement and budget for each production

step in the production of fiber was determined. This will serve as

standards for plant operations in 2007 that will eventually lead to

improved financial and environmental performance.

Minutes of Board

Meeting, November

18, 2006

As to operations:

- More efficient in husk collection. The cost of husk per truckload reduced

from Php 200.00 to Php100.00 per load. Thus, the cost of husk at Php

0.12 per piece is maintained.

- The repair of the stitching machine was identified and budget in the

amount of Php 100,000.00 was approved.

- Approved the implementation of EMA and borrow from FSSI Php

186,000.00 needed for its implementation

Minutes of Board

Meeting, January

Plans for 2006

- Generate additional investments through the conduct of investors’ forum




14, 2006 - Expand operations by increasing product lines to include erosion control

materials, processed coco-peat, stitched fibers (e.g. plant liners, plant

pots)

- Purchase additional machineries and upgrade existing ones

- Intensify promotion and marketing, and product development activities

- Detailed operations report (for 2005) on husk collection and

decortications, drying and baling, handicraft production, pricing

conditions and product development presented. The net loss incurred for

the year in the amount of Php 1,057,558.80 was attributed to the

underutilization of assets.

Minutes of Board

Meeting, August 10,

2005

- Resolved to implement mechanisms to prevent the contamination of the

river of waste water from the decortications

- Resolved to accept the services of the Department of Science and

Technology for technical assistance on Cleaner Production Systems, is part

of the installation of Environmental Management Systems Installation

(EMS) which is intended for eliminating waste of resources through

efficient and effective production system and promote the use of

materials not hazardous to the environment.

- In the operations report presented during the meeting, the following

problems were mentioned: low daily collection of husks which results to

high labor and hauling cost, high labor cost for decorticating and drying

operations. For decorticating only 6 laborers are required instead of 11

and insufficient mark-up for handicraft products. For the drying only 2

workers are needed for 1 ton of fiber.

- In relation to the problems identified, the following were resolved:

improve husk collection, right pricing e.g. 50% mark-up for all coir

products excluding fiber.

- Match the required inventory with the purchase order to ease the cash

flow requirements

- Reduce cost of decorticating operations- come up with efficient strategy

of husk collection, limit the number of personnel from 11 to 6, reduce

cost of drying and baling e.g. .50 cents per kilo of baled fiber and improve

production and processing lay-out.

- Updates on the drying equipment were also presented: fabrication is

almost completed.

Learning and Growth perspective


General Assembly

Report 2008

- COCOBIND conducted training on twining and weaving that empowered

the community to gain employment.

- The company has about 516 workers which includes those involved in

husk collection, decorticating, drying, baling and stitching. Workers earn

between Php 150.00-200.00 per day.

- Workers were organized into an association and registered with the

Department of Labor and Employment. The association sub-contracts the

production of twine and geo nets.

Minutes of the Board

Meeting, June 13,

2008

- Regarding the inquiry of the Municipal Mayor in Magallanes, the board

approved the conduct of trainings for workers on twining and geonets

production; the fabrication of equipment, and sell to them the fiber

needed. COCOBIND will not commit for the marketing of their products.




Instead, the company will link them to buyers.

- In the Board meetings, updates on the operations and financial status of the company are tackled.

Issues and problems are discussed and if possible recommendations are provided.

B. External Environment

Competitors

What to know/

Source

Results

COCOGREEN

Website

Juboken , the only potential competitor of COCOBIND, is the leading

bioengineering company located in the Philippines. It is involved in the

production of various products which include Coconet, Cocolog/fascine,

Cocomat, Fiber tube, Plant pallet, Cocopot, Cocopeat (Blocks, Bricks, Tiles,

etc.), Pads, Coco wattle, Plant Liner, Plant hanger, Door mat, Grow pole, and

various other coir-based products. Dr. Justino Arboleda, who owns Juboken is

also the owner and CEO of Coco Technologies Corporation (COCOTECH).

COCOTECH is the recipient of the Golden Shell Award from the Philippine

Government’s Department of Trade and Industry. The company engages in

the manufacture and marketing of coconut husk derived and related products

such as baled fiber, erosion products and coir pads; and designs and

implements bioengineering and erosin control installation. It specializes in the

following products and services: bioengineering construction and consultancy;

erosion control systems, coco peat growing media and agricultural and

horticultural products.

COCOTECH sells its products to Japan, Europe and the US and cater to a

growing market of local buyers. It established a network of production facilities

to keep up with the demand.

Opportunities

Threats

The coir fiber

industry in Sri

Lanka: Reasons for

its decline and

possible turn

around strategies

Coir and other natural fibers face serious competition with synthetic fibers

which are low in price, more durable and high in strength compared to coir

products. The increasing popularity and competitiveness of synthetic fibers

pose a threat for the coir industry (Boceta, 1997 cited by Rosairo st al., 2004).

Market

What to

Know/Source

Results

Market Opportunities and Trends

Coconut Program

Area Research

Planning and

Prioritization

- Increasing demand for coir in Europe for the following reasons: ban on the

use of polyurethane in upholstery coir industry; shifts in consumer

preference from synthetic fibers to natural fibers as a result of the ‘green

movement’; preference of consumers in the use of coir geotextiles to

control erosion of river beds and prevent collapse of embankment; coir is

also used in Switzerland to reinforce ski runs. Coir is also used in making

car upholstery, pads for bed mattresses and furniture cushions.




- Growing export market for coco fiber and dust in Europe, North America

and Middle East. The ornamental plant industry has created the demand

for dust which is used as soil conditioner.

- The increasing population and income of Asia Pacific countries and Latin

America as alternative markets of North America and Europe.

- The Uruguay Round of the General Agreement on Tariffs and Trade which

liberalizes the trade regime provides the Philippines the opportunity to

become more competitive in the international market

Coir Bhoovastra:

Some Thoughts on

Market Promotion

- The green movement and shift of consumer preference for natural

products provide substantial opportunities for the use of coir geotextiles.

- Demand for coir geotextile will continue to rise as indicated by the growth

in the consumption of geotextiles materials in industrialized countries

during the last three decades and the expert prediction.

Market analysis of

Erosion Control

Mats

- Unlimited demand for erosion control materials given the worldwide

problem on erosion control. Major markets for the product are the

highway construction industry, landfills, urban and sub-urban drainage

areas, building construction and landscaping.

Improving the

Investment Climate

in Emerging

Nontraditional

Coconut Products

- Issuance of Memorandum Circular No. 25 and Administrative Orders no.

43 and 11 of the Department of Agriculture (DA) in the Philippines-

a) Memorandum Circular no. 25 directing all national local government

agencies, bureus, and other instrumentalities, including agricultural

institutions and councils, to use coco peat or coir dust and coconut

fiber materials for soil conditioning and erosion control.

b) Administrative Order No. 43 encourages the use of containers or

receptacles (for “plantable” seedlings) made from indigenous organic

materials like coconut husk, coconut coir, coco peat, or other plant

fibers.

c) Administrative Order No. 11 recommends the sustained use of coco

peat or coir dust as a complementary soil amendment (conditioner)

for improved crop yields during “normal” times and as a drought-

mitigating measure during El Niño years.

- Department of Public Works and Highways (DPWH) issuance of

Memorandum Circular no. 25 which orders the inclusion of coir geotextile

in the designs made by the Department for construction of roads and

highways. The use of locally produced coir geotextiles to stabilize highway

shoulders and eroding parts of roads instead of the imported synthetic

erosion control materials can push the demand for coir.

- Issuance of circular directing the use of coir pots for reforestation

nurseries.

- Customers’ realization on the dangers for using synthetic materials and the

eco-friendly characteristic of coir increases the demand for the product.

- Growing interest in the use of coir dust in horticulture as a substitute for

peat moss in Europe and Canada.

- Increased demand for coir geotextiles in Saudi Arabia and China for the

rehabilitation of desert lands.

- High priorities are given in the use coir for landscaping public areas and

highway sides in Korea and Japan. There are also high demands for bristle

fiber and coco peat in Europe, Canada and USA.




- The Clean Development Mechanism (CDM) of the Kyoto Protocol is an

opportunity for the coir industry. With the CDM, developed countries may

trade with developing countries for the implementation of their

environment-friendly projects and earn Certified Emission Reductions

(CERs). CDM is an initial measure for reducing carbon dioxide emissions.

Threats

Improving the

Investment Climate

in Emerging

Nontraditional

Coconut Products

- Coir products not prioritized in domestic market in the Philippines due to

lack of serious and positive action on official directives to use coir and coir

products in the activities of various government departments such as the

DA, the DENR and DPWH.

- Supply of trained marketing and sales promotion personnel in the

government is not enough to deal with the domestic and export markets.

Product information is limited and statistics and R&D materials are lacking.

- The absence of prescribed internationally accepted standards for coir

geotextiles made it difficult for end users to accept the product for soil

bioengineering applications.

- Complete turn-around to natural materials is not easy. It will take a great

deal of time to get people to make the right choice between low-cost but

environmentally harmful synthetics and relatively higher-priced but eco-

friendly natural materials.

FSSI (2009) Coco

Coir Sub-sector

Study

- Domestic market for coco coir products in the Philippines is not fully

developed unlike in India or Sri Lanka

- Lack or limited awareness on international market opportunities e.g.

Europe and US markets

- Lack of knowledge and orientation in exploring international market

opportunities like the China market




APPENDIX 2. RESULTS OF INTERVIEW

Management staff, workers and board members

A. Internal Environment

(Q-question; R- respondent)


Q1 COCOBIND is financially capable to support its operations Yes No Why?

Yes- No-11

R1 COCOBIND is not capable of supporting its operations. Payment for the premium for the

employees to the Social Security System and Pag-ibig are overdue. Sometimes, employee

salaries and the wages of workers are not paid on time. In order to pay for the electric bills,

the company has to wait for payment on sales. Due to financial distress, part of the Php180,

000.00 fund intended for the conduct of Environmental Management Audit (EMA) was

diverted to finance its operations. COCOBIND borrowed this amount from FSSI to be used

exclusively in the conduct of EMA.

This situation was even aggravated with the poor internal control system of the company. The

Admin Assistant/Cashier was also tasked as bookkeeper. In the audit conducted in 2008, the

company incurred a cash discrepancy of more than Php 400,000.00 (about 6,700 EUR).

However, the person responsible for this advances already resigned from the company before

the audit was conducted. In 2009, a new bookkeeper was hired and the internal control

system was installed.

(What were done to address the problem?) Actually, there were initiatives undertaken to raise

additional capital for operation. The company conducted three investments fora with the aim

of generating Php5million pesos (83,300.00 EUR) additional capital. The estimated amount was

based on the business plan prepared for implementation in 2006. However, only Php200,

000.00 were generated from 2 investors (e.g. the former Vice-President of the Land Bank of

the Philippines and Phil-Net)

To address the problem on lack of capital for operation particularly for the production of

geonets, we invited investors to the company on a PO basis. The investors shouldered the cost

of labor and materials. Once the product is sold, the money is returned to the investor with

the profit generated. COCOBIND gets five percent of the net income for managing the

transaction.

We inquired for PO financing but the interest charges are also high, which is difficult to cover

given the low mark-up particularly of the handicrafts. Besides, payment on sales are usually in

post dated checks for one month or more. It is also difficult to borrow money from banks

because of the stringent requirements such as collateral; also, the company must be profitable

or has big potential of generating income which is not true for COCOBIND at present.

R2 COCOBIND does not have enough capital because its operation is not continuous. Orders are

only accepted when funds are available. Also, loans are not paid. The Administrative

assistant/Cashier who at the same time acted as bookkeeper was found to have

undocumented big amounts of money which I believe resulted to the decrease in the capital

for operation of COCOBIND.

I know that he Board is aware of the financial status of the company because this has been




tacked in meetings every time the operation and financial condition of the company is

presented. However, no concrete action was actually done to address the problem. The board

does not meet regularly, thus the delay in making decisions even for urgent concerns. On the

part of the management temporary measures were done. Individuals were invited to invest on

the production of a particular geonets but on PO basis. This was done to comply with the order

and pay the labor and materials. With this strategy COCOBIND was able to comply with the PO.

R3 COCOBIND does not have enough capital. Because of this, big purchase orders are not

accepted. It operates based on existing capital. It is also not able to pay its direct costs and

fixed expenses; have incurred arrears in the payment for social benefits (Pag-ibig and SSS).

Electric bills are also not paid on time. Since COCOBIND has no buffer funds, it has to wait for

payment of products sold before new purchase orders can be taken in.

COCOBIND inquired for loans from the bank but it is not capable to comply with the

requirements. Its assets such as the land and building are not yet in the name of the company.

PO financing have been tried but for small amount only. The amount borrowed was not paid in

full until now; loan payment is not prioritized. Last year there was an offer for non-collateral

loan but since the board does regularly meet, so decision has not been made on the matter.

In the past years, COCOBIND has weak internal control system as the Admin. Assistant/Cashier

is at the same tasked to do bookkeeping jobs. This has resulted to cash shortage and

transactions were not properly documented. A big amount of cash difference was discovered

in the audit which have may have added to the problem on lack of capital for operation.

R4 Due to absence of capital, COCOBIND stopped its operations in Dec 20, 2009. Premium of

employees for Pag-ibig and SSS were not paid since 2008. In respond to this problem, the

Board suggested to apply for PO financing. The problem is some customers (mostly sub-

contractors) do not issue PO for their orders. Besides, processing for PO financing takes time

before it is approved. Also, interest charges are high which I think is an additional cost to the

operation.

Some board members suggest to apply for PO financing but the problem is some customers do

not issue PO. They want to pay the product upon pick up or upon delivery. This requires buffer

funds on the part of COCOBIND to be able to produce the product and make it ready to the

customer.

Last year (2009), there was an offer to COCOBIND for a non-collateral loan, but this was not

discussed until the end of the year because the board meeting is always postponed. The board

is highly dependent on the availability of FSSI. We (management staff) have been expecting

immediate action from the board to prevent possible loss of opportunities.

R5 The situation has been the result of the inability of the company to earn enough revenue. The

cost is often higher than the revenue resulting to the depletion in its capital. Another reason is

the improper recording of transactions of the cashier who was also tasked to record the

transaction. With the hiring of new bookkeeper, we hope for more accurate financial reports.

One problem here is , the schedule of board meeting is highly dependent on the availability of

FSSI causing delays in the decisions of important concerns of the company.

R6 COCOBIND is not capable to support its operations because it has to wait for the payment of

sold products before it can operate again. Written plans and budget are also not available to




guide its operations.

R7 Bills and other expenses are not paid on time.

R8 COCOBIND is on a ‘survival stage.’ To respond to lack of capital, private individuals were

invited to invest in geonets production on PO basis. The investor pays for the labor and

materials. The geonets produced are stocked in the warehouse of COCOBIND until it is sold.

Upon sale of the product the capital is returned to the investor. COCOBIND gets a share from

the net income earned.

R9 Regarding capital for operation, COCOBIND tried PO financing from HBPC to finance its

handicraft production but the company was not able to pay the loan. PO financing is the best

option for COCOBIND because collateral is not required. The accessing of bank loans is not

possible since the assets of the company are not yet transferred in the name of the company

and therefore cannot be used as collateral. Besides the book value of its assets is already very

low.

To finance its geonets production, individuals were encouraged to invest on PO basis. The

finished products are deposited in the warehouse of COCOBIND until the PO is completed.

Once the product is sold, the investor gets back the investment and the profits earned.

COCOBIND gets five percent share from the net income generated from the transaction as

management fee. However, the basis for charging the 5 percent management fee has not yet

been evaluated if it is commensurate to the participation of COCOBIND in the transaction.

R10 Currently, COCOBIND lacks capital for operation. This situation is noted in 2006 in a business

plan prepared for the company. The company needs an additional capital in the amount of

Php 5 Million in order to be profitable. Investor’s fora were conducted in one municipality, and

two cities. Only two investors were encouraged to invest but only small amount was

generated.

Another initiative done to raise funds was the recruitment of investors to finance the geonets

production but only on a short term. This was done as a temporary relief to the lack of funds

and to maintain the household workers. Also, to show to customers that the company is still

operational, and to maintain the customer’s trust to company.

After the conduct of fora, no other action has been done to raise funds for the company. The

board seldom meets, thus the delays in the discussions of critical issues of the company.

R11 At present, COCOBIND finds it difficult to finance its operations. Current level of production is

dependent on the availability of capital, which is not enough to cover the company’s fixed

expenses. The weak internal control system has somehow contributed to poor cash

management. Big amounts of money were not liquidated. It was only in 2009, that the

internal control system was reviewed and improved. A new bookkeeper was hired.

In terms of generating additional capital for operation, investment fora were conducted but

response from potential investors was low. COCOBIND was not able to raise enough funds.

Investors were also invited to finance the geonets production. Geonets becomes ‘a ride on’ to

COCOBINDs operation. Terms and conditions have to be clarified. One concern is about the

five percent share that the company gets from the net income as management fee. It might be

that the geonets production contributes much to the company’s overhead expenses. The

feasibility of the scheme adopted and controls have to be taken seriously.





Q2 COCOBIND produces good quality products. Yes No

YES- 8 NO-3

COCOBIND produce quality products such as coco fiber, geonets and handicrafts. We have

two persons assigned to do quality checks, one for the raw materials and another for the

finished products.

The handicraft workers are already skilled to do the craft. Also, 200/300 household workers

trained in geonets production are already skilled.

Q3 What do customers say about product quality?

R1 One of our customers, the SMPFC complained that the coco fiber we delivered to them did not

meet the agreed requirements. They claimed that it was not properly cleaned that there were

pieces of stones in the baled fiber. Well, actually SMPFC ordered wet fiber, but they

complained that the “wetness” is too much that the fiber becomes too heavy compared to

normal weight of wet fiber. This problem was discussed in the board meeting and it was

resolve to validate first the claim of SMPFC. AQFI was assigned to observe the processing of

husks and do random sampling on the wet fiber in the plant and see how it differs in terms of

weight and quality with that delivered to SMPFC. AQFI did the validation but this issue was not

tackled anymore in the board meeting. COCOBIND was actually asked to pay for damages

amounting to about Php 36, 000.00 (600.00 EUR) which represent the value of the difference

in weight based on the computation of SMPFC.

R2 Only SMPFC complained about the quality of wet fiber of COCOBIND. There were also

complains about the quality of geonets but it was only when the workers were not yet skilled

or newly trained. But now that the workers are already skilled, COCOBIND can already produce

good quality geonets. I could not remember any complain about the quality of handicrafts.

R3 The only complaint I know from customers about product quality is that of the SMPFC

regarding the wet fiber delivered to them. They said that it was too heavy because of too

much water content in the fiber than expected. However, the kind of fiber that COCOBIND

produces satisfies other buyers.

R4 SMPFC complained for the quality of wet fiber that COCOBIND delivered to them. They

complained that it did not conform to the specifications of the fiber that they ordered.

According to them the fiber is dirty and there are foreign objects mixed in the fiber to make it

heavier.

R5 Quality of wet fiber: not properly cleaned and too much water content compared to required

specifications

R6 Before there were complaints on the quality of geonets. But this was when the workers were

just newly trained.

R7 According to SMPFC, the quality of wet fiber is not good.

R8 I learned about the complaint of SMPFC about the quality of wet fiber. COCOBIND even paid

thousands of pesos for the weight difference due too much water content.




R9 There is a problem on the quality of wet fiber that COCOBIND produces. SMPFC complained

that the fiber was not adequately cleaned and has higher moisture content compared to the

requirements of the company. I learned from SMPC that the fiber will not meet the quality

requirements of Korean buyers.

R10 The problem of COCOBIND is on the quality of fiber produced in decortications.

R11 Not all products are of good quality. SMPFC complained that the fiber that COCOBIND

produces is sub-standard. To check on the quality, our organization (AQFI) was assigned to

validate the claim. Actual observation and random sampling of the fiber in the plant was done

and the findings were recorded. However, the findings were not anymore discussed in the

Board. SPFC asked COCOBIND pay for the weight difference which they determined. The

dependency to the availability of FSSI for the schedule of meetings has big impact on the

operation of the company because urgent concerns are not tacked on time.

Q4 Who are the customers of COCOBIND? What are the problems of COCOBIND in the

marketing of its products?

R1 COCOBIND customers includes the member organizations which are SMPFC, producer/

exporter of coco fiber products, buys fiber and handicrafts; LIKAS for coco dust used in organic

fertilizer production, AQFI, which buys handicrafts; other customers are: Juboken for geonets

and stitched fiber; GAICO for geonets, AL’s handicraft for coco coir handicrafts such as plant

boxes of different sizes and other private companies and individual walk-in clients. But the

problem is they only place order when there is demand for the product.

Another problem is the setting of price for handicrafts that COCOBIND sells to SMPFC. The

board has not yet approved the price of the product but we accepted the PO already.

However, we are wondering why there is a big difference on the price for the same product

compared to the one that AQPFI produces, given that the end user of the product is the same

e.g. Rana Creek a company based in the United States. AQFI sells to Grandville, a company also

based in the Philippines.

R2 The customers of COCOBIND are AQFI, SMPFC, LIKAS, GAICO, Juboken and other individuals

and organizations. Some customers just drop at the plant to buy coir products but these are

usually in small volumes. It is difficult to determine how many times they place order say in a

month or year because they only buy based on demand from them.

R3 The major customers of COCOBIND are SMPFC, AQFI, GAICO, LIKAS, Juboken, New Pili Lumber

and Hardware and individual walk-in clients. There is a problem though in the choice for

customers who are not members of COCOBIND. For instance, the board does not want

COCOBIND to transact business with Juboken as the board considers the company a

competitor of COCOBIND. At present, Juboken is the only accessible buyer of coir dust in the

region and has market contract with Japanese buyers.

R4 As to COCOBINDs customers, these include the member-organizations and other walk-in

clients.

R5 There are almost the same customers who buy coir products from COCOBIND since it started

to operate as a corporation.

R6 Juboken, SMPFC, GAICO and many others…




R7 The member-organizations of COCOBIND such as LIKAS, AQFI and SMPFC and other individuals

are the buyers of COCOBIND

R8 COCOBIND has permanent customers like ALs Handicraft, SMPFC and LIKAS.

R9 Among the customers of COCOBIND are SMPFC, AQFI, Juboken and GAICO and ALs handicraft.

One problems encountered in relation to marketing is the inability of the management to

consistently implement the policy on the advance payment for POs. For instance the 50%

down payment is implemented only to SMPFC but not to Juboken, GAICO and other buyers.

This could have solved partly COCOBIND’s problem on lack of capital for operation.

Moreover, the price offer of SMPC on handicrafts is way below the price that other buyers

offer for the same product. However, SMPFC reasoned out that selling at a low price was

the strategy they adopted to penetrate the international market for coco coir handicrafts on

the long term (probably 3 years or more). SMPFC placed the order to COCOBIND although the

issue on the price of the product has not been deliberated yet in the board meeting.

R10 Some members-organizations are the market for the products of COCOBIND. However, in the

past years, the demand from these organizations is not continuous and not enough to meet

the level of sales to make COCOBIND profitable. Lately, there have been many inquiries but

COCOBIND cannot commit for big orders because of lack of capital. This situation has been

deliberated many times in the board meetings but decisions have not been made to address

the problem.

It seems that the board is not much convinced of the possible turn around in the situation of

COCOBIND but the management believes otherwise because of the many inquiries on coir

product s for use in the domestic market particularly the geonets.

R11 COCOBIND has customers for its products such as its member organizations. One of its big

customers is SMPFC, a COCOBIND member who is given the role to mobilize the market for

coir products. SMPFCs market is also ON and OFF. There is also a problem on the price set for

the price of handicrafts sold to SMPFC because this is implemented without the approval of

the board. ‘Why did COCOBIND accept the PO’ when this might shortchange the workers. This

is also not aligned to the objectives of COCOBIND of providing livelihood opportunities to the

communities.

Q5 What type of relationships does COCOBIND have with customers?

R1 In terms of relationship of COCOBIND with customers, no formal agreements were made

between them.

R2 I think the relationship of COCOBIND with its customers is informal. They just relate with each

other when the customers has to buy products. Even with ALs handicraft and SMPFC, no

written contract binds their relationships.

R3 For most customers, relationships exist only when there is demand for the product. They

communicate with COCOBIND to place an order.

R4 The relationship of COCOBIND is limited to the selling of the products. No formal agreements

of any kind are executed between them because transaction is only on PO basis.




R5 I don’t have an idea on the type of relationships that COCOBIND has with its customers but it

seems the customers are loyal to COCOBIND because until now they keep on coming back to

buy coir products particularly ALs Handicraft.

R6 Relationship is informal but this is maintained for several years now.

R7, 8,9,10,11 (no answer)

Q6 What benefits do COCOBIND get from the kind of relationships it has with customers, if any?

R1 Although there are no formal agreements, customers always come back to COCOBIND for

orders. The company has skilled workers who can produce handicraft of high quality. Besides,

COCOBIND has stitching machine which is used in producing stitched fiber mats, a preparatory

process in producing handicraft products.

R2 The benefit that COCOBIND gets with the kind of relationship it has with most of its customers

is being able to market its products. For SMPFC, other than its business transaction with

COCOBIND, it provides assistance in the repair of the decorticating machine and stitching

plant in order the machines more efficient.

R3 none

R4 As to benefits from relationships with customer, only SMPFC offers something such as the

repair of the decorticating machine and stitching machine. Also during the early stage of the

operation of the decorticating machine, SMPFC provided training to the workers on how to use

the machine efficiently. They also shared their experience in cost reduction mechanism in the

processing, drying and baling of fiber.

R5 Although customers prioritize COCOBIND as supplier of coir products. But the problem is,

customers are also dependent on demand. Demand from current customers is not enough

generate higher sales for the company.

R6, R7, & R8- no answer

R9

R10 It seems that we have already established good relationship with some of our customers. For

instance, ALs Handicraft gets all its orders for handicrafts from COCOBIND for several years

already. I believe that trust between COCOBIND ALs Handicraft exists.

R11 For most of its customers, linkage exists only when there is demand.

Internal Business Process Perspective

Q7 How are the quality of COCOBIND products ensured; and who does the checking (e.g

products manufactured in the plant and those produced by households)?

R1 Actually, there is a generic standard set for the quality of fiber, geonets and handicrafts which

is the basis for checking their quality. For instance, geonets series 400, should be 400 grams in

weight, hard twisted and pencil size. A person is in-charge to check the quality of products

produced in the plant. Geonets produced by households passes through agents. Agents do

the quality checks of geonets produced in the communities but these are rechecked when




delivered to COCOBIND.

(On the average, how many percent of the coco coir products conform to product

specification?) I think we are able to achieve at least 90% to 100% conformance to quality

depending on the type of product. Its only SMPFC who complained on the quality of wet fiber.

R2 For the handicrafts, when one worker finished 50 pieces of handicraft, it is submitted first to

quality checks. When the product satisfies with the requirements based on product

specifications, the quality control person issues a piece of paper to the worker certifying that

the product satisfies the requirements. The worker presents the piece of paper to the cashier

for payment.

R3 Although there are general standards set for coir products, in most cases quality checks is

based on the specifications of the customer which is agreed upon between the OIC Manager

and the customer before the PO is accepted. The OIC Manager is in charge of the overall

monitoring of product quality. But a quality control person is assigned who classify the

products of workers and those coming from the households.

R4 Quality checks are usually based on the specifications of the customer.

R5 It is based on the characteristics of the product which the customer prescribed.

R6 Based on the preference of customers.

R7 Specifications of customers

R8 and R9 no answer

R10 Based on customer’s requirements.

R11 Based on the quality specified for the product.

Q8 What is the policy for the maintenance of machines?

R1 We do not have written policies on the maintenance of machineries and equipment. But we

have a person in-charge to do minor repairs when needed. We do not have regular schedule

for the check-up of machineries and equipment in the plant. Only minor repairs and

troubleshooting are done. Sometimes repairs are not undertaken due to lack of budget.

R2 I do not know of any policy regarding the maintenance of machineries in the plant. But

COCOBIND has two employees who can do minor repairs when the machine is in trouble.

However, even if some problems are already identified, repairs are not done immediately

particularly if it requires large sum of money.

R3 Machines are repaired when problem is already detected. It is not done proactively and repairs

are not a priority. Likewise, no budget allocated for repairs and maintenance.

R4 Do not know

R5 No policy; the machine is repaired when needed. Only troubleshooting is done. For major

repairs SMPFC is consulted.

R6 No answer




R7 There is no policy for the repairs and maintenance of machines because check- ups are done

only when needed. At present the decorticating and stitching machine are due for repair.

R8 The person in-charge of the repairs and maintenance checks the condition of the machines.

There are no original spare parts available for the stitching machine available locally. Only

fabricated spare parts are used as replacement; the cost is lower but utility is shorter than the

original ones.

R9 No answer

R10 I don’t know about this policy. In my observation, the machines of COCOBIND are already old

and not any more efficient resulting to high cost of production.

R11 No specific policy on machine maintenance. But there are people employed in the company

who can do minor repairs.

Q9 What is the current level of utilization of the machineries of COCOBIND? Why?

R1 Stitching machine -30%; decorticating machine-13 percent; twining and handloom equipment-

25 percent. A big portion of the capacity is not utilized. The machineries and equipment only

operates when there are orders.

R2 It is difficult to tell in exact figures the level of utilization of machines in the plant. But it is

apparent that these are underutilized because they are not operating continuously. For

instance, the decorticating machine operates only few days in a week. There are times that the

machine does not operate for months. Its operation is dependent on orders and with the

availability of funds. But I suppose there still solutions for these.

R3 The machines are not fully utilized.

R4 Machines not maximized. It operates only based when there are orders.

R5 Operation of the machine is below its capacity. It only operates when there is a PO.

R6 Machines are underutilized.

R7 I’m not aware if there is a policy for maintenance of machines. I think there is none because

check- ups are done only when needed. At present the decorticating and stitching machine are

due for repair.

R8 Underutilized

R9 Machines not maximized; on and off operations.

R10 The operation is dependent on order and availability of capital

R11 The machines are not actually maximized. However, the stitching machine is already old,

model not updated and not anymore efficient.

Q10 On the average, what is the current level of productivity of household workers per day?

Why?

R1 Most household workers can commit at least 6 hours of work every day in geonets production.

Most of them start working after they have finished their household chores. On the average,




the 200 active household workers can produce at least 1000 to 1500 rolls (1 roll=50 meters) of

geonets per month. At present production are based on demand and availability of capital.

R2 Workers are willing to work every day on geonets production. Sometimes the problem is lack

of capital to pay for the labor of workers. But in many instances, it is because there is no buyer

for the product. Last year, a construction firm placed a big order for geonets. In order for

COCOBIND to pay the labor, private individuals were asked to finance the operation. The

problem is when the PO has been completed, the owner of the company died, causing

problems again to the company.

R3 Household workers are capable of producing geonets that will enable them to earn more or

less 150.00 (3.33 USD) per day. However, workers have to wait for orders to be employed.

R4 Household workers do not work continuously.

R5 Just like the machines, workers are also underutilized.

R6 Workers are hired only when there are orders.

R7 No idea on the level of household workers productivity.

R8 Household workers work only when required but, they are willing to work continuously and on

a regular basis.

R9 Some workers are discouraged to produce geonets because of the low labor paid to them due

to price cuts made by agents (persons who consolidate the geonets produced in the

community). However due to absence of job opportunities they still continue to work for

COCOBIND.

R10 and 11 No answer

Q11 Does COCOBIND maintain product inventory? Why?

R1 COCOBIND does not actually set any volume for product inventory because production is done

only when orders are placed. There is no basis as to how much to produce to stock in

anticipation for future orders. Besides, there are no projections made in terms of production

and budget.

R2 Product inventories are actually not needed. Production is done only to satisfy an order.

R3 COCOBIND production is dependent on demand so no product inventory is needed.

R4 Product inventory is not maintained to anticipate future orders. There is no basis for the

company to do this because production plans are not prepared.

R5 There is no need to create inventory for coir products. If there are stocks, these are temporary

because they are intended for specific purchase order. For instance, the geonets stocked in the

warehouse at present are intended for the New Pili Lumber Dealer and Hardware which were

not picked up because the owner of the company died. The labor and materials of the geonets

were financed by external investors. Once the product is sold, the capital will already be

returned to them and COCOBIND will get only the 5 percent management fee.




R6 COCOBIND does not produce products for inventory.

R7 (no answer)

R8 Does not produce for inventory

R9 No basis for this. Besides production plans and budget are not prepared in order to anticipate

future orders.

R10 No answer

R11 COCOBIND does not have the capacity to create product inventory; this is not a target output.

Which of the following strategies does COCOBIND adopt to respond to product orders? What

are the problems encountered in meeting product orders?

10 Make to order –manufacture a standard product upon receipt of customer order

___Engineer to order – changes to standard products are offered to customers

1 Design to order-company create new designs

___ Assemble to order-components and sub-assemblies have been made to stock

___Make to stock-finished products are made in advance of demand

- For coco fiber and geonets , make to order is adopted because the specifications of this

product is more or less general. In the case of handicraft a combination of make to order and

design to order.

- It is difficult make to stock because production plans and budget to guide in the operation are

not prepared. Production targets are only prepared for current orders. Production is

dependent on demand.

Q12

-COCOIND adopts make to order strategy. Due to lack of capital, make to stock cannot be

done. But of course, the type of strategy would always depend on the plans of the company.

Q13 What is the source of COCOBIND for new product ideas and concepts? What new products

have COCOBIND developed and marketed?

R1 In the development of new products, the organization coordinates with the Design Center of

the Philippines (DCP) through the Department of Trade and Industry (DTI) for assistance. But

this is only done in preparation to Trade Fairs. Last year COCOBIND participated in the trade

fair held in Manila. The participation to the activity resulted to inquiries and request for

samples and orders in small volumes. However, did not respond to these orders because of

lack of budget. It is costly to deliver products in small volumes. But we recognize the fact that

participation in these activities, COCOBIND is made known to buyers.

R2 Sometimes, ideas are developed from trainings.

R3 New ideas were developed with the assistance of the DCP. But, this is usually done to prepare

for products to be displayed in the trade fair; not done as regular activity of the organization.

R4 Sometimes from customers who request for product samples for new designs.

R5 Actually, development of new products is not a priority, budget is not allocated.




R6 Inputs from DCP and customers.

R7 Sometimes from the idea of workers.

R8 Not proactive in developing new designs; sometimes new designs are developed for display in

the trade fair.

R9 &10 no answer

R11 Priority is given to current demand not on the development of new designs.

Q14 What problems does COCOBIND encounter with new product development?

R1 Actually, product development is not done proactively. Budget is not allocated for R&D and no

person in the plant is technically knowledgeable to develop new products for instance

technology on making paper using coir dust.

R2 Budget and lack of technical expertise are the problems in NPD.

R3 NPD is done only to produce products for display in the trade fair. Although there are inquiries,

these are not responded due to lack of funds. Besides, the organization has no target for this.

R4 NPD is not a priority.

R5 No plan and budget and for NPD

R6 No person to do product design which are technical in nature.

R7 No budget; the focus is more on the production for ordered products.

R8,R9, R10 and R11- No budget; not a priority

Learning and Growth Perspective

Q15 What learning activities does COCOBIND do to develop the skills of workers and how are

these monitored?

R1 COCOBIND conducts training of workers on geonets and handicraft production. For this, the

organization coordinated with LIKAS for financial support. LIKAS accessed funds from Manos

Unidas of Spain and AECI for the training of household workers on geonets production. Other

trainings were supported by the Barangay Council. But one good thing about this training,

some of the trained workers becomes trainers in their respective communities. The technology

can easily be learned through constant practice. There are about 300 workers already trained

and 200 of these are active workers. For handicraft, out of the 50 workers trained 40 of them

are already skilled and active (meaning they can be called anytime to work). Direct monitoring

of household workers is not anymore done by COCOBIND. The team leader/agent that is in-

charge of certain group of workers does the monitoring. Other organizations tap COCOBIND to

train workers on fiber production, geonets and handicraft production.

R2 There were trainings conducted before particularly for handicraft and geonets production.

COCOBIND was fortunate to have accessed the support of LIKAS for the training of workers.

Food for the trainees and honorarium of the trainers and materials needed were funded.




R3 The training that COCOBIND conducts for workers is only on geonets and handicraft

production. Workers master the skills once they do the work repeatedly. The team leader in-

charge/agent in the community monitors the progress of workers. Sometimes, the team leader

request from COCOBIND a trainer to validate if the quality of the product already conforms to

quality requirements.

R4 Geonets production e.g. from twining to weaving the hanks into geonets

R5 Training on geonets and handicraft production both in the plant and in the communities. At

the plant level, there is quite a problem for decorticating operations because only few workers

were trained. Since the operation is not continuous, sometimes when orders come, the

workers have already found a new job. So, new workers have to be trained.

R6 Training on geonets particularly in the communities (also the answer of R8, R9, R10 and R11)

R7 Only trainings for new workers are provided, follow up trainings are not given.

Q16 Education and trainings are provided to staff Yes No What type of

education and training are provided to staff, if any?

Yes- 0 No-9 No aswer -2 (do not know)

Trainings for the management staff of COCOBIND are not prioritized because of lack of funds.

Skills gained from experience are considered enough.

Q17 What does COCOBIND do to monitor staff performance?

R1 Performance of staff is not formally evaluated. Staff manual is also not available to guide in the

assessment. Performance of staff is only discussed when there is already a problem.

R2 There is actually no basis for monitoring and evaluating staff performance. For instance it was

too late already when it was discovered that COCOBIND transactions were not properly

recorded. When it was proven in audit that big amount of money cannot be accounted, the

staff concerned has already resigned from the company.

R3 &R4 No answer

R5 No formal monitoring of staff performance done; besides there are no clear guidelines for this.

It is only tackled when problem is already encountered like the case of the bookkeeper and

operator deployed in Samar.

R6 Performance monitoring is limited to the following up of workers on existing production

activities.

R7 Only the day-to-day activities are monitored.

R8 Daily activities are checked by the OIC manager

R9 No management training was actually given to the staff; but experience made the Production

and Quality Control Supervisor (now appointed as OIC Manager) skilled enough to handle

management function. His appointment to the position will develop his confidence on the job.

Other comments: COCOBIND is an example of how not to run a business: no policies no staff

manual, no internal control. There is a need to decide what direction the company has to take.




If the operation will have to be continued, the business has to be taken seriously.

R10 No answer-

R11 There is a need for training and mentoring of staff on project management. Also, enhance

their skills in cost cutting and production efficiency.

B. External Environment

Competitors

Q18 Who are COCOBIND’s competitors? What are their characteristics in terms of scope of

activities and resource commitment?

R1 In the province of Sorsogon, COCOBIND has no competitor. The two companies in the province

(AQFI and GAICO) are allies of COCOBIND. Besides, the company is bigger than these

companies in terms of the size of the plant, number of workers and type of machines and

equipment used. COCOBIND is the only company who has stitching machine which is used in

the production of stitched fiber mats. Stitched fiber mats are used in the production of

handicrafts and in making upholstery products.

At the regional level, Juboken could be the competitor although it is not much felt at the

moment. COCOBIND is second to Juboken in terms of size of the plant. Also Juboken has

strong R&D and has established good relationship with government agencies at the national

level; and has the capacity to export coir products.

Linkage of COCOBIND with Juboken still exists. Juboken taps COCOBIND for fiber stitching and

it also buys geonets from COCOBIND. One problem with this relationship is that COCOBIND

board does not want to sell products to this company because of bad reputation of Juboken in

the past e.g. not paying the products they ordered in some companies.

R2 Juboken may be considered a competitor of COCOBIND. It has a bigger operation than

COCOBIND. The owner manager of Juboken also owns COCOTECH based in Manila which has

technical expertise in erosion control application. Juboken is also known internationally for

having pioneered the production geonets for erosion control.

R3 I don’t see yet a company in the region that may be considered a strong competitor of

COCOBIND. Juboken is willing to collaborate with COCOBIND. But I’m sure the board of

COCOBIND will not be amenable to the idea.

R4 none

R5 none

R6 Competition not yet felt.

R7 Time will come a time that Juboken will be the strong competitor of COCOBIND.

R8, R9, R10 & R11 have not identified competitor of COCOBIND

Q19 What are the threats and opportunities available with the existing competition?

R1 The plan of Juboken to establish decorticating plants in different parts of the region including

Sorsogon province where COCOBIND operates would be a threat to COCOBIND. With this,

Juboken will then have the capacity to create volume and win orders from DA, DPWH and




DENR. It is also accredited to supply products to DPWH.

R2 The accreditation of Juboken to supply coir products for erosion control and road construction

to the DPWH will make the use of geonets more popular in the domestic market.

R3 The increasing cost of electricity is a big threat to COCOBIND’s operation.

R4 Juboken continuously innovate and pursues product diversification. They also have contacts in

Japan for the market of coir dust.

R5, R6, R7, R8, R9, R10 and R11 – no answer

Markets

Q20 What are the current trends and opportunities in the local and international market?

R1 The use of geonets in road construction is increasing. This is an opportunity for COCOBIND

given the big number of workers already trained in geonets production.

R2 It seems that the demand for coir products is increasing because there are many inquiries for

the product. I also learned that there is big demand for the product in China. But the problem

is COCOBIND has no capacity to engage in direct exports for its products. One reason for this is

that COCOBIND has not yet established its name in the international market.

R3 I believe that there is big market opportunity for coir products because of the customers

preference to go back in the use of natural products both in the domestic and international

markets

R4 I think there are coming big orders for coir products in domestic market with the directives

from the Philippine government for the use of coir products by DA and DPWH.

R5 There are inquiries for coir products but big orders are not taken in due to lack of capital.

R6 Availability of market for coco fiber, geonets and dust.

R7 There are orders for geonets and fiber from domestic market. However, COCOBIND cannot

commit for big orders due to lack of capital.

R8 (No answer)

R9 The situation of the COCOBIND is complicated. It has not established stable market for its

products in the previous years. If ever it has, it is not direct to the consolidator. It passes

throughsub-contractors. For instance, Juboken is not a consolidator. Also, purchase order is

not generated in most of its transactions with sub-contractors. The PO could have been used

to apply for loan (R11).

R10 The market for coco coir products is ON and OFF. SMPFC is also weak in mobilizing market for

COCOBIND. In the past years export market declined due to the economic crisis. This in turn,

affected the performance of COCOBIND.

RESULTS OF INTERVIEW with EXPERT

Q1 Information about the coco coir expert

Justino R. Arboleda Ph.D.




Chief Executive Officer of Coco Technologies Corporation (COCOTECH)

Chairman/President of Juboken Enterprises

Winner of the World Challenge 2005, BBC World

Expo 2005 AICHI Japan Awardee (Global 100 Eco-Tech Awards)

Recipient of Golden Shell Awards

Q2 What do you think are the problems of coco coir producers in the region?

One of the problems of coco coir producers is the inability of companies to directly market coir

products to end users. Producers depend on sub-contractors/ agents to market them resulting

to low prices due to price cuts. ‘I believe that in order to grow, you have to reinvest.’ Actually,

coco fiber production is a capital intensive business. It has 2 levels of operation: the primary

level which is mainly on fiber production and the second level which is the final processing of

fiber into geonets, plant boxes and other types of handicrafts. To engage in these levels require

additional capitalization.

Another problem of companies is the lack of capital to create inventories for big Purchase

Orders (PO). There are instances when customers purchase products on credit and payments

are made in post dated check for a period of one month or more. In this case, coco coir

producers need capital to produce the product. In rare cases, customers offer down payments

for products ordered. Also, international markets fluctuate. For instance the regular price for

raw fiber for export to China is USD240 FOB Manila but in the last quarter of the year it reaches

USD300. Therefore, it makes sense to create inventory of finished products to be sold when

prices are high.

Another thing is, the inability to explore market for coco peat is a big loss for companies. In

most companies, coco peat is just left in the production area as waste. COCOTECH has closed

big contract for coco peat in Japan. We are buying them at Php 20/sack (30 kilograms).

Q3 In your opinion, what are the opportunities are available to coco coir producers like

COCOBIND at present?

At present, there is high demand for coco coir products both in the international and local

markets. For instance, China needs big volume for raw fiber for the rehabilitation of its

agricultural land. It also needs fiber for the production of mattresses particularly in the months

of October, November and December when demand for coco coir beds is doubled. However,

coco coir producers in the Philippines are unable to take advantage of this opportunity due to

low production volume. Japan also requires big volume of coco peat for horticulture and

floriculture industry. Again, the requirement is too big e.g. 10 containers per month which has

to be delivered in two shipments only. The export requirement is beyond the capacity of just

one company. In addition, the growing trend to go natural in European countries particularly

the Netherlands on the use coco fiber as insulation material and sound proofing can also be

looked forward too.

Locally, the approval by the Department of Public Works and Highways in 2008 of the

department order mandating the use of geonets in road construction, erosion control and slope

stabilization is a big opportunity for coco coir producers. COCOTECH has closed 400 million

pesos (9 million USD) worth of Purchase Order for geonets for local international markets.

Seventy percent of these will be used locally. One advantage of our company is its expertise in

project design which we do with clients at the inception stage of a project. The accreditation of

the corporation with the DPWH as supplier of geonets is an added advantage of our

corporation.




Q3 What do you consider as threats to the coco coir business?

For me, natural calamities such as typhoon and floods are threats to the coco coir business, but

we cannot do anything to prevent this. But as far as COCOTECH is concerned, we are not

threatened with the existence of competitors because the market for coco coir products is

growing.

Q4 What do you recommend to improve the performance of coco coir producers in the region?

Given the low production capacity of coco coir producers in relation to the demand of coco coir

products, collaboration with other coco coir producers is needed to create volume. The

development of downstream industries and the continuous improvement product quality is

extremely important. In the case of Juboken/COCOTECH, establishment of coco fiber processing

plants in different parts in the Bicol region is now started. Our corporation will act as product

consolidator. However, product consolidation requires big capital. In the case of Vietnam, the

government acts as consolidator. Households were provided small decorticating machines. The

products that the households produce are paid by the government.

There is also a need to find market for coco peat to increase income generated from coco fiber

processing. Coco peat comprised about 37 percent of the husks processed. Eight thousand

pieces of husks yield 1 ton of fiber and 3 tons of coco peat. The expert also recommended that

companies must invest the secondary level processing to create products of higher value.

Ensure fast turnover of product inventories to reduce the production cost on fixed expenses.

Develop downstream industries and establish market linkages. For instance coco coir producers

in India are successful because 70 percent of its coco coir products are sold locally. The approval

of the department order by the DPWH in the Philippines is an opportunity that coco coir

producers can take advantage. Supplying local demand for coco coir will reduce transportation

cost.

Finally, the expert recommended quick decision making in all business matter to keep abreast

with fast changing environment. There is a big difference between ownership and management

by the owner (single proprietorship) and that by organization. For single proprietorship decision

making is easier as no other persons have to be consulted for decisions and there are no

limitations in terms of time and efforts exerted in business. For businesses whose decision

relies heavily with many members, decision making takes time.

RESULTS OF INTERVIEW with CUSTOMER

1 Information about the customer

Name of Customer : Gubat Agri-Tech Industries

Type of Business: Partnership

Products produced: coco fiber, geonets and handicrafts

Year established: 2005

2 Information about the product purchased from COCOBIND

GAICO purchased geonets from COCOBIND to fulfill the PO contracted out with the Philippine

National Oil Corporation-Bacon Manito erosin control project in 2008. If only the Philippine

government seriously implemented the directives on the use of geonets for erosion control, local

market for the product may have been bigger.

3 How would describe the quality of products that COCOBIND sells to your company?

About ninety percent of their deliveries are of good quality. Perhaps the ten percent were

produced by new workers who are not skilled yet. There is a need for COCOBIND to check




properly the quality of products before it is delivered. Quality produce cannot be fully expected

from new workers but it is important that COCOBIND takes the responsibility of delivering only

the quality products.

4 What are the terms and conditions for the purchase of coir products (price, delivery etc)?

Our transaction with COCOBIND is not formalized. Agreements for purchase orders are made

verbally; payment of order is 30 days in post-dated-check. Our market engagement is not for the

long term but on purchase order basis. No written contracts are executed for our transactions

with COCOBIND. Not even purchase order is issued. (Why?) This is actually been our practice and

there is no problem with it as long as honesty is there.

5 What do you suggest to improve the services of COCOBIND to its customers?

There is a need for COCOBIND to strictly implement quality control to ensure delivery of quality

products to customers.

6 What opportunities do you see for COCOBIND as coco coir producer?

Since COCOBIND has already the facilities and equipment, it can take advantage of the market

opportunities both at the local and international markets. There is growing market for

handicrafts particularly in Europe. Handicraft is preferred because of the value added it brings to

the company such as higher income and employment of people in the community. However,

Exports require big volumes which small producers cannot afford to produce. Coordination with

other coco coir producers is needed to create volume. Perhaps, FSSI can take the lead in product

consolidation and find market for coco coir products.

For most coco coir producers, market is the problem because most customers are dependent on

demand.




APPENDIX 3. Basic Information about COCOBIND

I. Company profile

Name of Organization: Coco Coir Business Integration and Development

Address: Irosin, Sorsogon, Philippines

Type of Organization: Corporation

Nature of Business: Manufacturing

Date Organized: May 2004

Date of Registration: December 2005

Number of Employees/Workers: Management staff- 2 full-time; 1 part-time

Plant workers: Decorticating operation-7

Stitching operation- 3

Handicraft workers- 40

Household workers- 200

II. Business Environment

A. Production Aspect

Materials used: Coconut husks, bamboo sticks, rubberizing chemicals

Machineries, equipment & facilities: Decorticating machine, stitching machine, baling machine,

transport facilities: 2 units truck (1 small, 1 big)

Other tools & equipment: cutter, compressor, weaving equipment, twining equipment, grinder,

dryers, drill and welding machine

Products produced: coco fiber, geonets and handicrafts (bio-tray, plant pots)

B. Marketing Aspect

Distribution channels: sub-contractors

Promotion/advertisement: word of mouth, trade fairs

C. Financial Aspect

Initial capital investment: 9,050,000 pesos (150,833.00 EUR)

Present capitalization: 5,494,536.38 pesos (91,575.00 EUR)

Sources of capitalization: investment from stockholders

Recording, bookkeeping & auditing: Part-time bookkeeper hired

Quarterly Financial Statements prepared

Annual external audit conducted

D. Management and Personnel Control

Decision Making and Control: one-tiered board (e.g. board engages with management)

Benefits offered to employees: social security benefit, health insurance

III. Management Philosophy and Practice

Vision and Mission: “To contribute to the economic well-being of the coconut farmers in the Bicol

Region and Samar provinces by providing them employment and livelihood opportunities through

maximized utilization of coconut husks.” It intends to achieve this objective by producing,

manufacturing, processing, and / or selling of coconut coir or peat products such as coconut coir,

stitched fiber (mats), geonets, coco peat, and bioengineering services such as designing, production

and installation of erosion control nets. It is one of one out of four companies operating in the Bicol

region.




IV. COCOBIND Members/Stockholders

1. Lingap Para Sa Kalusugan Ng Sambayan, Inc. (LIKAS)

A social development agency implementing various but integrated community

development undertakings which seek to empower the people and their communities, particularly

the marginalized sectors of society. The organization is involved in the implementation of

Community Health Development program, Gender and Development, Local Governance,

Environment Development, Training, Consultancy and Enterprise Development. Aside from being

a stockholder of the COCOBIND, LIKAS provided funds for the training of workers in the

communities on twine and geo nets production and linked them to the company for the marketing

of the products. LIKAS also provided the workers with the equipment used in production. The

projects of the organization are funded by local and international agencies. It has been a partner

of CORD-AID (Netherlands), Misereor (Netherlands) , Ford Foundation (US) and currently it is

implementing projects with funds from Spanish NGOs (Manos Unidas and Intered) and the Agency

for Spanish International Cooperation (AECI).

2. Sandigan Ng Magsasaka (SANDIGAN)

A farmers’ organization involved in community organizing, issue advocacy and

implementation of health and enterprise development projects in the communities. In addition

to SANDIGAN’s participation as a stockholder, it assists in the promotion of the coco coir business

by encouraging farmers who are members of SANDIGAN to sell their husks to COCOBIND and in

the identification of individuals who would like to be trained as workers.

3. Aquinas University Foundation (AQFI)

A foundation involved in various development projects for the communities. One of its projects

is coco coir production. AQFI supplies coco coir products to COCOBIND on sub-contract

agreements. Nevertheless, does produce exclusively for COCOBIND as it also sells coco coir

products to other customers.

4. Soriano Multi-Purpose Fiber Corporation (SMFC)

Soriano Multi-Purpose Fiber Corporation is a leading processor of coco coir, or fiber from

the coconut husk, and fabricator of decorticating and baling machines used in the processing of

fiber. It produces stitched and woven mats and nets for horticultural, bioengineering, and agro-

industrial uses. The company which is a subsidiary of FSSI, supplies local and export market for

coco coir products such as stitched fiber, pant liners, geo nets and coco peat. It also serves as

aggregator of coco coir products for COCOBIND but also does business with other cooperatives

and microenterprises. SMPC has been exporting coco coir products to United States, Canada,

Ausralia, South Korea, Japan and Taiwan. It has a total asset of approximately $1.1 million (Php50

million). SMPC operated in the provinces of Laguna, Quezon and Abay (Soriano eco fiber website,

2009).

5. Foundation For A Sustainable Society Inc. (FSSI)

The foundation was formed out of a debt for development swap between the

governments of the Philippines and Switzerland. It is a non-stock, non-profit organization

committed to support and promote eco-enterprises that are community-oriented ecologically

sound and economically viable. The foundation supports programs and projects on coco coir,

microfinance, sustainable waste management, eco-enterprise development, and provides grants

to civil society organizations which are involved in poverty alleviation through its fund for

sustainable society grant facility program (FSSI website, 2009). FSSI provides technical assistance

in the management of the COCOBIND.




APPENDIX 4.COCOBIND Scope of Operation

Below is an illustration of the production processes of COCOBIND showing how

inputs are transformed into outputs.

Coco fiber production

http://w

Geonets production

Handicraft production (bio-tray or plant pots)

Inputs Process Outputs

Soaking of husk, extraction of

coco fiber using a decorticating

machine

Drying & baling

Cutting, molding the cut stitched

fiber into boxes

Twining the coir fiber using a

manually operated twining

equipment

Weaving the twine with

the use of handloom

equipment

Geonets (1 roll=50 meters)

-Coco coir fiber

-stitching machine with

3 workers

-pattern

-glue, spray gun

-1 pattern for each

handicraft worker

Baled fiber

-Coconut husks

- 7 workers

-decorticating

machine

-Baling machine

-workers for drying

the coir fiber

-energy

-other fixed assets

Processing by batch:

Stitching of coco fiber

-Coco coir fiber

-Twining equipment with

at 3 to 13 workers per

equipment

-Handloom equipment

with 2 workers per

equipment

Handicraft -bio-tray/plant

pots (sprayed with glue and

sun dried)

Improving Organizational Performance The Case of Coco Coir ...

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