Eastern Electronics

Eastern Electronics headquartered out of Berlin Germany was a cottage industry that prospered after the unification of Germany and the growth of the electronics era. Hans Schmidt, owner of the company, has enjoyed good growth over the last several years. With sales concentrated primarily in Germany, Austria, Poland, and the Czeck Republic.

Hans saw that he had a limited market in the eastern European countries and that his company was facing stiff competition from other electronic firms in Europe as well as from companies in the United States, Korea and Japan. In order to grow in size and statue and remain competitive in this industry, Hans knew he had to expand his market into other countries.

In 20x3, Hans had a vision to aggressively market and sell electronic components in the recently liberated Russian republics. He hired Alex Demeshkin, a computer and marketing expert, to introduce sales to the Ukraine, Georgia, and the western area of Russia. Hans felt that he could compete effectively in these new countries, even though they were relatively unfamiliar with a capitalist system. Eastern Electronics had the advantage of location, with relatively easy distribution to the former Soviet countries. He also produced high quality products indicative of precise German engineering standards. Hans believed that the customers in the former Soviet countries would appreciate and pay for quality, especially as they were transitioning to a capitalistic form of economics. Businesses could not afford to have less than satisfactory electronic systems that might not perform appropriately as new business practices and procedures were being implemented.

Alex had numerous connections in the former Soviet countries and also had instant credibility because of his technical expertise. He was able to represent the Eastern Electronics products very well and illustrate how the potential customers would greatly benefit from the services of Eastern. While financial results started slowly in 20x4, it was evident by 20x6 that the majority of the growth in sales for Eastern Electronics was coming from the work that Alex was doing in the former Soviet countries. Also, the budget projections for 20x7 and 20x8 also showed continued good growth in the former Soviet countries with only limited growth in the European market. Indeed the expansion into the former Soviet countries was critical to the immediate success of Eastern Electronics.

Alex was being paid a flat salary of Euro $40,000 plus a commission of 9.0% of the annual sales increase in the former Soviet countries. In 20x6, his salary would be Euro $149,800 or Euro $40,000 plus (3,780,000 - 2,560,000)0.09 = Euro $149,800. He had implemented some very creative processes to stimulate sales to the former Soviet countries during this time of economic conversion and opportunity. Since it was very difficult for new start up companies in the former Soviet countries to obtain necessary capital for asset acquisition, Alex provided short-term capital in the form of inventory and accounts receivable policy.

The general terms for payment on account with customers in the European countries was 2/10 net 40. Those customers often paid within the ten-day discount period to take advantage of the favorable discount terms. However, customers in the former Soviet countries did not have a favorable cash flow situation and rarely were able to pay in the short ten-day discount period. In fact, customers had great difficulty paying in the 40 day time period. Therefore Alex offered credit terms of 2/10 net 80 and often unofficially extended the terms to 90 days.

These new start up companies really appreciated the generosity of Alex which allowed them to purchase the electronic components from Alex and then sell them to other customers within the country and collect on the sales before having to pay Eastern Electronics. That way these companies did not have to seek short-term financing from the banking institutions and be forced to pay unfavorable interest rates. Also, it allowed the customers in the former Soviet countries more favorable opportunities in the currency exchange process. Since they had more time before payment was due, and they could essentially use customer's money versus their own. These companies could minimize the number of currency exchange transactions they needed to make in their payments to Eastern. Given that companies generally lose at the minimum an exchange rate fee, every time a currency exchange is made, the customers in the former Soviet countries were very supportive of Alex's arrangements.

Alex felt that Eastern Electronics had a strong enough cash flow situation, and certainly stronger than these companies, to provide these sales terms. Furthermore, this was only a one time hit to Eastern Electronics of extending the payment terms by about 50 days. Once a sales pattern and resulting payments was established, the differentiation offset itself. Besides, this collection policy gave Eastern a competitive advantage in securing sales in these former Soviet countries. The obvious increase in sales volume easily offset any concerns regarding repayment.

Alex also helped the new companies in carrying inventory. He arranged to ship a majority of the inventory to the companies generally after these companies had made their sales to other customers. Sometimes Alex could even have Eastern Electronics ship directly to the customers of the new companies if the orders were of a sufficient quantity. This often eliminated one shipment, and saved Alex's customers time and money.

With the big problem of theft in the former Soviet countries, the customers of Alex were very concerned about carrying a large inventory of highly desirable Eastern Electronic products at a storefront location. The capital cost for these new companies to provide secure inventory storage for a large amount of product was often prohibitive for the new companies. Since Alex was able to cut down the requirements of inventory, he is in a sense providing no cost start up inventory capital to the companies in the former Soviet countries.

The inventory policy offered by Alex also gave Eastern Electronics a competitive advantage especially over companies from countries like Japan, Korea and the United States. The new companies in the former Soviet countries especially liked the way Alex was watching out for their best interest. They felt Alex was a comrade who was really looking out for them as they started their companies. They rewarded Alex with increasing levels of sales orders, and the sales projections for the next two years look particularly promising.

With the continual increase in sales levels, Eastern electronics is looking to make some capital expansion of their own. Eastern is nearing capacity limitations on production and storage facilities. Given the anticipated growth in the former Soviet market, it is possible that Eastern will consider building a major storage facility in the Ukraine. Such an action will also help to show their commitment to their expansion program with the former Soviet countries and could allow them further expansion into countries like Kazakhstan and Uzbekistan even beyond to the east. Hans sees these areas as untapped markets and with the modernization of some of the more Arab nations, he wants to get a foothold in these markets as soon as the opportunities are available.

Hans is very pleased with the work Alex has done to open the markets in the former Soviet countries and is considering a significant raise in both the base salary and commission rate for him beginning in 20x7. He is also excited about the growth opportunities and wants to pursue a capital expansion program so Eastern electronics can meet the anticipated demand increases for the next five years. He feels he can get some very favorable financing rates with the German National Bank of 11.5% for secured capital loans, and there is always the use of internally generated funds and maybe new external funds to support a growth opportunity.

Financial statements for the years of operation from 20x3 to 20x6 along with the projected budgets for 20x7 and 20x8 are presented as follows.

Eastern Electronics

Income Statement

For the years Ending December 31, 20x3 - 20x8

Years 20x7 and 20x8 are Budget Projections

All amounts in Euro $100,000 What are the pros and cons of Egan's perfoemance appraisal system? Do you think it identifies the best employees? Do you think it helps develop employees to perform the best they can?

?Case study below

At the end of the fiscal year 2011, revenues at Egan's Clothiers, Inc, had increased 12 % over 2010 and had increased at a compounded rate of 14% over the past 5 yrs. That is good news. The bad news is that costs have risen at even more rapid rate, thereby shrinking the company's gross margins. As a consequence, Egan's profitability has actually fallen by 6% over the past three years. The drop in profitability at Egan's is particularly worrisome. In fact, according to Egan's chief financial officer, Richard Coyle, if something is not done immediately control material and labor costs, as well as administrative expenses, the company may need to restructure its operations. In the short run, Coyle, company president Karen Egan, and vice president of HR Pam McCaskey have put an indefinite freeze on all hiring. Further, they are contemplating layoffs of nearly of Egan sales staff and are weighing the benefits of cutting back on HR-related expenses such as training. Compared to others and the industry, the firm's labor costs are very high.

Company Background

Gene Egan and Pat Pollock opened their first store in Baldwin, NY, in 1958. The company grew rapidly during the 1980s and now operates a chain of 34 medium-size stores located throughout Connecticut, NY, Pennsylvania, and New Jersey. Since the beginning, Egan's customers have been primarily middle-class and upper-middle class families purchasing sportswear, dress wear, and fashion accessories. The company has established a longstanding tradition of quality and customers service. In addition to its 34 stores, the company also maintains two distribution centers and its administrative offices in Stamford, Connecticut. The total employment currently stands at approximately 2,400 people: 15 executives, 40 staff specialists, 40 store managers, 215 sales managers, 250 administrative personnel, 1,600 sales people, and 240 distribution workers. Except for the employees at the distribution centers, the company is not presently unionized. However, it is no secret that Egan's management has been trying very hard recently to keep current labor organizing activities to a minimum, viewing it as a threat to the company's success. Egan's HR department has been called upon to conduct a program audit of various personnel practices utilized at Egan's. The purpose of this audit is to assess the impact of Egan's HR policies and practices on employee outcomes. The objective of the audit is to identify specific problem areas where policy adjustments may be necessary. The final report to the executive staff will include the HR department's evaluation of current problems and the changes it recommends.

Human Resources Management History

Over the past 5 years, Egan's has made several changes in order to implement the best HR practices possible. Partially, this has been to circumvent unionization efforts but primarily it is indicative of Egan's longstanding belief that success in retailing depends on the competencies and efforts of its employees. The commitment to HR is demonstrated by the fact that in 2011 the company spent $1.3 million on an intranet-based human resources information system (HRIS). The HRIS has successfully automated the company's employment records and connects each of the retail stores, distribution centers, and executive offices. Also, Egan's has maintained an ongoing training program for the past 5 years to help salespeople improve their retail selling skills (RSS) and customer service. The annual cost of this program has been roughly $750,000. To further ensure high ability levels in its workforce, the company sets selection standards substantially higher than its competitors. Whereas other retail companies typically hire inexperienced high school students. Egan's generally requires some retailing or sales experience considering an application for employment. Although this policy increases Egan's overall labor costs, management has been confident that the added expense is well justified over the long run. However, recently even the strongest proponents of HR have been wondering if it might be a good idea to cut back on training, given the company's current financial picture. By far the most problematic and volatile HR issues at Egan's have revolved around promotions and salary increases. Because the company promotes from within distributes raises on a companywide basis, comparisons generally have to be made across employees in different jobs and departments. To Combat arguments of subjectivity and bias pertaining to these decisions. Egan's links these rewards to objective measures of performance. Specifically, rather than utilizing subjective managerial evaluations of employee performance, ongoing accounts of sales results are maintained for each employee through use of the HRIS. On the basis of this information, each department manager assigns each employee to one of 5 categories.

Superior-Top 10%

Very good-next 20%

Good-middle 40%

Fair-lower 20%

Poor-lowest 10%

Administrative decisions are then made across departments utilizing these standardized distributions. Additionally, to provide constant feedback to each employee about his or her relative performance, data are updated and posted daily. It is hoped that this feedback is motivating to employees. In this way, there are no surprises when the time comes for semiannual performance appraisal interviews. It is interesting to note that since these changes have been made in the performance appraisal system, there has not been one formal complaint registered regarding salary or promotion decisions. However, sales managers themselves have mentioned occasionally that they do not feel as comfortable now that they are required to assign employees to the "fair" and "poor" categories.

HR Outcomes

Despite the concerted efforts of Egan's management to first-rate system of human resources management, there are several troubling issues facing the company. The HR practices are not having their desired effects. For example, there have been recent complaints that employees have not been as patient or courteous with customers as they should be. This was best summarized by Paul Kelly, a store manager in White Plain, NY, who noted "My people are beating up the clientele in order to make a sale-the very opposite of what the RSS program trains them to do. " This lapse in customer service is frustrating to management since the RSS training has proven effective in the past. Additionally, there seems to be a great deal of competition within departments that is hurting a team effort. Although intergroup rivalries between departments have always been viewed as normal and healthy, the lack of intragroup cohesiveness is seen as a problem.

Additionally, Egan's has been plagued with increases in lost and damaged merchandise. Management attributes this to the fact that storage rooms are disorganized and unkempt. This is sharp contrast to the selling floors, which have remained fairly well ordered and uncluttered. Nevertheless, inventory costs have been increasing at an alarming rate. Everyone notices something is wrong. But the behavior patterns are perplexing. Absenteeism has decreased by 23 %, but employee turnover has actually increased from 13% to over 29%, Thereby increasing labor costs overall. Unfortunately, many of those who left the company (43%) were rated as very good to superior employees. As executives in the company look at these trends, they are understandably concerned. The success of the company and its reputation for quality and service depend on solid investments in HR to ensure the best possible workforce, However, the expenses are eroding the company's profits and worse, it now looks like these investments are not paying off.

QUESTION 18 Select from the following choices, the lobe anatomy of the brain that is responsible for photographic memory. OA Frontal lobe " Temporal lobe "Occipital lobe D.Parietal lobe QUESTION 19 Select from the following choices, the particular section of the brain anatomy that is responsible for performing photographic memory. A Striatum .B Nucleus Accumbens "Ventral Tegmentum P Hippocampus(i) (a) Define a Poisson process with rate 1. (b) Define a compound Poisson process. (ii) Identify the circumstances in which a compound Poisson process is also a Poisson process. (iii) The cumulative amount of claims reaching an insurance company is modelled using a compound Poisson process. (a) Explain why the compound Poisson process has the Markov property. (b) Comment on whether this seems reasonable for the given insurance model. (c) State whether the compound Poisson process is weakly stationary. (d) Explain whether you expect the cumulative insurance claims to follow a weakly stationary process