SOUND HEALTH LIMITED
Sound Health Ltd. is a private company that deals with manufacturing and selling of anti- mosquito treated bed-nets.
The company distributes the nets in and outside Kenya.
The chief executive of Sound Health Ltd. has stated that the objective of the company will be “to supply the best possible product to the greatest number of consumers at the lowest possible cost”.
The lowest possible cost will only be achieved introducing a number of radical changes which will affect employees, shareholders and management. The ultimate goal will be to improve the efficiency of operations.
The holders of this view who include the chief executive are people who joined Sound Health Ltd. recently and have not stayed in the organisation for more than three years. This group is small in number but they are quite influential.
The “newcomers” have had extensive private sector business experience where managerial internal controls are strict and well established.
This is in contrast with what has been happening at Sound Health Ltd., where there are many loopholes and contradictory systems of control.
a) Explain the reasons why the chief executive may realise that the interests of customers could conflict with efforts to serve the shareholders.
b) Explain the role of a manager in reducing operational costs in an organisation.
a) The chief executive may realize that the interests of customers could conflict with the efforts to serve the shareholders of Sound Health Ltd because:
i) The shareholders may require higher returns on their investments in the company which may only be possible through higher charges on the customer. The customers may find higher product charges exploitative
ii) The customers may require the company to make socially responsible investments, but the shareholders may not be in agreement thereto as this reduces profitability
iii) To supply product to the greatest number of customers, expansion plans may have to be considered and this requires further capital, which the shareholders may not be willing to part with
iv) Duality relationships where customers are also shareholders of the company, make the conflicts even more intense
v) The term “best possible product” would mean a product of high quality. To produce high quality products requires the use of high quality raw materials.
b) The role of a manager in reducing operational costs in an organisation
i. The manager is a central figure in the introduction of radical changes through proceses such as BPR and TQM
ii. Ensuring that resources are committed to their best uses (high output-input ratio)
iii. Allocating resources to activities according to priorities identified in the annual objectives
iv. Coordinating departmental uses of the resources available to the organisation
v. Innovation/entrepreneurial; came up with ways of doing things for example recycling of certain materials.