SAP and the Evolving Web Software ERP Market

International University of Japan, June 2006

Company Overview

SAP, established in 1972 by a group of five German software engineers, has emerged as the third world-largest software provider in collaborative business solutions for all types of industries and for every major market. SAP began with P/1, software of accounting transaction processing program, is now call Enterprise Resource Planning System or ERP. Before 1999, it focused of developing a powerful ERP system for the largest multinational companies and outsourced consulting service to external consultants for marketing, installation and implementation. It used to sell the whole ERP package and wanted to provide a superior software system. However, under the threats of changing technology and intense competition, SAP changed its business model and strategy in 1999 to become more responsive to customers’ needs by creating new business solutions to large, medium and small firms, breaking ERP package into separate modules and making them easier to use and maintain. The strategy move and organizational restructure, together with mySAP solution, have marked a great leap forward in SAP’s growth journey. Now SAP continues to add new solutions and customize mySAP to meet the needs of every customer in all industries.

By applying Five-force model and PEST, I analyze the external environment and determine threats and opportunities that SAP is and will face. Going deeply inside the company, I analyze SAP’s business model, strategies at all levels, resources, capabilities and value chain to determine SAP’s strengths and weaknesses. Then, I come to the conclusion with problems that SAP is and will face. Finally, I suggest some alternatives, analyze the costs and benefits of these alternatives and come up with some recommendations and their implementation plans. I suggest the use of Balanced Scorecard to measure our solution with described criteria.

I. Situational Analysis and Problems Identification

A. External Analysis

1. Five Forces (Appendix 1)

· Potential Competitor – High. Microsoft is now focusing on PC software but may become competitor in ERP software market because it has bought 2 companies that compete with SAP in small and medium size markets and it has competencies in a wide range of software products and resources and capacity to develop quickly and easily an ERP system with web-based solution.

· Power of Supplier – High but decreasing. Before 1999 SAP depended heavily of consulting companies to market and promote its ERP system to both local and overseas markets. After changing strategy in 1999, SAP focused more on developing in-house consultants and has became stronger in consulting service related to ERP solutions.

· Power of Buyer – Low because the switching cost is very high but this power is increasing due to complementors.

· Power of Substitute – High. Here substitute means modules or parts of ERP package because customers do not usually buy the whole ERP package but tend to buy some modules of ERP that fit exactly their needs.

· Rivalry – High because: 1) competitors catch up SAP technology in developing ERP by exploiting weaknesses of SAP software; 2) Oracle has became main competitor who can offer product nearly the same as SAP products; 3) Niche players (Siebel, Ariba, Marcum…) emerge as main players; 4) Competition in niche market is very intense; 5) IMB has changed its strategy to provide customized software that customers want.

· Threat of Complement – High. Sun has provided Java Platform and Free Linux Platform that enable computers to work with any software systems. This will decrease switching costs and buyers can buy ERP modules from any providers to run in their current system. Therefore, the power of buyers will increase.

2. Environment Analysis

· Political, demographic, social environment is favorable.

· Macroeconomic environment: in early 2000s, firms tend to spend less on IT system due to economic downturns in 1990s.

· Technology environment: fats growing web and internet technologies and software development capacity in the U.S and abroad may become a threat to SAP if it can not change its technology ahead of time.

3. Threats

· Oracle developed its own ERP that have features that SAP does not have.

· Competitors exploit weakness of SAP software and offer products more customized and less expensive.

· Development of the internet and broadband technology may make SAP’s P/3 be outdated.

· Development of new web-based software technology puts SAP under the threat of losing product advantages.

· Threat from compilementors like products of Sun.

· Niche competitors get stronger and more aggressive in competing with SAP.

· Microsoft may become a competitor in the future.

4. Opportunities

· Large market segments of small and medium-sized firms.

· Large untapped overseas markets.

· Large market segments for new industries such as insurance, food, logistics, public sector.

· Opportunities in current markets if SAP can customize ERP to customers’ needs and make it easier to implement and use.

· Large market segments for new solutions in ERP package that SAP has not yet develop like corporate governance, risk management, finance, compliance.

· Opportunities for consulting and maintenance service that comes along with ERP solutions.

5. Conclusion

SAP is vulnerable and risks losing market shares due to intense competition from Oracle and niche players and threats from fast changing technology and complimentors. Potential competitors might come from both red and blue oceans to challenge SAP technology. But SAP has many opportunities in all markets and industries. The question is that how SAP uses its competencies to develop its technology and create new solutions to offer such large markets.

B. Internal Analysis

1. Business model (Appendix 2)

Before 1999, old model	After 1999, new model
- Applied focused strategy to largest international firms - Focused only on software development - Outsourced marketing, installation, implementation and software maintenance	- Pursued differentiation strategy to serve all customers - Focused on software development, consulting service and software maintenance - Outsourced implementation and maintenance - Developed consulting and maintenance capabilities to reduce outsource

The old business model worked well because customers do not require sophisticated and customized products and competition was very low. However, this model was not sufficient for the new environment where there are many threats from competition and changing technology. The new model is a good and timely response to such new market environment and it helped SAP generate revenues and growth.

2. Resources

· Brand name and brand recognition

· State-of-the-art ERP system

· High skilled software programmers, talented and professional staff

· Control and reward system that motivate and retain employees

· Cross-functional teams focusing on customizing products

· Loose matrix structure that allows maximum capacity and competencies

3. Capabilities

· Management team with long term vision

· Culture of value and norms that emphasizes technical innovation

· Capability to innovate and develop technology

· In-house training and consulting capabilities

· Decentralized control that allows flexibility in work

SAP’s distinctive competency is product innovation.

4. Value chain (Appendix 3)

Before 1999, SAP had many weaknesses in its value chain because it ignored marketing & sales, outsourced customer service, human resource management and related consulting service. Its flat structure caused the loss of control over marketing, sale, installation and relationships with external consultants and its product-oriented culture made it less responsive to customers. The weak value chain did not allow SAP to transfer its competencies into value to customers and caused implementation problems.

Together with the change of strategy, SAP has strengthened its value chain through series of activities such as building its own HRM, centralizing marketing & sales, developing consulting capabilities, changing organizational structure from divisional to matrix structure, building a new corporate culture based on customer-oriented concept. The new value chain allows SAP to implement the new strategy. Please refer to Appendix 4 for further information about how corporate infrastructure affects SAP’s implementation plan.

5. Competitive advantages (Appendix 5)

· Quality: High. ERP system is highly reliable and added more attributes

· Superior innovation: High. SAP continuously add new solutions to its ERP system

· Customer responsiveness: low before 1999 but high from the introduction of mySAP

· Durability of competitive advantage: SAP’s high quality, superior innovation and high customer responsiveness competitive advantages are vulnerable because: 1) the barrier to imitation is high due to fast changing technology; 2) competitors such as Oracle and potential competitor such as Microsoft have capabilities to develop ERP system which has nearly the same features ad SAP’s ERP system. 3) companies in software industry are dynamic to changing technology and business environment.

6. Value discipline (Appendix 6)

· SAP focused on product leadership before 1999 because it believed that technical advances were competitive advantages and allowed it to charge premium prices. However, SAP changed the strategy to pursue both product leadership and customer intimacy and gradually achieve cost reduction.

7. Global strategy (Appendix 7)

Before 1999, SAP pursued international strategy because it was not under the pressure of cost reduction and was not well locally responsive. However, in response to intense competition and threats of changing technology and customer needs, SAP changed this strategy in 1999 to a transnational strategy to have more local responsiveness and cost reduction.

I think that the new global strategy is a timely and effective response to the fast change of business environment and will be successful in the future: 1) SAP will have deep understanding customers’ needs and therefore it can use its competencies to develop and current products and create new solutions to them; 2) SAP will enter new potential markets in terms of locations, industries and business processes before its competitors; 3) SAP can gradually reduce costs to offer cheaper products because premium prices will be eliminated by competition; 4) Through customization, SAP can build brand loyalty, increase brand awareness in every market and all industries; 5) SAP can surpass its competitors in technology, solutions, customer base. However, SAP needs to be able to change its strategy in response to changing environment.

8. Corporate level strategy

- Outsource strategy: SAP’s outsource strategy before 1999 allowed it to penetrate overseas market quickly while eliminating huge capital investment but brought it serious problems: 1) losses of high revenues from consulting service; 2) losses of contacts with customers so SAP did not have knowledge of its customers and understanding of changing needs of its customers; 3) less customer responsiveness because SAP did not contact directly its customers; 4) increasing complaints from customers regarding consulting service; 5) external consultants became more expert in installation, implementation and software service; 6) SAP became much more dependent on those consultants. However, SAP limited outsourced activities to implementation and service after 1999 to solve the above problems.

- Horizontal integration: SAP considers small acquisitions as important parts of its strategy to reduce costs, enhance functionality of its products and build its customer base. SAP also builds strategic partnerships with its niche and potential competitors to exploit competencies that it does not have and synergies across partner companies.

- Vertical integration: SAP builds strategic partnerships with external consultants to promote its products. This strategy is necessary since SAP still needs to expand market quickly with little capital investment, especially in overseas markets.

- Strategic partnerships: SAP not only builds partnerships with its competitors and suppliers but also builds partnerships with companies who provide complimentors such as Netscape and Sun to develop its products. The partnership strategy helps SAP reduce competition, increase market shares and develop its products. But there is a risk that SAP will lose its technology to its partners if it does not have effective control methods.

9. Business level strategy

Before 1999	After 1999
Focused differentiation strategy	Differentiation strategy but attempting to reduce cost
This strategy is suitable for the market situation at that time because technology was not changing fast and competition was not yet intense.	This strategy move was to respond to threats of changing technology, intense and new competition and is consistent with its global strategy.

10. Functional level strategy

Categories	Before 1999	After 1999
Efficiency	Short time-to-market	Short time-to-market; Cost reduction
Innovation	Create new solutions to ERP system up to industry level Develop ERP that covers more business processes	Create new solutions to ERP system up to industry level Develop web-based ERP that covers more business processes; break it into modules; make it easier to use and maintain
Customer Responsiveness	Low customer responsiveness	High customer responsiveness Product customization and development
Quality	High product reliability Add-in attributes	High product reliability Add-in attributes

The change of functional strategy is effective. SAP moved this strategy to the way that it can respond more effectively to the change of its customers’ needs. This strategy fits with the new global strategy.

11. Strengths and weaknesses

Strengths:

· Superior product innovation and development capabilities

· State-of-the-art ERP system

· Skilled, talented and professional employees

· Cross-functional product development teams

· Brand name and reputation

· In-house training & consulting service

· Loose matrix structure that allows SAP to be very responsive to customers’ needs

Weaknesses:

· Cooperation between subunits

· Control over external consultants

C. Problems Identification

· Coordination between and among subunits

· Control partner consultants

· Vulnerability of business model in intense competition and changing technology

II. Alternatives, Cost/Benefit Analysis

Alternatives	Costs	Benefits
Build corporate culture	Time consuming Expenses; difficult to assess	Increase cooperation between and among subunits to increase customer responsiveness Share learning, knowledge, experience
Selective Acquisitions	Expensive Risk to fail	Horizontal acquisition will help SAP decrease competition Acquire competencies and synergies
Diversification: consulting and maintenance as main business	Need time and capital	Generate more revenues Less dependant on external consultants Respond more to customers’ needs Understand more changes in customers’ need
Strategic alliances, network and partnership with external consultants and other software firms	Risk to lose fist-knowledge of customers’ needs and technology	Develop fast markets with less capital Acquire competencies and synergies to strengthen R&D and develop technology Reduce costs of a complex organizational structure
Non-price competitive strategy	Capital in product development Expenses	Seize opportunities & manage rivalry Prevent entry especially Microsoft

III. Recommendations and Implementation

A. Recommendations

I recommend SAP to choose all the above alternatives.

B. Implementation Plan

1. Build corporate culture to enhance cooperation between subunits and implement strategies in the entire company

- Hiring & Training: hire qualified people who fits SAP’s culture; create and maintain: learning corporation; environment of trust and nurture unconventional thinking and creativity; share values and behavior norms in the entire corporation; customer and service-oriented, performance-enhancing, unified, open and diverse culture. To do so, SAP needs to have in-house professional training centers to design and conduct training programs, good managers at all levels who can tell stories, become models, transfer the corporate mission, inspire passion, promote team-work spirit and experience sharing.

- Reward system: offer equal career opportunities to all employees; set up performance-related pay system; reward individual efforts; offer bonus plans, annual profit-sharing programs, stock options, equity saving package, capital saving programs, retirement and pension program; welcome package to welcome foreign nationals to work at SAP Germany and foreign subsidiaries.

- Organizational structure: flat and flexible structure.

2. Selective acquisitions (Appendix 8)

3. Develop consulting and maintenance as a main business

- Hiring: increase number of qualified consultants and software engineers

- Training: develop training packages for newly recruited consultants and software engineers; create training programs to upgrade consulting skills and maintenance capabilities

- Reward: reward systems to motivate, retain and develop staff in these two areas

4. Strategic alliances, network and partnership with external consultants and other software firms

- Choose strategic partners carefully. Partners may include niche competitors, potential competitors, external consultants and complement providers who have competencies and technology that SAP does not have or wants to improve.

- Create a learning environment to learn competencies from the partners while working with them

- Create an implementation plan so that SAP can acquire synergies of the network to reduce costs and develop its technology and service capabilities.

5. Non-competitive strategy to prevent new entrants, manage rivalry and seize opportunities

- Product development strategy: create new solutions to add in mySAP such as corporate governance, risk management, IT management, customer profitability analysis; develop mySAP solutions for new usage such as internet, mobile business, ebiz, on-line, broadband; increase consulting services to all business processes such as finance, strategy, risk management, corporate governance.

- Market development strategy: customize mySAP to new market segments such as insurance, public sector, food, textiles; customize mySAP for all size foreign customers; enter more foreign markets.

IV. Balanced Scorecard (Appendix 9)

SAP should use Balanced Scorecard as a measure of business performance. The Balanced Scorecard starts from SAP’s vision, mission statement and goes to four specific perspectives. Here I recommend only measures of the above recommendations and implementation plan.

Learning and growth: build a unique and open corporate culture that fosters a willingness to take responsibilities, help others and seize opportunities.

Internal process: reduce cost, develop products, service and technology, innovate new products.

Customer: help all customers win in every business environment.

Financial: satisfy investors’ expectations in terms of returns and sustained growth.

Please refer to the appendix for detailed measures.

Appendix 1: Five force analysis

Appendix 2: Business Model

Old model:

Marketing　 Software Sales Installation Implementation Maintenance

External Consultants SAP External Consultants

New model:

Marketing Software Sales Installation Implementation Maintenance

External Consultants SAP External Consultants

SAP is strengthening its consulting and maintenance capabilities to reduce outsource in these two areas.

Appendix 3: Value chain

Categories	Before 1999	After 1999
R&D	Product innovation and development Technical innovation Qualified programmers Expertise in developing ERP software	Product innovation and development Technical innovation Qualified programmers Expertise in developing ERP software
Production	State-of-the-art ERP software system Product standardization	State-of-the-art ERP software system Product customization Cost reduction
Marketing & sales	Ignored Decentralized control to subsidiaries Outsourced to external consultants	Focused Centralized control In-house
Customer Service	Little responsive to customers’ preferences Decentralized installation to subsidiaries Outsourced maintenance to external consultants Customer dissatisfaction with consultants	Very responsive to customers’ needs Product customization to all customers Outsourced maintenance to external consultants but SAP is increasing in-house maintenance capability More in-house consulting service Customer-based solutions
Infrastructure	Flat organizational structure Lack of effective control and incentive system Inexperienced top management in managing fast growing company Culture of technical innovation. This culture formed product leadership strategy	Matrix organizational structure with more centralization and hierarchy Effective control and reward system Top management with long term vision Culture of technical innovation and customer-oriented corporation. This new culture was changed in response to the change of corporate and global strategy
IT system	Good IT system	Good IT system
Materials	Outsourced marketing, installation, implementation and software service Built strategic alliances with major global consulting firms	Reduced outsource items to implementation and software service Built strategic alliances with major global consulting firms and close relations with external independent consultants
Human Resource	Outsourced HR management Did not have incentive system to reward employees High turnover rate	Built is own HRM Built reward system such as stock options Recruited outstanding people who fit the corporate culture Increase consultant employees Encourage learning and sharing of its best implementation practices

Appendix 4: Corporate infrastructure

Before 1999	After 1999
Multidivisional Structure Product-oriented culture	Loose matrix structure with product groups and cross-functional teams focusing on customization Customer and service-oriented culture
Decentralized control Decentralized marketing & sales No link between subunits thus SAP was not able to response quickly to customers’ needs Employees only paid attention to product development and ignored customers’ needs	Increase internal flexibility and responsiveness to customers Decentralize authority to employees Centralize engineering, marketing, training functions Flexible and close linking between product groups and subunits thus SAP is able to respond to customers’ needs and customization Employees are customer and service-oriented. They respond more and understand more customers’ needs Product groups are independent profit centers so they work hard and always try to maximize their profits thus increase profits for SAP

The later organizational structure and new corporate culture are appropriate for SAP to implement its strategies at all level and achieve its strategic goals. With such alignment between strategy, culture and structure, SAP could implement smoothly its new strategies.

Appendix 5: Competitive advantages

Appendix 6: Value preposition

Appendix 7: Global strategy

Appendix 8: Acquisition implementation plan

Acquisitions: Select acquisitions that would bring SAP benefits through the following steps:

- Analyze the needs and right time

- Search for target companies

- Evaluate acquisitions in considering synergies, NPV, acquisition value

- Negotiation, deal execution

- Post acquisition restructuring

After restructuring and taking possible acquisition, Viacom will have better access to maintain a mixed strategy (combination of cost and differentiation strategy in the future

Appendix 9: Balanced Scorecard

Perspectives	Measures
Finance	Net incomes; Net sales growth; Country and region profitability analysis; Financial ratios (ROI, ROE, EVA)
Customer	Customer base; Response time; Number of responses; Customer satisfaction index; Market share; Number of new customers; Number of new seized opportunities.
Internal Process	Time-to-market; Number of product development; Number of product improvement; Cost reduction; Number of new solutions; Number of customization; Installation time;
Learning & Growth	Employee satisfaction index; Turnover rate; Hours of training; Number of suggestion by employee; Number of initiatives; Number of promotions

Viacom Empire

1. Introduction

Viacom, established by CBS Broadcasting as an independent company in 1970 has now become world’s second largest media conglomerate. Bought by visionary Sumner M. Redstone in 1986, Viacom gradually emerged as an “entertainment colossus” and expanded its empire through a number of mergers and acquisitions, timely strategic alliances and product diversification. Most notable among them were the merger with Blockbuster in January, 1994 and the acquisition of Paramount in July, 1994. However, this transformation into a media giant did not come without its toll. The company incurred huge debt, structure and management challenges loomed and the fast-changing entertainment and media industry posed new threats to the company. In a very risky movie industry where past successes are no indication of future success, Paramount’s share of the box office dropped from 14 percent in 1994 to 10 percent in 1995. To compound the problem, the Blockbuster division was also not doing well.

By applying Five-force model, SWOT, PEST and value chain analysis we explored internal and external environment; then we used M&A evaluation method to get an insight of the company’s relative value. We also analyzed synergy applying discounted cash flow NPV analysis. Finally, we analyzed the costs and benefits of the alternative solutions and came up with some recommendations and their implementation plans. We suggest the use of Balanced Scorecard to measure our solution with described criteria.

2. Internal Analysis

2.1 Corporate-level strategy: global expansion strategy

2.2 Business-level strategy company pursuing: product leadership strategy. (Appendix 1)

2.3 Distinctive competencies

Resource: syndication right for some popular TV programs like Cosby show; product line proliferation; brand name; strategic alliance; knowledge and experience in product development; state-of-art production capacity in Orlando, Florida; good network and connection with other companies like telephone companies, wireless companies; opening of new channels.

Capabilities: keeping cost under control; good functional structure that enables company to manage cost and create profit center.

2.4 Value chain analysis: (Appendix 2)

Viacom has outstanding value chain to transform inputs to outputs that continuously create value to its customers. It has capability to lever resources to design, create and deliver new products to its customers. It also has efficient supporting activities that enable primary activities to be taken easily and timely.

3. External Analysis Through Five-Force Model

Although the industry demand is growing steadily, the intensity of rivalry is high owing to high exit barriers and consolidated industry structure. Because of huge capital investment and high risk of failure (difficult to predict whether a program/movie/song will be popular or not), the entry barrier is high. The bargaining power is low to moderate because the company can make it content in house. Owing to low switching cost and low brand loyalty, the bargaining power is high. The large number of existing and emerging entertainment channels cause high substitute threat. Complementors may become substitutes and the threat of complements is moderate. The environment is in the favor of the company as explained in the Appendix 3.

4. SWOT Analysis

Internal analysis	Strength	Weakness
	Clear mission and vision of future; brand name; management skills; scale and scope of business; copyrights; high market share in the US.	Huge debt; often changes of top management; lack of international experience of management team; weak cooperation among business units;
External analysis	Opportunity	Threats
	Globalization and growing markets (Asia, Western Europe etc.); Prices liberalization in cable TV industry; Market consolidation (increasing bargaining power, and non-price competition); Technology advancement	Deregulation that lowers the entry barrier; fast changes in technologies that might lead to potential entry with lower costs or create new substitutes; piracy; low brand loyalty of customers

5. Key Issues To Address

- Poor performance of Paramount and Blockbuster;

- Heavy debt

- Global expansion

- Difficulties in realizing expected synergy

6. Cost/Benefit Analysis of Alternatives:

7. Recommendations : Based on above analysis, we recommend that Viacom should follow : first, restructuring organization; second, finding out possible acquisition & merger ; and third, following a global strategy.

8. Implementation plan (Appendix 4)

8.1. Restructuring: to lever the company’s resources to create value for its customers

- selling unprofitable business units such as Paramount Picture

- integrating properties to reduce cost by sharing resources of cross-business units

- combine value chain activities to achieve lower cost or collaborating to create new resource, strength and capabilities

- Cross functional team to lower cost and enhance productivity and efficiency

8.2. Acquisitions & Merger: Consider possible M&A that would benefit company with steps :

- Analyze the needs and right time

- Search for target companies

- Evaluate M&A by using the methods in Appendix 5

- Negotiation, deal execution

- Post-M&A restructuring

After restructuring and taking possible acquisition, Viacom will have better access to maintain a mixed strategy (combination of cost and differentiation strategy in the future (Appendix 6).

8.3. Global strategy: Move from multi-domestic strategy to transnational strategy (Appendix 7)

The choice of entry mode depends on different countries where it wants to enter because of some political reasons and responses from local communities. For example, in China, it should set up global strategy alliance with Chinese broadcasting partners since Chinese broadcast industry is under the control of the government.

9. Balanced Scorecard to Measure Performance

	Restructuring	M&A	Global expansion
Financial	Cost structure COGS % Revenue, GS&AE % Revenue	NPV, IRR, Free Cash flow, Financial ratios, Revenue, Profit and cash-flow growth rate	Revenue, Profit and cash-flow growth rate, Financial ratios
Customers	Market share (%), Response time, Service time, Customer satisfaction index, Customer retention rate,
Internal business process	Manufacturing cycle time reduction rate, New product development time reduction rate, Numbers of new products vs planned,
Learning and growth	Employment satisfaction index, Employee productivity (revenue/employee), Leadership development plan, Number of training for managers

Appendix 1: Value Proposition

Appendix 2: Value Chain Analysis

Appendix 3: PEST Analysis for the US Market

Appendix 4: Implementation Plan Chart

Appendix 5: Three M&A evaluation methods

1. Public comparables analysis examines how the investment community values a set of companies that are similar to the subject company. Looking at what an informed buyer is willing to pay for a share of a similar company's stock can provide insight into relative value for a middle-market private company and guidance for an expected valuation.

2. Analyze synergy_DCF NPV : Discounted Cash Flow analysis

Acquire only if synergy exceeds premium paid.

3. Acquisition comparables analysis. This method attempts to come up with a more relevant implied valuation range by using actual acquisition prices. Calculate Transaction Value (TV) and Offer Value (OV); normalize for non-recurring items; calculate relevant multiples (TV/Sales, TV/EBITDA, OV/Net Income, OV/Book Value; Offer Price per Share/EPS).

The Cargill Way

Cargil Way

Date: June4, 2007 Student name: Pham Thi Thuy Ha (2A5026)

I have worked 2 years for Cargill Inc, an American company which was established in 1865. Cargill has 153,000 employees in 66 countries and engages in trading (grains, oil, gas), manufacturing foods, agriculture, animal nutrition and financial services. I list some Cargill’ HR practice equivalent to HP Way as below:

Equivalent to HP Way items	Formulation, rationale, factors, structure
MBO	- Division objectives or division Balance Scorecard (BS) are set by the management team of each ‘country division’ that belongs to a specific corporate business unit. These objectives are set based on market situation, growth potential, capacity and capability of this division in its local country. - These corporate objectives are transferred to department objectives or department BS. - Employees’ personal objectives (employees BS) must be SMART and are agreed between department heads and employees. The department heads are responsible for transferring department objectives to their subordinates. If an employee is unable to achieve an objective, the department head can negotiate with other employees inside the department. As employees are multi skilled, there has been no problem in transferring objectives to employees. - Once employees’ objectives are set, employees have to achieve these objectives without failure. Employees have freedom to ask for a full support for achieving their objectives such as budgets, training, time.　There are 2 ‘objective review sections’ per year to make sure that those employees are on the right direction. - MBO is strong motivation tool because the far employees achieve objectives, the better compensation they will receive. But MBO is a tool to kick employees out if they fail to meet their objectives
Compensation	- Based pay salary which is a bit higher than market base-pay - Medical, dental, life insurance for all employees - Stock options, tuition reimbursement, retirement plan, employee assistance plan, relocation services - Monthly incentives of 10% base salary for non-marketing staff if the division achieves BS. Marketing staff is compensated by commission - Overseas and/or continuous professional training and career development programs. Cargill offers intensive training for employees to help them acquire new skills and knowledge and prepare them for job relocation. This helps Cargill to prepare personnel for business expansion and allocate easily its HR among divisions and inside divisions. - Cargill accepts voluntary job relocations (i.e. family relocation, employees’ preference to work in different countries) as long as employees continue to contribute to the development of Cargill
Hiring policy Career maze	- Recruit excellent people who are entrepreneur, multi-skilled, trustworthy - College student program aims at recruiting top talented people who commit to grow within Cargill for certain positions in labs, mills, kitchens, trading floors. Internships are offered to see the fit with corporate culture and career paths. - Recruit senior level managers to bring in new strategic visions. This will assure that the corporate have good strategy for future growth. - MBA program to recruit MBA students and train them to become front managers after 2 years. This will allow Cargill to develop leaders for tomorrow’ business development.
Decentralized	- Cargill has a flat structure and it grants maximum autonomy to employees. All employees are encouraged to be independent in making decisions concerning their jobs. This practice is very suitable for Cargill’ trading practice which requires flexibility and fast decision making. - Autonomy enables employees to complete tasks faster and is a powerful motivation tool as employees feel to be treated as a part of the company. Cargill needs few managers to supervise employees. - There is no rigid daily check-in check-out time (i.e 8.00 am to 17.00pm). Employees are free to choose their best working time to complete their tasks in accordance with others’ tasks.
Evaluation	- Direct supervisors evaluate their subordinates. The purpose of evaluation is not to judge employees’ performance but to know their accomplishment of their objectives, resources, skills, training they need to achieve their objectives - Country division is evaluated by division BS.
Not layoff	- No guarantee for lifetime employment - Offer job security