effect of inflation
There are numerous methods which can be used to achieve the targets in term of the observation as illustrated above. Consequently, the case study has not taken into account the effect of inflation and other items such as working capital. These items have also not been added based on the requirement of the case. The details of case study provide with management of the company are not much concerned with the effects that their business activity or the upcoming project will have on the society, the administration appears to be more concerned with the cash flows and profitability and increasing its margins.
However, the kind of project execution that the management is trying to use in order to achieve the target for increasing its margins can attract a lot of negativity from the stakeholders of the company. The shareholder value may be increased initially, in the short-term but ultimately, the back lash from the society and the government will lead to poor market value of the company’s equity value which will ultimately lead to reduction in revenues as the quantity sold will reduce and the number of customers will decline.
Hence, in order to avoid the above situation, it is necessary that the management of the company considers other alternatives as well so that all the stakeholders of the company are satisfied and not just the shareholders. In this regards, instead of making the employees redundant in only the first year, a probation period of 1.5 to 3 years should be given to them so that they have time to find and move to a new job. Simultaneously, the number of new hiring that the company is planning to make every year, it should be compensated by keeping the equivalent number of existing employees in the company and providing them with the training rather than employing new employees completely. In this way, the backlash that the company might face will reduce and its impact will not occur significantly upon the market price of the shares.
Another alternative that the company can also explore is that the management can look for another option for investment that requires half of the investment than it is required for the current project, that is around £30 million and thereby reducing the redundancy of the number of employees by half. This alternative will also help to reduce the operating costs of the company not by half but by around 20%-25% and therefore, the company will be able to achieve its target to increase margins as well as satisfying the other stakeholders as well