INTEL ISRAEL: to close or not to close?
I agree with Dov Frohman’s decision to remain open both before and after the missile attacks, for several reasons. First and foremost, a manager’s primary responsibility is to maximize the profits of their shareholders, and closing down operations would have created drastic effects in the small, high-tech industry in Israel. Frohman possessed accelerated cognitive processing; he was able to think quickly, see the bigger picture fast, and use real-time information to come to a conclusion. He was able to assess the levels of uncertainty quickly, as well as the costs of each decision present. I feel his conclusion to stay open was a rational, proper decision and that any competent manager would come to the same conclusion. Closing operations would result in a certain drastic loss in Intel’s profits, whereas remaining open would possibly result in a loss of profits, due to a missile attack, loss of human life, and lost productivity due to unsafe working conditions. Frohman assessed the situation and noted that this uncertainty was one of the biggest factors in his decision. The proximity and likelihood of a missile hitting the plant was far weaker than the negative effect of shutting the plant down. Frohman decided that disrupting processing in Israel would cause Intel to reconsider future investment in Israel, and could possibly shatter Israel’s high-tech economy; Intel was a key anchor of the high-tech sector in Israel.
Another aspect of the decision I agree with was his decision to make coming in to work optional. Good managers must able effectively balance consistency and flexibility. Frohman made the decision to continue production of microprocessors, knowing that if Intel Israel were to put production on hold, corporate would have to get the processors from elsewhere. Frohman realized that this would discourage corporate from investing in Intel Israel in the future. To continue production, he asked employees to come in to work voluntarily. In this way, Frohman stuck to his plans after news of the missile attacks, but at the same time he did not require employees to come to work, providing them with the necessary flexibility required under certain situations. Were he to be completely rigid, productivity would have been harmed—you cannot force someone to work productively in an environment they feel is unsafe. In addition to giving employees the flexibility to stay home during the missile crisis, Intel Israel also created a sealed room in case of chemical warfare. In this way, employees were able to work in a safer environment, and subsequently be more productive, and Intel Israel remained profitable. Perhaps as a direct result of his management decision, Intel’s corporate office later invested around 1.3 billion dollars in Israel for another facility—the largest investment by a single company in Israel’s technology sector.
The decision Frohman made was a nonprogrammed decision. His past experiences provided little, if any help, and there were both high levels of risk and uncertainty. Frohman had to use his individual knowledge and abilities to come to a conclusion. The decision was very important since the outcome was both irreversible and significant. I
I think Intel’s corporate office appointed the right man for general manager of Intel Israel. Frohman handled the decision the way a competent manager would. Intel’s corporate office, while no doubt full of competent and wise executives, was still 7,500 miles away from the crisis zone. While globalization has expanded market growth through new market access, it has created new requirements for international business practices. Corporate offices in other countries abroad may not properly assess conditions in countries. While centralized decision-making may work under certain conditions, mixed level (transnational) decision-making allows managers in other countries to make the decisions. It holds emphasis on global efficiency, combined with rapid responsiveness to change in local conditions. In this case, Intel’s corporate office was not in immediate danger, so they could not fully understand the gravity of the situation. They instead left the decision up to Dov Frohman, who was able to see the information in real-time, since he was actually located in “ground-zero” of the missile crisis. In conclusion, I agree with Intel corporate office’s decision to allow for mixed level decision-making. The conditions in Israel changed so frequently that the decision had to be reassessed several times during the crisis. Each time, Frohman was able to use his accelerated cognitive processing to quickly and efficiently assess the situation and come out with an appropriate conclusion; for instance, when the missiles began falling, he called an emergency meeting and had his decision within 30 minutes.
Furthermore, Frohman communicated his decision with both his underlings as well as the corporate office. In this way, anyone who opposed him would have been able to voice his or her opinion. He looked at the information present, and played the interpersonal role of manager effectively: he monitored the situation, and acted both as a leader a liaison. His communication was key, keeping both the employees and the corporate office updated with minute-by-minute explanations of the situation.
First and foremost, I would have been concerned with the employee’s safety. I feel the decision to remain open was, at heart, an ethical decision. It seemed to me that Frohman used a utilitarianism approach to making the decision, assigning price tags for the lives of his employees. I feel this is a rather insensitive approach to management, but a necessary method under certain situations.
Personally, I would have weighed employee safety as the greatest factor, whereas Dov Frohman stated that uncertainty was the main factor in his decision. I would assess the likelihood of a missile attack both before the missile attacks began, and after, just as Dov Frohman had. Both before and after the missile attacks, I would have looked at the probability of effect—the likelihood a missile would have hit Intel Israel. I would have used all available real-time information to come up with a statistical analysis of the situation: How many missiles were aimed at Israel? What is their area of effect? How many important military targets are there, in proportion to how many missiles are aimed at Israel? I would have used this information to come up with a percentage of likelihood of attack, and would have used this data, in part, to come to a conclusion. However, I would have also looked at the magnitude of consequences of staying open versus closing. Any missile aimed at Intel Israel holds a magnitude of threat, and if closing were less costly than remaining open under a dormant threat, I would have decided to close. However, the case report sounds as though closing would have jeopardized the jobs and welfare of all employees at Intel Israel, so this would have to be weighed in. If the statistics and my judgment led me to believe that the certain loss from closing was greater than the unlikely event of a missile attack on Intel Israel, I would have remained open.
To me, universalism is a good rule—don’t force others to do anything you wouldn’t want done to you. I would not want to be forced to come in to work at a place I feel is unsafe. I would also trust management, so if management thought the threat level was low, I would follow their orders. Therefore, even if I determined there was no likely threat during the missile crisis, I would have made the same decision as Frohman—I would have made coming to work optional. I would have done everything within my power to make sure employees felt safe, because a safe employee is a productive employee. I would have informed them of a sealed room filled with provisions.
I would have also created living quarters for people who wanted to sleep at work, since commuting would most likely be the most dangerous time for the employees. To all employees who decided to stay overnight, I would have provided food and beverages, temporary lodging, as well as television entertainment. This would have resulted in minor costs, but if this decision kept even one worker from going home and skipping work, it would have paid off.
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Cranston Nissan Body Shop: Case Study
It appears as though the Cranston Nissan body shop was both inefficient and ineffective. In a nutshell, Mr. Jackson did not have proper operations management; he did not ensure the resources used by the body shop were used effectively and efficiently. This case violated all four goals of proper operations management: the body shop did not achieve the desired quality, assure timely availability, or achieve cost efficiency while achieving these goals. As a result, it no doubt was not able to produce the proper quantity as well.
This organization’s culture is not committed to total quality management; the obvious mishaps and overlooked problems that repeatedly occurred at Cranston Nissan are indicative that quality inspection did not occur at all stages of production/service output. More importantly, this means that employee empowerment was not exercised in the Cranston Nissan body shop.
The desired quality was not produced from the body shop. Higher quality should be very important in all companies, even those who do not practice TQM, since it can lead to lower repair and warranty costs, higher customer satisfaction, and higher revenue do to word of mouth and lifelong customers. Sam Monahan was put through hell by Cranston Nissan body shop, and will likely never do business with that company again. Not only that, but he will complain to his friends, who will in turn not give their business to Cranston Nissan. It was evident that the desired quality was not produced by the fact that the car was deemed “finished” about four times, and each time the car had obvious quality issues: the left door alarm was stuck on, the driver’s door light would not turn off, the speedometer was broken, the anti-theft light would not stop blinking, the rubber molding was damaged, and the rear-view mirror was broken. This problem was never noticed by the company, rather the customer had to request for these services, even though the damage was apparent. This is most definitely indicative that the workers were not issuing proper quality checks. TQM dictates “quality at the source,” and employee empowerment must be exercised in order to catch any and all defective problems.
Besides the evident problems in the actual servicing of the car, there was no timely availability for the customer Sam Monahan. Cranston Nissan made several false promises to have the car ready by the deadline. In fact, Sam Monahan felt his car did not have priority in the service department, and he was not a valued customer. The body shop took every chance it could get to put repairing his car off, and it was left to Sam Monahan to check on the status of his car. All in all, the whole ordeal took over two weeks, when the shop told him it would take three or four days.
This drawn-out repair no doubt reduced the proper quantity of service the body shop could produce. Having the car in there for that long took up space and time that could have been used to service other cars. This would hinder the profits of the company as well, and could have been avoided had the body shop focused on Sam Monahan’s car first and made the proper quality inspections before returning the car.
Finally, the whole ordeal was cost-ineffective. Besides the fact that the first three goals were never achieved, the process was costly and time consuming. The opportunity cost of storing the car during idle times, and the cost of having to re-evaluate the problems all were very, very inefficient. Not to mention, giving Sam Monahan an invoice for the “free” service of fixing the speedometer they broke caused further delays, since he did not want to pay for something the shop broke, especially when they ensured that it would be repaired free of charge. This causes a backup in paperwork and payments, since the customer will fight back and slow things down, which further reduces the proper quantity of cars the body shop can service, and revenues fall as a result.
Steve Jackson should begin by immediately contacting Sam Monahan to let him know he is aware of his problem, and that Cranston Nissan values all customers, and Steve Jackson himself will see to it that Sam Monahan gets his car back, with a full refund for all costs inquired. In addition to this, he should provide a loan car free of charge for Sam Monahan, or else risk losing Sam as a customer, and losing company credibility.
The probable cause for all these mishaps is no doubt improper enforcement of total quality management. In this case, I feel employee empowerment was the easiest way to avoid the whole nasty ordeal. Management should have trained employees to remain committed to quality, and to always search for ways to improve customer satisfaction through better service. It was obvious that the employees overlooked obvious defects in quality in order to rush the job through. Perhaps management put too much pressure on employees by setting a quota of cars they must service (but given the idle time of the car, this seems unlikely in this case). Therefore, I have deduced that the employees were working under lax conditions, where they only worked on the problem the car was brought in for and had no real time-constraints in doing so. These mishaps occurred as a result of employees not caring about the quality of their services, and not trained in “quality at the source.”However, I believe this to be ultimately management’s problem. Management was not properly enforcing the idea of quality at all levels. Furthermore, the case study made it sound as though management was distanced from the body shop, since Steve Jackson was so surprised to hear of the terrible ordeal. Therefore, I would say that although physically the body shop was responsible for the quality violations, management should have kept better watch to ensure total quality management practices were not violated.
He should then come up with a clear, concise presentation to give to all levels of Cranston Nissan, addressing the idea of total quality management. He should let the employees know the importance of quality at all levels, and enforce efficient and effective services by employee empowerment. He should then visit the body shop again, and let them know of the situation and how unacceptable it was. He should not point blame specifically, but put forth measures to ensure it doesn’t happen again.
He should stress punctuality, and let them know that time commitment to customers is of the utmost importance. I think he should also change the body shop’s objective from merely fixing the problem to ensuring customer satisfaction, since that is what that object should be, and evidently was not. Finally, Steve Jackson should also make sure operations are efficient, and that the shop finishes a job it starts and does not let jobs idle for days, since this lost space and time results in lost profits. To ensure operations are efficient and effective, he should stress continuous process improvement, where breakthrough improvements help improve the way Cranston Nissan does business. This continuous process improvement would lead to enhancing value to customers, less defects and waste, better cycle time performance, increased productivity, and increased revenue.
If Steve Jackson really wants Cranston Nissan body shop to thrive, he should think about improving practices enough to be able to be called a six-sigma company. That should be the ultimate goal of all companies, since 99.9996 reliability produces zero variability in the final product of the body shop, and virtually 100% customer satisfaction. It would be very hard, but this is a fantastic goal for a company to strive for. It would require incremental, measurable and specific steps to achieve, but it is achievable. By doing so, he would ensure customer satisfaction, attain lifelong customers, and gain revenue from word of mouth.
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Too Big To Fail
The term too big to fail refers to banks so large and intertwined in an economy that, should the company collapse, the economy would contract tremendously. There would be the possibility of a recession, with liquidity and jobs disappearing suddenly. These large banks realized that the government would do anything to prevent their demise, and as a result felt they were immune to failure, and any gambles they made that went awry would be backed by federal tax dollars. It was only recently that such financial institutions were able to be created; since the government repealed the Glass-Steagall act in 1998, many of the large banks were able to invest in risky hedge funds and derivatives, and when the housing bubble burst, many large banks went bankrupt, and called upon federal tax dollars to prevent bankruptcy. Banks become too big to fail when they play a large enough role in the financial system that the government could not afford to let the bank fail, and moral hazard is created which, as a result, tempts the bank to make risky investments for high profit (but more likely, large losses).
The core problem of the “too big to fail” belief is that it encourages moral hazard. Knowing they are essential to the economy and that the government will dish out the necessary funds to avoid bankruptcy, the company will engage in risky business procedures. This risky business was further encourage by the emergence of “new” finance, where loans were securitized and sold to third parties who had no knowledge of the loan’s value, poor risk assessment (reliance on FICO credit scores and bond rating by agencies), and other high risk operations such as high leverage and lax oversight on private loans.
During my research, I came upon an article describing a banking crisis during the 1980s, where Continental Illinois bank felt it was too big to fail. This incident was important because it brought the importance of banking policy issues to the fed’s agenda. Continental experienced drastic growth during the late 1970s, with shares “doubling in price—rising from $13 to 27$” (p. 237, FDIC), while other banks in the same sector experienced hardly any growth in stock prices. Although the bank seemed to be making large profits, the company engaged in risky business. The loan-to-assets ratio increased from 57.9% to 68.8% over a four-year period, and this increase made the firm more likely to default (239, FDIC). The bank was criticized as being willing to do anything to make a deal, and taking greater than average risks in certain areas such as the energy sector. However, by 1982 the bank took several bad credit gambles that didn’t pay off, and people soon took their money out of Continental, further harming the bank. The bank assumed the government would bail it out since so many other banks and industries were invested in Continental Illinois, and as a result moral hazard was created and the bank acted in a reckless manner.
The second article I found, “How Big a Problem is Too Big to Fail?” addressed how big a problem too big to fail is. It opens by explaining that banks are “special” because they are very important to the financial system, and when a bank fails all the information capital they may have developed disappears, and the market contracts. Mishkin explains that fear of banking panics is one reason governments provide a ‘safety net’ for banking systems, such as federal government deposit insurance, which helps prevent banking panics by insuring up to $100,000 in deposits. Such safety nets create moral hazard for all US banks, and such moral hazard is even more severe for large banks, for they know that should they fail, there is the possibility of “systematic risk in which the whole banking system is threatened”(Mishkin, 289). To make matters worse, there have existed times when the government insures beyond the $100,000 deposit (such as during Continental crisis); the government fully insures all depositors in the bank, leaving the bank with little to worry about should risky investments turn south. The key problem, Mishkin states, is that government policymakers assume the bailouts will occur, if need be, and do not monitor big banks sufficiently. The promise that a bailout will occur makes banks operate in a less cost-efficient manner, which further increases the risk of the need for a bailout. This all goes to support the thesis that the too big to fail problem occurs when moral hazard is created by policymakers.
One possible remedy to prevent banks from undertaking risky investments due to moral hazard is to place more regulation on banks. For instance, the fed could increase the banks reserve requirement, which would decrease the amount of money available for banks to lend, and it would make money into a precious commodity, and banks would be much more selective about how they invested. Or, the government could set a low leverage ratio, to prevent private loans from going sour. People are less likely to use loans for risky investment when more of their own money is at stake. Ultimately, this would prevent the banks from securitizing bad loans and selling them on the market—something which further hurts the economy when the bank fails. The government should also penalize poor policy choices from banks that undertake risky investments, and should create a list of the safest banks. This would establish credibility for good banks, and any bank with a poor reputation would not receive as many consumers, which would harm profits. In this way, banks would want to keep their investments with average risk in order to attract more people’s money, and make more loans.
Another way too big to fail could be remedied would be by not allowing banks to get that big. Much as there are anti-trust laws, the government could place laws that prevent one bank from permeating into several different vital economies. They could divide any banks that got too big, and therefore eliminate the too big to fail belief, and banks would not have as much moral hazard. Furthermore, this would diversify the economy, since more many banks are safer for the economy than several very large banks, much as the way investing in many companies is safer than investing in just one—if that company were to fail, the damage would be almost incomprehensible.
Another way the government could prevent moral hazard is by creating one central bank, heavily regulated and bureaucratic. While the damage of one national bank failing would destroy the United States entirely, if the bank were run by the government, the government could directly control the levels of risk that it undertook, and could prevent risky investments for the sake of profit.
While all these remedies offer possible solutions for the too big to fail problem, I feel the pros and cons of each solution vary tremendously. For instance, breaking up banks would be a viable solution, but this may make banks unstable. Smaller banks may not perform as well as large banks, since the amount of liquidity available in each bank would be much less than that of a large bank. On the other hand, one single bank would have almost infinite liquidity (as much as allowed by the federal reserve), but would also put extra pressure on the bank to perform well, for if a nation’s only bank were to fail, the nation would suffer tremendously and risk civil unrest. Therefore I think the best option to control the too big to fail problem would be for the government to increase regulation on banking. I think that the government should increase the reserve requirement, for one, since that would limit the amount of money banks have available to loan out, and the bank would have no choice but to make safer loans. Therefore, the banks would make efficient, risk-neutral loans rather than risky loans, because it would be in its best interest to evaluate each borrower in order to ensure he or she wont default. Furthermore, were the bank to fail, it would still have money to give back to its customers, since it wouldn’t legally be able to loan too much money out. In addition to higher reserve rates, the government could penalize banks or rating agencies that authorized unsafe loans or investments for the sake of profit. So long as the government carefully enforced and reviewed large banks practices, this sort of measure should effectively eliminate the too big to fail problem.
Article 1: Continental Illinois and “too big to fail” http://www.fdic.gov/bank/historical/history/235_258.pdf
Article 2: How Big a Problem is Too Big to Fail? A Review of Gary Stern and Ron Feldman’s Too Big to Fail: The Hazards of Bank Bailouts, Mishkin, F., Journal of Economic Literature vol XLIV, Deco 2006 pp. 988-1004