Strategic HR Management Case Study

STRATEGIC
HR MANAGEMENT
by Don McCain, Ed.D.by Don McCain, Ed.D.
Strategic HR Management
Motors and More Inc.—
A Progressive HR Case Study
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Motors and More, Inc.—
A Progressive HR Case Study
By Don McCain, Ed.D.

STRATEGIC HUMAN RESOURCES MANAGEMENT
INTRODUCTION
This is a scenario-based progressive case study that can be used
in sequence or
adapted to fi t the instructor’s curriculum, although it is
recommended to present
the case in the sequence outlined below. This study is intended
for upper-level
undergraduate students.
Learning Objective(s)
Upper-level undergraduate students will work through issues
associated with developing and
sustaining an HR department to support an organization facing
labor shortages and high
product demand. At the end of the study, students learn how to:
1. Align HR initiatives with corporate strategy.
2. Develop a complete HR organization structure, including
roles and responsibilities, and then
adjust the structure to support the organization.
3. Develop a basic staffi ng plan.
4. Develop a basic training plan.
5. Determine and support a pay and benefi ts plan.
6. Determine future HR requirements.

3© 2007 SHRM. Don McCain, Ed.D.
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4 © 2007 SHRM. Don McCain, Ed.D.

CASE OVERVIEW
You are hired as the HR director for the fi ctitious Motors and
More, Inc. Motors and More, a business-to-
business sales company, manufactures small motors and
accessories for industrial and home products. The
industry is highly competitive, and the company follows a
prospector strategy.
A prospector strategy takes advantage of new markets and
products (Gomez-Mejia, Galkin and Cardy, 2001).
Organizational emphasis is on growth, innovation and new
product development. A prospector wants to be fi rst
to market. To respond to competitive and rapidly changing
markets, prospectors have fl exible, fl at and more
decentralized organizational structures.
Motors and More is headquartered in a small southern town of
28,000 people, with a low unemployment rate
of 3.1 percent. This means that demand for workers exceeds the
labor supply. There is a technical school and a
community college within 50 miles of Motors and More. Motors
and More’s president is former military and
is highly patriotic. He is committed to staying in the
community. Recently, several other local companies have
experienced labor organizing activities.
Motors and More employs 116 people. Until you were hired,
there was no HR department. Recently, the
organization’s employee turnover rate has been higher than
normal. The marketing and sales department
continues to sell products to an expanding market. Because of
this increased product demand, output must be
increased by 96 percent.
Eighty-eight percent of Motors and More employees are

Caucasian. With the exception of one female supervisor
in the customer service department, the president and all other
managers are Caucasian men. Management
promotions have been based on seniority. The local labor
market population is approximately 48 percent
minority. There is a growing Hispanic and Kurdish population
that have not been accepted into the community.
All the employees in manufacturing (including quality control),
customer service and operations (responsible
for shipping and receiving; distribution of raw materials,
components parts and fi nished goods inventory; and
maintenance and cleaning) have at least a high school degree or
GED. The organization provides some skills
training courses. Please refer to the organizational chart in
Figure 1 for more details.
Figure 1: Motors and More Organization Chart
President
HR Director
Staff (TBD)
Marketing/
Sales
1 manager
9 salesmen
Maintenance

and Cleaning
1 leader
3 employees
Operations
1 manager
14 employees
Quality
Control
3 employees
Manufacturing
1 manager and
69 employees
Finance and
Accounting
1 manager, 5
professionals and
1 hourly (includes
payroll)

Customer Service-
inbound only
1 female supervisor
5 CRS
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Part I: Designing the HR Department
Students are asked to complete the following activities. Before
you begin, your instructor will review the
concepts of organizing and organization design.
A. Design a typical HR department and identify each HR unit.
For each HR unit, provide roles/
responsibilities and job titles. Develop an organization chart of
a typical HR department.
B. Given the size of Motors and More, indicate which positions
identifi ed in your typical HR department
should be combined or eliminated to reduce the number of HR
employees. Provide new job titles and
develop an organizational chart specifi cally for Motors and
More’s new HR department. Provide the total
number of staff for each HR unit.
C. Identify the HR practices required to support a prospector
strategy.
D. Prepare a 20-minute presentation (include time for
discussion).
Teaching Notes
The scenario provides background information and a framework
for the progressive case study. Students are
asked to address the organization’s issues through a series of
papers and presentations. Students should state their
assumptions. Some assumptions might include:
• Motors and More has adequate resources to support any
reasonable initiatives.

• Motors and More produces products and services that will
continue to be in demand.
• Motors and More does not have a succession plan.
A note to instructors on customizing this case study. Although
the instructor can realign sections of the case to fi t the
fl ow of course curriculum, Part I must be presented fi rst and
Part V must be completed last.
Compensation and benefi ts information may be customized.
The instructor may also choose to customize this case
study by adding data on employee compensation and benefi ts
that align with your geographic location.
Instructors may stipulate that entry-level employees in the
manufacturing department are paid minimum wage as
mandated by federal law or defi ne wage rates for employees in
the different divisions. It may also be helpful to defi ne
the organization’s compensation philosophy. Will Motors and
More decide to meet, lead or lag the competition?
Where will the organization stand in comparison to other
organizations in the area? What other information may
help the student decide the organization’s approach to pay?
Regarding benefi ts, Motors and More provides unemployment
insurance, workers’ compensation and Social
Security withholding for employees as mandated by law.
Instructors may also provide information about voluntary
benefi ts such as vacation time, sick time and health care.
Instructors may elect to provide data on local costs of
health care, vision or dental benefi ts. Finally, instructors may
choose to provide information regarding how much
Motors and More’s leadership wants to spend on benefi ts.

Student presentations should be in executive summary format
with media support (e.g., PowerPoint). Time should
be included in the presentation for the professor and students to
ask questions to clarify issues or go into more
depth. Because students are undergraduates with little or no
“real-life” work experience, the instructor should
discuss what is included in an executive summary format.
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Executive Summaries
• An executive summary explains only key points of research
fi ndings and not the detail. The detail is in the report.
Students may tend to include too much detail in their executive
summary.
• PowerPoint slides should have no more than six to eight
lines with six to eight words per line. Presentations
should not exceed 10 to 15 PowerPoint slides. Students tend to
put too much content on a slide.
• Presentations should be no more than 20 minutes including
discussion time. Students may benefi t from
ongoing discussion and questions rather than holding questions
until the end of the presentation. This closer
replicates reality.
[A] Explain the concepts of organizing and organization design.
Develop a complete HR department, indicating
each HR unit. For each HR unit, provide typical
roles/responsibilities and job titles. Provide a typical
organization
chart of a typical HR department, not for Motors and More.
Organizing is a basic managerial function. Organizing is the
process of designing jobs, grouping jobs
into manageable units, and establishing patterns of authority

among jobs and groups of jobs (Griffi n and
Moorhead, 2006). “Organization design refers to the framework
of jobs, positions, groups of positions, and
reporting relationships among positions that are used to
construct an organization” (DeNisi and Griffi n, p.
50). Organizing combines with organization design to form an
organizational structure.
Using Anthony, Kacmar and Perreewe (2006) as a source,
Figure 2 represents a comprehensive HR structure.
Some HR professionals may argue against including
organization development as a part a human resource
development strategy. Nonetheless, this fi gure is helpful
because it depicts the organizational functions that
must be included in a comprehensive HR department.
Figure 2: An HR Organization Chart
HR (VP, Director, or Manager)
Staffi ng or
Employment
Organization
Development
Health and
Safety
CompensationEmployee
or Industrial
Relations
Job and Salary

Administration
Benefi ts
Administration
Employee or
Industrial Relations
HRD or Training
and Development
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ROLES/RESPONSIBILITIES AND JOB TITLES
All HR managers, regardless of their functional areas of
expertise, must be able to hire, train, coach, recognize
and reward performance (performance management), plan,
organize, set goals, develop and implement strategies,
lead employees, create and administer budgets, etc. These are
responsibilities common to all managers.
In addition, a decision needs to be made regarding
administrative support—should it be centralized or should it
be dispersed among the functional or operational areas?
HR director or manager
Roles/responsibilities
• Leads and manages the department.
• Develops relationships with senior management to align HR
goals and strategies with those of the
organization.
• Scans the external environment for changes that could affect
HR.
• Participates in organizational planning and review sessions.
Organization Development (OD)
Possible job titles: OD specialist, OD consultant
Role/responsibilities

• Develops relationship with internal client(s); formulates
internal contract(s).
• Conducts organization research, analysis and diagnosis to
identify organizational issues with the goal of
performance improvement. Issues may include the reward
system or performance management, management
style, structure, processes, tools and equipment, goal setting,
etc.
• Develops interventions (or contracts with consultants to
develop interventions) to address issues or problems
that can be solved by collecting survey data, coaching, training;
provides feedback to management and
employees.
• Assists in creating a culture of learning, development and
achievement.
• Facilitates and maintains organizational change.
• Supports performance management.
Staffi ng or Employment
Possible job titles: Employment manager, staffi ng manager,
recruiting manager, staffi ng or recruiting specialist
or coordinator
• Develops candidate pools.
• Advertises job openings.
• Ensures accuracy of job descriptions and specifi cations.
Ensures they are consistent with performance
management requirements.
• Screens candidates using instruments as applications, résumés
and references.
• Conducts or contracts background checks.
• Develops or contracts with a consultant to develop

instruments such as tests or pre-employment processes,
procedures or protocols.
• Conducts interviews and assesses candidates.
• Extends offers or recommends candidates for hire.
• Ensures legal compliance.
• Secures use of temporary workforce.
• Brings candidate on board and ensures that paperwork is
complete.
• Supports diversity and affi rmative action initiatives.
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Human Resource Development (HRD) or Training and
Development
Possible job titles: Training specialist, training coordinator or
administrator, facilitator, learning specialist,
designer, developer, evaluator, training or performance
consultant
HRD is responsible for the development of the organization’s
intellectual capital. HRD professionals
are involved in needs assessment; design, development, delivery
and evaluation of learning experiences;
development of career path models; employee orientation; etc.
HRD supports the performance management
process by training managers and employees on performance
management. Specifi c roles and responsibilities
are discussed below. Robinson and Robinson (1996) provide
some of the roles/responsibilities by job.
• Facilitator: Presents information; facilitates learning
experiences; manages group work and processes;
maintains the agenda; provides feedback to learners, designers
and developers.
• Designer: Conducts needs assessment; writes goals and
objectives; defi nes and outlines content in
conjunction with the evaluator; develops evaluation plans in
conjunction with the internal client;
determines instructional strategies.
• Developer: Develops full content and instructional strategies;

develops or secures instruments, cases,
assessments, etc.; develops leaders’ and participants’ guides and
materials; develops media; may conduct
train-the-trainer sessions.
• Evaluator: In conjunction with designer and client, develops
and implements evaluation plans; conducts
all levels of evaluation; reports evaluation fi ndings to
appropriate persons; may assess facilitator skills.
• Training coordinator or administrator: Supports the delivery
of learning experiences; coordinates
participant materials and media; enrolls participants and sends
pre-course materials; secures facilities;
coordinates facilities, including hotels, training rooms and
breakout rooms; tracks attendance and
maintains records; promotes the course or learning experiences;
ships materials; tracks expenses.
• Training or performance consultant and internal client (the
recipient of the services) liaison: Conducts
organizational analyses for internal client organization;
contracts for performance improvement;
consults with internal clients on performance issues; prioritizes
needs; secures support (including
funding; access to subject matter experts; collects audience
profi les; supports learners’ participation;
supports transfer of new knowledge and skills to the job; has
access to data necessary to carry out these
responsibilities); with client input, selects facilitators; provides
feedback to internal clients; manages the
interface with the HRD staff.
Compensation
Compensation has two primary areas—benefi ts and salary
administration. In many organizations, payroll is a

function of the accounting department. In other organizations,
payroll is placed in compensation.
Benefi ts
Job titles: Benefi ts analyst, benefi ts specialist, benefi ts
administrator
• Determines the level of benefi ts and packages as they relate
to the internal requirements of staff versus the
competition and to retain employees.
• Determines the benefi ts to be offered.
• Administers the health plan (including HMO or PPO plans).
• Administers retirement plan(s), such as 401(k), defi ned
contribution or defi ned benefi t plans.
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Salary Administration
Job titles: Job analyst, job and salary analyst or specialist
• With management, develops types of reward pay, including
merit, incentives, bonuses, gain sharing, profi t
sharing, stock options and other rewards.
• With management, determines pay positions relative to the
competition with the goal to lead, lag or meet the
competition.
• Conducts job analyses and evaluations to determine job
responsibilities, job specifi cations and pay grades.
• Writes job descriptions.
• Consults with management and employees on performance
goals and standards; supports the performance
management process.
• Conducts salary surveys and recommends and implements
adjustments to pay grades based on survey results.
• Develops career path models.
• Possibly maintains payroll.
Employee Relations or Industrial Relations
Job title: Employee relations specialist

• Scans the internal environment for potential employee
relations issues.
• Designs (or secures), implements and analyzes employee
survey results. Develops and implements plans to
address identifi ed issues.
• Ensures compliance with labor laws.
• Maintains labor relations in a union or union-free
environment.
• Writes employee handbook.
• Writes and implements discipline procedures.
• Provides counseling and support for employees with personal
issues (EAP role).
• Writes ethical policies and maintains ethical guidelines;
maintains “ethics” hotline.
• Produces and distributes HR publications.
• In conjunction with staffi ng, supports relocation and
outplacement services.
• Works with staffi ng to ensure accommodations for disabled
employees.
• Supports diversity efforts.
• Ensures employee rights are not violated.
Health and Safety
Job titles: Safety specialist, safety coordinator, safety
administrator, industrial nurse
• Conducts inspections to ensure OSHA compliance.
• Develops and implements procedures to ensure a safe work
environment.
• Conducts or secures safety training.
• Conducts health and wellness information and training.
• Files accident reports. Maintains fi les in accordance with
OSHA requirements.
• Facilitates the provision of medical care for employees hurt
on the job.

• Ensures that security is provided for the facility.
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[B] Given the size of Motors and More, indicate which positions
identifi ed in your typical HR department
should be combined or eliminated to reduce the number of HR
employees. Provide new job titles and
develop an organizational chart specifi cally for Motors and
More’s new HR department. Provide the total
number of staff for each HR unit.
Teaching Notes
Motors and More is a small organization of 116 employees and
will have a small HR staff. The HR
staff may consist of a director, a generalist and one
administrative position. Students tend to design a
more extensive HR department. The challenge is to ensure that
all HR functions are represented within
a small HR department. This can be done by using managers to
assume some of HR responsibilities
while outsourcing others. Most training (whether in the design
or the delivery), for example, could be
outsourced, although subject matter experts (SMEs) could
conduct some training. A staffi ng agency
could handle most of the recruiting and screening. Since only
the statutory benefi ts (e.g., workers’ and
unemployment compensation, Social Security withholding and
FMLA leave) are offered, this can be
handled internally. Vendors (such as OSHA or safety training
companies) could provide safety training
and posters. Health and safety issues could be assigned to the
plant manager or foreman.
[C] Identify the HR practices required to support a prospector
strategy.
A strategy is a plan for interacting with the competitive
environment to achieve organizational goals (Daft,
2003). According to Gomez-Mejia, Balkin and Cardy (2004),
the objective of a prospector strategy is to

fi nd and exploit new products and market opportunities.
Organizations that use a prospector strategy are aggressive in
the marketplace, highly competitive and
quick to produce new products and services to be the fi rst to
market. Their key objective is to fi nd and
exploit new products and market opportunities. They operate in
an environment of uncertainty and
instability.
Organizational practices inherent in a prospector strategy
include (Gomez-Mejia, Balkin and Cardy (2004):
• Emphasis on faster innovation, fl exibility and creativity.
• Broad job classes with loose work planning.
• External recruitment (fi nding candidates), with the
supervisor making the decision.
• Customized appraisals with multiple input used for
development purposes.
• Generic training.
• Team-based and cross-functional training.
• Decentralized pay that rewards risk taking.
• Variable pay individualized and based on performance.
To be fl exible, organizational structures in a prospector
strategy are fl at in organization design,
decentralized and/or team-based.

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PART II: DEVELOPING THE RECRUITMENT AND
RETENTION PLAN
A. Given the increase in product demand, how many people
will you need to hire and in what functional areas
(manufacturing, operations, customer service, marketing and
sales, fi nance/accounting, and HR)? Provide your
rationale for the proposed hiring in each unit. Consider the

turnover rate. Identify the factors that could be
causing turnover. Identify the costs of turnover.
B. Include the types of interviews you would conduct and why.
C. Develop strategies to recruit the appropriate applicants and
include sources and tools used for recruiting and
selection. Identify the possible areas and types of
discrimination that could occur.
D. What can you do to retain current employees? What are the
benefi ts of retention?
E. How will you assess the effectiveness of your recruiting
efforts?
F. Prepare a 20-minute presentation, including discussion.
Teaching Notes
[A] Given the increase in demand, how many people will you
need to hire and in what functional areas
(manufacturing, operations, customer service, marketing and
sales, fi nance/accounting, and HR)? Provide your
rationale for the hiring in each area. Consider turnover. Identify
factors that could be causing turnover. Identify the
costs of turnover.
The hiring rationale is more important than the actual number of
employees hired. Some students will look at need
to increase production by 96 percent and recommend that the
staff double in size.
Other students may consider second shifts and overtime. A
second shift will require adding “lead” positions.
Employees in “lead” positions oversee the work of the staff but
do not have full supervisory duties. Hiring

employees for lead positions may become too expensive.
Adding overtime may be a good recommendation in the
short run, but in the long run, it may also become too expensive.
Increasing productivity through incentives is
another possibility. This may help increase some production but
not all of it. Based on these ideas, students will
probably devise some sort of proportional increase.
Not all units need to increase staff. For example, you will not
need to increase staffi ng in HR, fi nance and
accounting, or marketing and sales. Additional staffi ng will be
needed in manufacturing and perhaps an additional
person in quality. The operations department will need more
staff but not maintenance and cleaning (at this point).
Customer service will need additional staff in a few months due
to the lag time between increased production,
distribution and customer response.
The Selection Process
This is a good time to review the selection process. According
to Noe, Hollenbeck, Gerhart and Wright (2007),
the steps in a selection process include screening applications
and résumés; reviewing and testing work samples;
interviewing candidates; checking references and background;
and making a selection. Internal candidates would
not require all of these steps.
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Turnover
The Department of Labor uses the following formula to measure
turnover:
Number of employee separations* during the month
Total number of employees at midmonth
* Those leaving the organization

Teaching Notes
There is internal turnover, when an employee leaves one
department and moves to another department,
and external turnover, when an employee leaves the
organization. Turnover should be included in students’
staffi ng and recruiting plans.
A transition matrix is a good tool to analyze where employees
move within the organization and to identify
the positions where people are leaving the company. A
transition matrix mathematically depicts the fl ow of
employees within an organization (Anthony, Kacmar and
Perrewe 2006). The matrix shows, by position,
the number of employees and where they are moving within the
organization. This information helps
understand future supply movement and therefore supports
staffi ng forecasting.
Turnover may be voluntary or involuntary. Involuntary turnover
occurs when employees do not willingly
leave the organization. Terminations, layoffs and outsourcing
are conditions where an organization may
experience involuntary employee turnover.
Motors and More is not experiencing involuntary turnover,
however. The organization is expanding its
workforce, and the community is experiencing a labor shortage.
The turnover, then, is voluntary. Some
reasons for voluntary turnover include:
• Retirement.
• Job dissatisfaction—work overload, issues with the manager
or other employees, little fl exibility in work
scheduling, lack of challenge.

• Robust labor market—employees can easily fi nd alternative
employment because of the high demand for
employees in the area.
• HR issues—competitive pay and benefi ts, no career path,
perceived unfairness in rewards distribution.
• Issues related to stereotyping, discrimination and harassment.
• Personal or family reasons.
• Employee relocation outside the region.
• Individual values not aligned with company values.
( ) X 100
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Turnover is expensive for organizations:
Employee Separation
Costs
Recruiting Costs Selection/Interviewing
Costs
Training Costs Less Direct Costs
• Severance pay
• Benefi ts
• Unemployment
insurance costs
• Exit interview
• Outplacement
• Legal fees
• Advertising
• Recruiter’s and

manager’s time
• Travel (applicant
and/or recruiter)
• Search fi rm
• Employee referral fees
• Campus visits
• Interviewing: cost of
employees’ time
• Cost of travel: cost of
travel for applicant to the
interview
• Instrument development
(questions, criteria, tests)
• Reference checks
• Background checks
• Relocation
• Pre-employment medical
expenses
• Training new
employee
(orientation, job,
team)
• Travel for training

• Trainer’s time
• Lost productivity
during training
• Training materials
• Coaching time
• Lost productivity due
to new employee’s
productivity curve or
the existing staff taking
on more work while
being less effi cient/
effective while the
vacancy exists.
• Overtime for current
employees
• Loss of business due to
poor customer service
• Not being able to take
on new business due to
lack of resources
• Lost knowledge
[A] Include the types of interviews you would conduct and why.
Explain the types of interview formats including structured,
situational and behavioral.

Teaching Notes
A structured interview “uses a set of standardized questions
asked of all applicants. The interviewer asks every applicant
the same basic questions, so that comparisons among applicants
can more easily be made.” (Mathis and Jackson,
2006).
The behavioral interview seeks to get at the person/job fi t. To
do so, the interviewer will ask for specifi c examples of
actual job performance to see if the applicant possesses the
competencies needed to perform the job.
In a situational interview, the applicant is asked questions about
how he or she might handle specifi c job situations.
Interview questions are based on a job analysis and checked by
experts in the job so that they are content-valid (Mathis
and Jackson, 2006).
There is no reason why different types of interview formats
cannot be used. The behavioral interview, in which the
applicant is assessed for job fi t, works well for teams, close-
work groups and the prospector strategy. Since the labor
market is tight, good job fi t means good job retention. For
some positions—operations and manufacturing, for
example—the structured interview might be appropriate. For
customer service and team leaders, a mix of behavioral
and situational questions might be appropriate to assess how
they would have or have handled certain situations.
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[B] Develop strategies to recruit the appropriate applicants and
include sources and tools used for recruiting and
selection. Identify the possible areas and types of
discrimination that could occur.
Teaching Notes
There is an internal pool for team leaders for a second shift.
There are also employees who may want to transfer

to another area. For internal staffi ng, new positions should be
posted, candidate’s qualifi cations reviewed and
interviews conducted.
External sources include traditional sources, such as the
technical and community colleges, local high schools and
other organizations. The Kurdish community, disabled
individuals, non-working spouses, senior citizens, inmates
in half-way houses or parolees, and the homeless are
nontraditional recruiting sources. Nearby towns may not
have a labor shortage and could be a source. High school and
college employment fairs, temporary agencies,
public employment agencies and former employees are
additional sources. You may even be able to hire from your
customer base.
Recruiting tools include internal posting, employee referrals
(consider offering a bonus for good hires),
employment fairs, electronic bulletin boards and Internet
postings, newspaper advertising, and notices with
professional and trade associations.
Selection tools include the application form, résumés, referrals,
tests (such as physical or cognitive ability tests and
medical exams) and the actual interview.
Motors and More should examine possible employment
discrimination practices.
Equal Pay
There is one supervisor who is a woman and four managers, all
of whom are men. Motors and More should
examine the jobs to determine if they are equal in terms of skill
(experience or training), effort (mental or physical
effort), responsibility (degree of accountability) and similar
working conditions (physical surroundings or hazards).

Is there enough difference between the positions to warrant a
“supervisor” job classifi cation and not “manager”
job classifi cation? If job responsibilities (such as outbound
sales) expand, will the job classifi cation difference still
be warranted?
Sex Discrimination
Why is there only woman in a lower management position
supervising the call center? It may appear that Motors
and More believes there are certain jobs better suited for
women. Was gender a factor in the hiring decision? Is
stereotyping occurring?
Racial/Ethnic Discrimination
Motors and More is 88 percent Caucasian, and all managers are
men. The local population is 48 percent minority,
indicating possible discrimination. Since promotions are based
on seniority, it appears that Caucasian men have
been there the longest and received the promotions. Motors and
More must aggressively recruit, staff and
promote qualifi ed minorities. It should also promote based on
performance and job specifi cations, not tenure.
Because of Motors and More’s racial demographics, we can
assume that the local Hispanic and Kurd population
has not been accepted at Motors and More. This lack of
inclusion may lead to discrimination allegations.
[C] What can you do to retain current employees? What are the
benefi ts of retention?
Teaching Notes
Retention strategies include good management, developing clear
career paths (Motors and More has not done
this), ensuring competitive total compensation, providing
recognition/rewards, providing comprehensive

employee orientation (many employees leave because they have
not had proper orientation to the job and team),
coaching, creating support groups to support diversity, ensuring
task clarity, and conducting research to determine
the cause of employee turnover.
Benefi ts of retention
Organizations with good retention:
• Retain critical knowledge and skills, which can provide a
competitive advantage.
• Have employees who are prepared for new positions as they
become available, thereby reducing recruiting and
training costs.
• Have good individual, team and organizational performance
because employees know their jobs, peers, products
and customers.
• Can respond quickly to changes in strategy and direction.
• Retain skills that can support peer coaching to improve
performance.
• Have continuity of the organization’s culture, values and
goals.
• Can become an employer of choice, reducing recruiting and
turnover costs.
A. How will you assess the effectiveness of your recruiting
efforts?

There are a number of ways to assess effectiveness of recruiting
efforts. One way is to calculate costs per hire. To
calculate costs per hire, add total recruiting costs and divide by
the number of candidates hired.
A second method is to determine the yield ratio. According to
Mathis and Jackson (2006), the yield ratio is the
comparison of the number of candidates at one stage in the
recruiting process to the number of candidates at
another stage. To calculate a job offer yield ratio, divide the
number of applicants by the number of applicants
offered a job.
You can also use a selection rate to assess your recruiting
efforts. A selection rate is the percentage hired from a given
group of candidates. It equals the number of employees hired
divided by the number of applicants (Mathis and
Jackson, 2006). Mathis and Jackson (2006) also discuss
acceptance rate (the percentage of job offers rejected) and
success rate (comparing the number of past candidates who
were good performers to current employees). You can
also identify effective recruiting sources by determining where
you found candidates who can be defi ned as good
employees.
You may also try to determine which recruiting sources provide
higher-quality applicants. For example, many
organizations regularly recruit from certain universities
because, over time, those universities have provided the
organization with higher-quality candidates than other schools.
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PART III: DEVELOPING A COMPENSATION PLAN
[A] Develop a progressive yet competitive compensation plan
that will support recruiting and retention efforts and
lower the employee turnover rate. Traditionally, Motors and
More has provided employees minimum wage and
statutory benefi ts.
1. How does Motors and More’s employee compensation
compare relative to other organizations in the area? Will
the organization meet, lead or lag the local market? Explain
your rationale.

2. Identify alternative pay methods and discuss the
advantages/disadvantages of each.
3. What benefi ts will you offer? Include statutory benefi ts.
What are the costs of those benefi ts? What is the rationale
for offering those benefi ts?
4. Develop a communications plan. Consider the various
audiences that must be informed.
[B] Prepare a 20-minute presentation explaining your
compensation plan.
Teaching Notes
1. How does Motors and More’s employee compensation
compare relative to other organizations in the area? Will
the organization meet, lead or lag the local market? Explain
your rationale.
Given the low unemployment rate, the organization may decide
to meet the competition in starting pay. If it lags behind
the market, Motors and More may not be able to hire qualifi ed
staff. If the company decides to lead, other organizations
might follow. Any hiring advantage would be lost, and Motors
and More would have increased costs without benefi t.
Alternatively, Motors and More may decide to use incentives or
bonuses to better compete for resources.
2. Identify alternative pay methods and discuss the
advantages/disadvantages of each.
There are a number of alternative pay methods to reward
employees.

Merit Pay
Merit pay rewards employees for work already done, usually
over the last performance year. Employees are familiar
with merit pay, and there is little resistance offering it. Over
time, merit pay increases employees’ base pay, thereby
increasing organizational costs. It is also diffi cult to really link
performance to merit pay. Further, merit pay may not
result in increased performance. Employees may not see the link
between merit pay and their performance.
Incentives and Bonuses
Incentives and bonuses reward individual performance without
adding to base salary. Incentives and bonuses also link
pay with performance. For example, in manufacturing, a straight
piecework plan pays employees a certain amount for
each unit produced. In a team environment, a group incentive
could increase group productivity. A disadvantage is
that it may cause unhealthy competition among employees.
Commissions
Typically, commissions are pay based on product sales. On a
straight commission pay plan, pay is based on employee
performance; the more sales, the more commission the employee
receives. A combined commission pay plan pays
a base salary plus commission. Commission pay plans directly
link pay to performance. Commissions can result in
increased sales. Commission pay plans, however, may cause
employees to behave unethically in order to make the
sale. Generally, commissions reward individual, not team
performance.
On-the-Spot Awards
On-the-spot awards instantly reward employees for good
performance or behavior. The recipient is usually

nominated by a supervisor or peers. Awards may include gifts,
gift certifi cates or cash. On-the-spot awards focus
employee attention on organizational goals and objectives. In
addition, employees can quickly see the link between
performance or behavior and the reward. On-the-spot awards
can lead to feelings of resentment or unfairness,
however, if managers use their own criteria for giving awards.
Gainsharing
In a gainsharing incentive compensation plan, employees are
rewarded for cost reduction or improved productivity.
Savings are usually shared equally between the employees and
the company. Organizations using gainsharing
incentives usually have participative management styles.
Gainsharing plans can help employees understand what is
important to the organization, such as decreasing labor costs.
Gainsharing can also increase employee cooperation
because employees are rewarded equally, reducing competition.
Gainsharing also reinforces continuous
improvement. Gainsharing, however, can make it diffi cult to
determine a productivity baseline. It can also be
diffi cult to determine who will participate in the program. In a
gainsharing plan, an organization could pay for cost
reductions even when profi ts are declining. Lastly, since all
employees are rewarded equally, the payment may not
seem fair to all employees.
Profi t Sharing
In profi t sharing, the organization pays employees above and
beyond their base pay when the organization earns
a profi t. Profi t sharing allows the organization to reward
employees when the organization can most afford it.
Profi t sharing also provides fl exibility in the distribution of
the payments. Employees may not see the link between
individual performance and profi ts, however, minimizing the
link to performance.

These pay methods add value to the company while providing fl
exibility in pay. When suggesting possible
solutions, students may offer, as an option, issuing stock.
However, the instructor should advise students that
Motors and More is not a public company.
3. What benefi ts will you offer? Include statutory benefi ts.
What are the costs of those benefi ts? What is the
rationale for offering those benefi ts?
Currently, Motors and More employees receive only statutory
employment benefi ts. Statutory benefi ts are Social
Security, workers’ compensation, unemployment compensation
and FMLA leave.
Social Security provides retirement and disability income and
can supplement unemployment insurance. It is
funded by equal contributions between the employer and the
employee.
Workers’ compensation covers medical costs and employee pay
if the employee is unable to work due to a job-
related illness, injury or disability. It is paid for by the
organization.
Unemployment compensation provides income to employees
who lose their jobs. The employer pays for
unemployment compensation based on the organization’s
location and history of terminations and layoffs.
The Family Medical Leave Act requires employers with 50 or
more employees to allow employees to take up to
12 weeks of unpaid leave during a 12-month period for narrowly
defi ned personal and family health issues. The
Act ensures that the employee can return to the same position or

one of equal status and pay. In addition, the Act
requires employers to maintain employee’s health coverage (if
offered).
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Teaching Notes
There are a number of different benefi ts Motors and More can
offer, including medical, dental, vision, retirement,
tuition reimbursement, daycare and eldercare, 401(k), paid sick
and vacation time, and paid holidays. Can Motors
and More afford to offer extensive benefi ts? Students will want
to offer an extensive benefi ts package that includes
all of the benefi ts mentioned above. A benefi ts package like
this can cost 38 percent of payroll. A basic cafeteria
or fl exible medical plan (HMO or PPO) with higher deductibles
may be more affordable to the organization, yet
still seen as benefi cial to employees. Students need to realize
that a small organization may not be able to afford
an extensive benefi ts package.
Motors and More should compare its benefi ts to those of
similar organizations (in size and industry) in the
area. To attract and retain employees, it must offer competitive
benefi ts, yet an extensive benefi ts package is not
affordable. Motors and More’s leadership team could discuss
benefi ts options with their employees. Please advise
students that while retirement, childcare, eldercare, dental or
vision benefi ts may be part of the solution, all of
these benefi ts must be justifi ed in terms of cost/benefi t
analysis. A cafeteria-style health care benefi t could provide
fl exibility for employees and help contain costs. The
employees could also help share the costs.
4. Develop a communication plan. Consider the various
audiences that must be informed.
Developing a communication plan ensures that everyone

understands benefi ts offerings.
Teaching Notes
Communication plans should be tailored to different audiences
as necessary; not everyone will need to see the
same information in the same format. For example, if the
decision has been made to extend a benefi ts package,
managers and supervisors should be informed so they can
answer employees’ questions. Employees need
information to help them decide whether or not to enroll in the
plans.
Figure 3 provides a sample communication plan structure
targeting only the employee level.
Figure 3: Communication Plan
Audience Message Medium Desired Result Timing Frequency
Person Responsible
Employees Explanation of
new benefi ts
Large group
meeting
• Employees will
understand the new
benefi ts so they can
make an informed
decision
• Employee enrollment
At enrollment
time

Quarterly HR Director
Benefi ts Consultant
Website • Understanding the
new benefi ts
Continuous Continuous Webmaster
• Understanding the
new benefi ts
Based on
publication
dates
Semi-annual Editor
One-on-one
consultation
• Employees will
understand the new
benefi ts so they can
make an informed
decision
• Employee enrollment
By
appointment
Ongoing Benefi ts Consultant

© 1998 Performance Advantage Group
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Different communication mediums (or methods) should be used

for different audiences. The management team
may require group and/or one-on-one meetings. Employees will
want to see the details in a document they can
read and revisit.
Desired results are also audience-specifi c. For example, you
will want management to understand the new benefi ts,
enroll in the plans and also be supportive of the plans. You will
want employees to understand the new plans, with
enrollment as the desired result.
A communication plan considers timing (when the message will
be communicated) and frequency (how often
the message or a version of the message will be presented to the
audience). For example, for benefi ts enrollment,
timing may be one month before the enrollment period begins.
The frequency may be once a week to start,
increasing to twice a week as the enrollment period draws to a
close.
For a communication plan to succeed, each person assigned to
execute each phase of the plan must be held
responsible to complete it within the time specifi ed.
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PART IV: DEVELOPING A HUMAN RESOURCE
DEVELOPMENT PLAN
[A] Develop a human resource development (HRD) plan. Given
the fact that Motors and More has no formal
training program and promotions have been based on seniority,
your plan should address:
1. New-employee training.
2. Current-employee training for current and future jobs
according to a career path.
3. Manager and supervisory training.
[B] In your training plan, address the following:
1. How will you conduct a needs assessment for each group
(include methods and instruments)?
2. How will training content be developed or obtained?
3. How will training be delivered (e.g., classroom, intranet,

blended, self-study, etc.) and by whom (internal
employee or external consultant/trainer)? Provide a rationale for
your decision.
4. What processes and instruments will you use to evaluate
the program’s effectiveness for each group?
[C] Prepare a 20-minute presentation, including discussion.
Teaching Notes
[A] Develop a human resource development (HRD) plan. Given
the fact that Motors and More has no formal training
program and promotions have been based on seniority, your
plan should address:
1. New-employee training.
2. Current-employee training for current and future jobs
according to a career path.
3. Manager and supervisory training.
Each target audience has different needs.
New-employee training
New employees should undergo an orientation program.
Comprehensive orientation should include information about
the industry, organization, job unit and position. To retain
employees, orientation to the team (job unit) and position
are important. New-employee orientation should address
individual employee goals. New employees may also need
specifi c job training to enhance their skills, to safely use
equipment and to follow procedures.
Current-employee training

Current employees may need refresher skills training and
diversity training. Evaluate whether English-as-a-
second language (ESL) training would support the work
environment. If functional career paths are developed,
training should align to the functional career path. Because
Motors and More will likely add to team leaders, basic
supervisory and team leadership training may be needed.
Manager and supervisory training
Managers and supervisors were promoted by seniority, and there
is no indication they have had any management-
level training. Promotion by seniority also resulted in a lack of
women and minorities in top-level positions. Basic
management training in areas such as budgeting and forecasting,
employment laws, performance management,
goal setting, and giving and receiving feedback would improve
their capabilities. Diversity training is also
recommended for this group.
Teaching Notes
[B] In your training plan, address the following:
1. How will you conduct a needs assessment for each group
2. How will training content be developed or obtained?
3. How will training be delivered (e.g., classroom, intranet,
your decision.
4. What processes and instruments will you use to evaluate
the program’s effectiveness for each group?
How will you conduct a needs assessment for each group

Needs assessments should be conducted at the organizational,
job and individual levels. At the organizational level,
a needs assessment should assess current and future training
needs, identify existing gaps and recommend specifi c
training and development required to close the gaps. An
organizational needs assessment is client-based and
considers organizational objectives and strategies.
A job (or task) needs analysis identifi es the specifi c skills,
knowledge and abilities (KSAs) needed to perform the
tasks in a current or future position (Jackson and Schuler,
2006). A job analysis identifi es the training requirements
for the job. Additional sources include interviewing the
incumbent and the incumbent’s manager to identify
specifi c skills, knowledge and behavior required to
successfully do the job. The goal of a job needs analysis is to
defi ne what successful performance looks like and identify the
KSAs required.
An individual needs assessment identifi es the KSA gaps
between existing and required performance. A good
method to assess individual needs is to measure performance
against objectives. This is discussed in the
performance review where strengths and weaknesses can also be
identifi ed. Observation is another way to conduct
this needs assessment.
Needs assessments can be conducted by examining the existing
(or extant) data, conducting individual interviews
or focus groups, implementing surveys, using multi-rater
assessments, assessing employees through various tests,
and reviewing individual, functional unit and organizational
performance records.

How will training content be developed or obtained?
Training content can be developed or purchased. Some training
may need to be developed internally. If so, given
the limited HR staff, how will this be done? Using SMEs and/or
an outside trainer is a possibility. Buying training
programs off-the-shelf is also an option. However, off-the-shelf
training products are generally not customized to
the individual organization. Consequently, customization costs
must be considered. Cost, time to delivery and size
of target audience are also factors to consider.
How will training be delivered (e.g., classroom, intranet,
your decision.
It is important to match delivery methods to content and
audience. Some training (such as new employee
orientation) can be self-study; employees can receive individual
training material as such as workbooks or CDs.
Some of the new-employee orientation, though, may need to be
classroom-based. If the target audience has
computer access, training can be delivered by Intranet, internet
or CD. Classroom training is always an option,
but timing and space may be issues. When planning training,
keep in mind that managers and professionals usually
have more fl exibility in their schedules than hourly employees
do. This will affect classroom delivery. Consider
using job assignments and job rotation to provide depth and
breadth of training.
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Some criteria or decision factors in training delivery include:
• Costs to design/develop and deliver internally or hire external
designers and facilitators.
• Availability of HR employees during training.

• Internal/external HR design/development expertise.
• HR employee’s perceived credibility.
• Audience preference for different methods of delivery.
• Time to delivery—it takes longer to develop an online course
than a classroom exercise.
• Number and location of training deliveries. If the entire
organization needs to be trained in remote locations
and quickly, you may need outside resources.
What processes and instruments will you use to evaluate the
program’s effectiveness for each group?
Kirkpatrick’s four levels of evaluation is the model generally
used for training evaluation. These levels are
discussed extensively in Evaluating Training Programs: The
Four Levels and are summarized here for your
reference.
Level 1: Reaction
Level 1 assesses participants’ reaction to the training.
Participants are asked to complete a survey at the end of
the training. The survey asks participants to indicate if training
objectives were met, rate facilitator skills, assess
the relevancy of content and rate the appropriateness of
instructional/learning strategies, materials, group
interaction, etc.
Level 2: Measure learning
Was there a change in knowledge, skills or attitudes? Learning
can be measured through tests for knowledge,
assessments of performance during role-plays, demonstrations,
case studies, projects, work products, etc. These
instruments, developed specifi cally for the training, are used
during the learning and feedback is provided during
the learning activities. To accurately assess a shift in learning,

there a baseline must be established by administering
a pre-test and post-test.
Level 3: Assess behavior change on the job
This is also referred to as transfer. Are participants using the
new knowledge and skills on the job? To what extent?
To assess this, HRD professionals can follow up on performance
contracts, action plans, work products and
similar transfer strategies to determine the extent to which these
are being completed. HRD professionals can also
conduct individual interviews of training participants, their
managers and/or peers or conduct focus groups to
determine transfer. Surveys can also be used.
Another consideration in assessing learning transfer involves
the environment. To what extent does the
environment enable or hinder the use of the new KSA? The
same assessment methods can be used.
Level 4: Measure results
Measure any changes in the initial business metric addressed by
the training. Did the metric (sales, defects,
turnover, etc.) change? The return on investment (ROI) can be
calculated if the dollar value of the change in
the metric (benefi t) and total program costs are known. When
measuring results, it is important that only results
due to training are considered. To do this, separate the variables
infl uencing the change in the business metric.
Methods to measure results include tracking the business
metric, conducting individual interviews of participants
and their managers, conducting focus groups, and using surveys.
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PART V: DEVELOPING THE HR FORECAST
A. Develop a three-year HR forecast (prediction of the future)
using the following assumptions:
1. Labor supply/demand will become more rigorous (demand
for workers will increase, but the labor pool will
remain the same or shrink). Labor costs will increase.
2. Demand for Motors and More products will continue to
increase. Production defects will also continue

to increase.
3. Motors and More’s workforce will become more diverse as
the company hires more Hispanics, Kurds and
persons from alternative workforces.
4. The president will start another company and will hire
someone to manage the daily operations of Motors and
More while he takes on more of an overseeing role.
5. Motors and More will decide to develop an additional
product to broaden its portfolio. There is no existing
capacity for the product, nor do the existing production lines
meet the manufacturing requirements for the
new product.
B. Prepare a 20-minute presentation, including discussion.
Teaching Notes
[A] Develop a three-year HR forecast (prediction of the future)
using the following assumptions:
1. Labor supply/demand will become more rigorous (demand for
workers will increase, but the labor pool will
remain the same or shrink). Labor costs will increase.
While the organization must continue to look for non-traditional
recruiting sources, it must start planning to replace
labor with technology. Motors and More can also consider
outsourcing some work, such as maintenance and cleaning or
training employees for other positions.
Assuming that Motors and More has added second and third
shifts and that there is neither space nor employees for
further expansion, Motors and More could consider building
second facility outside of the area but still within the United

States. Remember that even though the president (who is also
the owner) is leaving, he still owns the company and
infl uences strategic direction. Given his desire to stay local,
you may be able to go outside of the area but not off-shore.
As employees in sales leave, Motors and More could expand the
customer service department and add sales responsibility.
Customer service representatives could sell Motors and More
products. This could support existing customers and add
telemarketing to new customers and markets. Sales positions
could also shift to operations or manufacturing. However,
students should be cautioned to analyze the pros and cons of
doing this, in part, to determine the effect on the marketing
and sales departments.
2. Demand for Motors and More products will continue to
increase. Production defects will also continue to
increase.
Production defects are costly to the organization. An analysis
should be conducted to determine the root cause of the
increasing defect rate. It is tempting to assume that lack of
training is the problem and therefore training is the solution.
This may not be so. Given the increased output demand, there
could be machine maintenance issues. Speed may cause
carelessness. A unit-produced incentive might be driving output
at the expense of quality. Employees may be tired of
working overtime or perhaps don’t care about quality. It could
be that there is lower quality of raw materials. The root
cause must be determined and then addressed.
Adding staff in quality control will increase costs but will not
address the issue of increasing defects. Quality control
catches the defects after production and is not a solution to
reducing defects.

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3. Motors and More’s workforce will become more diverse as
the company hires more Hispanics, Kurds and persons
from alternative workforces.

The labor shortage has required Motors and More to hire a more
diverse workforce. To stay productive and meet customer
needs, the organization must actively manage diversity. Motors
and More must ensure that diversity is valued within the
organizations and that new employees are trained to have the
necessary skills to do their jobs.
Motors and More may want to consider ESL training if
necessary. In addition, Motors and More may want to
consider offering cultural training on the cultures represented in
the company and how to manage and value diversity.
Management modeling and coaching may also be important. If
the work environment is a team-based structure, team
training will support productivity.
Because of the current lack of diversity among the management
team (there is just one female supervisor while all the
other managers are men), HR should conduct a job analysis to
determine if the difference in title (and most likely
pay grade) is justifi ed. If customer service expands to include
outbound responsibilities, a job reevaluation would be
required.
HR will want to increase minority hiring to provide a more
balanced workforce and better refl ect the local
population. The practice of seniority-based promotions should
change to the practice of hiring the best, most
qualifi ed person for the job. Changing these practices should
improve employee relations and reduce the chances of
a discrimination lawsuit.
4. The president will start another company and will hire
someone to manage the daily operations of Motors
and More while he takes on more of an overseeing role.

Succession planning is a must because the president is leaving
the organization. Students must determine if there is
anyone (by position--since we don’t know performance) inside
the organization who can assume the president’s role
or if it is necessary to go outside of the organization. How will
the organization train a current employee to assume
the role? Coaching, job rotation, work assignments and outside
development are all training possibilities. Consider
that the managers have only functional area experience and have
managed other functions.
If Motors and More decides to hire from outside of the
organization, an executive recruiter will most likely be
engaged to fi nd the appropriate person. The ideal candidate
should have broad management experience, be able to
work within the organization’s culture and take the appropriate
steps to gradually change the organization’s culture.
In addition, the candidate must be willing to relocate to a small
town.
5. Motors and More will decide to develop an additional product
to broaden its portfolio. There is no existing
capacity for the product, nor do the existing production lines
meet the manufacturing requirements for the
new product.
The new product will require a new production line and more
staff. Since the current facility cannot accommodate
an expansion nor are there available workers, this is a good
opportunity to establish a second manufacturing facility.
Given the president’s preference, it will need to be U.S.-based.
It would make sense to stay in the South because
of lower wages and fewer unions. This expansion will require
additional labor forecasting, as the current and new
operations must be taken into consideration.

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25© 2007 SHRM. Marc C. Marchase, Ph.D.
REFERENCES
Anthony, W., Kacmar, K. M., & Perrewe, P. (2006). Human

resource management: A strategic approach. Mason, OH:
Thomson Custom
Solution
s.
Daft, R. L. (2003). Essentials of organization theory & design.
Manson, OH: South-Western, Thomson Learning.
DeNisi, A. S., & Griffi n, R.W. (2001). Human resource
management. Boston: Houghton Miffl in Company.
Griffi n, R. W., & Moorhead, G. (2006). Fundamentals of
organizational behavior, managing people and organizations.
Boston: Houghton
Miffl in Company.
Gomez-Mejia, L. R., Galkin, D., &Cardy, R. (2001). Managing
human resources. Upper Saddle River, NJ: Prentice-Hall, Inc.
Jackson, S., & Schuler, R. (2006). Managing human resources
though strategic partnerships (9th ed.). United States: Thomson
South-Western.

Kirkpatrick, D. L. (1994). Evaluating training programs: The
four levels .San Francisco: Berrett-Koehler Publishers, Inc.
Mathis, R., & Jackson, J. (2006). Human resource management
(11th ed.). United States: Thomson South-Western.
Noe, R., Hollenbeck, J., Gerhart, B., & Wright, P. (2007).
Human resource management (2nd ed.). Boston: McGraw-Hill
Irwin.
Robinson, D. G., & Robinson, J. (1996). Performance
consulting: Moving beyond training. San Francisco: Berrett-
Koehler Publisher.
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28
1800 Duke Street
Alexandria, VA 22314
· Select and respond to 3 posts listed below. Advance the
conversation; provide a real-world application and experiential
examples;
· Conceptually discuss your key [most significant] learning
insight or take-away from the selected forum topic comments.
· Responses should be a minimum of 150-250 words, supported
by at least one reference outside of the textbook, either
supporting or refuting the position of the author of the forum
topic response or peer response.
Discussion Topic #1: Discounted cash flow
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Discounted cash flow (DCF) is one of the methods used to
estimate the intrinsic value of a company or an investment

opportunity using the concepts of time value of money. Many a
times, I wonder how for instance stock analysts come up with
their figures. The answer to this can be found in DCF. Although
quite complex with many variables and assumptions, DCF offers
more flexibility compared to other methods of valuation. The
first step to using DCF entails estimating the future cash flows
of the company. In estimating the future cash flows, many
variables such as the future’s sale growth and the company’s
profit margin are taken into consideration (Morningstar, 2013).
When estimating the revenue growth rate, a host of factors are
considered such as the industry trend, economic data and the
company’s competitive advantage over other companies such as
market shares (Morningstar, 2013). Cost is a major decisive
factor when calculating or estimating profit margin. Increase in
the operational costs may lead to contraction of the profit
margin most especially when the costs cannot be passed to the
customers by increasing the sales price. Therefore, when
considering the company’s cost is the first step when estimating
the future’s profit margin.
There are actually two models of DCF; equity valuation that is
obtained by discounting free cash flow to equity whereas firm
valuation on the other hand can be obtained by discounting the
expected cash flows to the firm. Free cash flow to equity is the
available cash to the equity shareholder of the company. This is
the residual cash after all other expenses, interest, principal

payments and tax obligations have been accounted for
(Anonymous, 2012). Free cash flow to the firm is the residual
cash available to the bondholders and the shareholders after
meeting all expenses and tax but prior to debt repayment
(Anonymous, 2012).
A dollar today is worth more than a dollar in the future and
hence the importance to investment. This is the concept of net
present value (NPV). Having projected the future cash flows of
the company, using appropriate discount rates, the NPV of the
cash flows are calculated. When using discounted cash flow, it
is critical to use appropriate discount rates i.e. the discount rate
must be consistent with the cash flow that is being discounted.
Discounting free cash flow to equity requires “cost of equity” as
the appropriate discount rate whereas “cost of capital” is the
appropriate discount rate for free cash flow to firm
(Anonymous, 2012)
The cost of capital or weighted average cost of capital is the
sum of the different components of financing used by the
company weighted by market value proportions. The
components include both debt and equity. In another
perspective, cost of capital constitutes investors required rate of
return on their investment. Ideally, the more risky a company is,
the higher the cost of capital and the more stable a company is,
the lower the cost of capital. This means that the future’s cash
flow of a risky company are worth less compared to a more

stable company in present value terms. Cost of equity is the rate
of return required by the equity investors in the company.
Unlike other costs that could be easily observed, cost of equity
is unobservable and can only be estimated (Anonymous, 2012).
There are three (3) major drawbacks of using DCF. Despite this,
DCF is still the most common method used in stock valuation.
The most important factor in calculating DCF is estimating the
cash flows projection. There are host of problems with this
approach. There is uncertainty in cash flow projection and this
increases with each year in the forecast (Harman, nd). DCF
models often use five (5) and sometimes even 10 years worth of
estimates that could be difficult to predict and hence a potential
source of error in stock valuation. Analyst might accurately
predict the operational cash flows in the current year and the
following year and thereafter the ability to predict future
projections decreases drastically. Cash flows projection in a
given year is mostly based on the results of the preceding years.
Therefore, any error in the assumptions in the preceding years
will greatly amplify the operation cost variances in the later
years of the model and invariably the intrinsic value of a stock
or a company (Harman, nd). Again, free cash flow projection
involves estimating capital expenditure. Although there are
varied numbers of methods to calculate capital expenditure such
as fixed asset turnover ratios and percentages of revenue
methods, changes or differences in assumptions can affect

valuation using DCF. There is high degree of uncertainty
associated with calculating capital expenditure that increases
with additional years in the model. Management can decide to
curb or keep tight rein on the capital expenditure and vice
versa. This makes any assumption on capital expenditure very
risky.
The growth rate and discount rate assumptions of DCF model
seem to be the most contentious model of DCF. Cost of capital
and CAPM (capital asset pricing model) are mostly used by
analysts as the discount rate. These are merely theoretical and
may not applicable in the real world. Likewise, some investors
use hurdle rate, which is the minimum required rate of return on
an investment or project by the manager or the investor
(Harman, nd). Which is the right discount rate to select?
Changes in the discount rates will greatly affect the stock
valuation. Perpetual growth rate assumption is one of most
common assumptions when using growth rate. According to this
theorem, companies mature in such a way that there sustainable
growth rates are geared towards long-term rate of economic
growth. A company’s growth rate seldom remains the same. It
varies from one year to the other and from decade to decade.
Peradventure, the company matures to the expected growth rate,
the growth rate will not remain at the figure but fluctuates.
References

Anonymous (2012). Valuation 101: how to do a discounted
cashflow analysis. Retrieved from
http://www.stockopedia.com/content/valuation-101-how-to-do-
a-discounted-cashflow-analysis-63489/
Harman, B (nd). Top 3 pitfalls of discounted cash flow analysis.
Retrieved from
http://www.investopedia.com/articles/07/dcf_pitfalls.asp
Morningstar (2013). The discounted cash flow method.
Retrieved from
http://www.morningstar.co.uk/UK/NEWS/65385/THE-
DISCOUNTED-CASH-FLOW-METHOD.ASPX
Bottom of Form
Discussion Topic #2: The Goals of Financial Management
When talking about what the goals of financial
management are you would first want to know what a financial
manager does in general. To begin financial managers in the
long run help the management of a company make sound
financial decisions. We can see how they go about making these
sound financial decisions with a process of reviewing company
financial reports and finding ways to either reduce the
company’s costs or by analyzing the current market trends and
possibly finding opportunities to expand the company or acquire
another company. Financial managers are also responsible for

supervising employees that are in charge of the financial
reporting and budgeting by making sure that everything meets
legal requirements. Lastly, financial managers are responsible
for preparing the statements of financial status, reports of the
business activity, and the forecasts of the company (Bureau of
Labor Statistics, 2014).
A financial manager is a highly important individual
within the business world. For a business to grow successfully
it depends on the operations and strategies being financially
beneficial for the company. This is one of the many overall
goals of a financial manager. However, to pursue this one must
have a sound financial management team that will put the best
interest of the company first and try to help the company grow
by looking at the sales, inventory valuation, capital expansion,
financial reporting, purchases, and profit distribution. Once the
financial management team looks at all of this they can come up
with ways to plan, direct, organize, monitor and control the
company’s current and future financial resources and the events
of the business. Now with all of this in mind, we can see that
one of the goals of the financial management team is to
maximize the original value from insufficient financial
resources, which depends on both short-term and long-term
activities of the company (Cole-Ingait, P., n.d.).
There are three decisions that the financial management
team has to make that can greatly affect a company financially.

The first decision that the financial management team would
have to look at would be the Investment Decision which is
where the financial manager has to decide where and how much
to invest into a fund. The second decision that the financial
management team would have to look at would be the Financing
Decision which is where the financial manager has to decide
where and how much to raise the in funds. The third decision
that the financial management team would have to look at would
be the Dividend Decision which is where the financial manager
has to decide how much to pay in dividends and how much to
keep for upcoming or future expansions. The financial manager
would have to keep in mind what the clear objective of the
company is trying to achieve and work towards that financial
goal. All companies worldwide are looking for ways of making
a profit and expanding themselves to make more profit
(Business Studies, n.d.). In my personal opinion I would have to
agree that all companies want to make the most amount of profit
possible.
There are two ways that companies can maximize their
prosperity. The first is by Profit Maximization. Profit
Maximization is a well-known goal that all companies
worldwide want to make the maximum profits possibly
attainable. If a business has this type of reputation of attaining
such max profits it shows how sound the company is and it
reassures the economic interests of this particular company.

These economic interests are the shareholders, creditors, and
employees who are directly or indirectly connected to the
company. The owners of the company are the shareholders that
have invested their funds within the company and intend to get
a higher dividend on their investment. The second is by Wealth
Maximization. Wealth Maximization, also known as Value
Maximization or Net Present Worth Maximization, is the value
of an asset should be viewed in terms of benefits it can produce
over the cost of capital investment (Business Studies, n.d.).
The goals of the financial management team should be
to provide monthly, quarterly and annual financial information
to stakeholders both internally and externally. Financial reports
are highly important as they inform on the stability of the
company and allow the government to examine tax obligations
of the company (Cole-Ingait, P., n.d.).
Another importance of financial management team is
risk management. Risk management can be used to reveal the
weaknesses of the company. It can be used to help supply the
most appropriate contingency measure for operational and
strategic risks. This aspect is one of the most important aspects
of financial management because it helps the business owners
and their employees reduce or even abolish the risks of theft,
fraud, and embezzlement alongside of both the internal and
external auditing processes (Cole-Ingait, P., n.d.). Now the best
way to ensure that there are no illegal financial activities is to

have the financial management team apply internal controls
over the financial resources. This way the financial
management team can investigate the financial transactions to
ensure that both the owners and employees are not violating any
financial principles or undermining transparencies (Cole-Ingait,
P., n.d.). “Failure to exert internal financial controls could
spell unprecedented consequences for the business, as was the
case of financial reporting scandals by Enron, Tyco and
WorldCom in the early 2000s (Jickling, 2002).”
A great example of why financial management and a
financial management team are so important would have to be
the fall of Enron. Back in the 1990's the reported annual
revenue was under ten billion dollars which grew to one
hundred and one billion dollars in the year 2000, which ranked
Enron in seventh on the Fortune 500. However, the company
was using accounting techniques involved in unconsolidated
partnerships and special purpose entities to disguise a
significant loss from showing up on the financial statements and
to hide the gravity of its indebtedness. These questionable
accounting tactics brought about the fall of Enron when
revealed, almost all of the profits reported since 2000
disappeared (Jickling, 2002).
In conclusion, the goal of financial management and a
financial management team is to achieve the max amount of
profits by the assessments of financial quantification. Now the

purpose of a financial manager is to notice the performance of
the company by reviewing all the data and making a clear
judgment or plan on what the next step will be. The use of
managerial accounting and corporate finance are what make up
managerial finance. Financial management is a way for a
company to manage their money and use it in a more productive
fashion. Financial management is not only important for
companies, but for every individual and their specific financial
needs just like any company (EconomyWatch, 2010).
References
Bureau of Labor Statistics. (2014). Financial Managers.
Retrieved from http://www.bls.gov/ooh/management/financial-
managers.htm#tab-2
Business Studies. (n.d.). What are the goals of Financial
Management? Retrieved from
http://www.publishyourarticles.net/knowledge-hub/business-
studies/goals-of-financial-management.html
Cole-Ingait, P. (n.d.). Primary Goals of Financial Management.
Retrieved from http://smallbusiness.chron.com/primary-goals-
financial-management-69952.html
EconomyWatch. (2010). Financial Management. Retrieved from
http://www.economywatch.com/finance/financial-

management.html
Jickling, M. (2002). The Enron Collapse: An Overview of
Financial Issues. Retrieved from
http://fpc.state.gov/documents/organization/9267.pdf
Discussion Topic #3: Balance sheet
All businesses on the globe issues different type of
financial statements to their stockholders in order to review
their form's operational and financial performance for the
specific period of time. Balance Sheet in one of the important
financial statement used by accountants and business owners
along with other statements as Income Statement, cash flow
statement, and stock holders' equity statement. It gives us
written report of any changes took place in assets, earning, and
dividend during current period compare to previous years. "The
balance sheet may be thought of as a snap shot of firm's
financial position at a particular time" (Ehrhardt 106). Most
companies report their balance sheet on the last day of the given
period but the snapshot actually changes daily due to
inventories bought and sold, fixed assets are sold or added, or
liabilities goes up or down with time. It means that balance
sheet of the same company will show different balances at
different time.
For example, the amounts reported on a balance sheet

dated December 31, 2013 reflect that instant when all the
transactions through December 31have been recorded. The
balance sheet as the name describes it balances the assets versus
claims against assets, i.e. assets are shown on left side and
liabilities and equities on the right side of the equation. The left
side of balance sheet lists assets i.e. things the company owns
and listed in order of liquidity or actual time required to convert
it into actual cash in the fair market value. The right side of it is
a list of claims that different groups have against the company's
assets. They all are various type of claims listed in order in
which they must be paid. For an example suppliers may have
"account payable" claim which must be paid within 30 days,
other claim is "notes payable" that must be paid within 90 days
to the banks, and stockholder's claim comes last that are not due
for 20 years or more. Their claim represents ownership or
equity and need never be "paid off" and they may receive
payment only after all other claimant has been paid. "The
amounts shown on the balance sheets are called book values
since they are based on the amounts recorded by bookkeepers
when assets are purchased or liabilities are issued.
Assets
Cash, short-term investment, accounts receivable, prepaid
insurance and inventories are considered as current asset,
because businesses are going to convert them into cash within a
year. All assets are stated in dollars and cash is actual money

that is available to spend any time. There are market securities
called "cash equivalent" which are included along with cash
because these securities can be converted quickly into cash at
the price close to their book value.
When the company makes such sale to the customer which has
not been paid immediately, then the customer has an obligation
toward company as "account receivable".
Inventories raw material, work in process, and finished
goods for sale are part of business assets which are shown in
dollars. While analyzing the balance sheet we must find out
what inventory system company is using to determine the
inventory value because inventory valuation have significant
effect on financial statements. Some companies use FIFO i.e.
first in fist out or LIFO i.e. last in first out. If company uses
FIFO at the time of inflation the company's balance sheet will
reflect higher reported profit, higher inventory value and lower
cost of goods sold in the income statement or otherwise if it
uses LIFO.
The cost of long-term assets such as factory, plant equipment
are spread over the asset's useful life rather than treating the
purchase cost as an expense in the purchase year. The amount of
purchase cost charged per year is called as depreciation expense
for that year. Some companies report the total cost of long term
asset as "gross plant and equipment" and some companies report
the total amount of depreciation charged on those assets called

"accumulated depreciation", and some companies report net
plant and equipment, which is gross plant equipment less
accumulated depreciation.
Liabilities and Equities
The current liabilities on balance sheet are accounts payable,
notes payable, and accruals because they are expected to be paid
in one year period. Account payable occurs when companies
buys supplies but doesn't pay immediately rather takes
obligation to pay in future. On the other side if company takes
out loan from bank that must be paid in one year period is
called notes payable. And accruals are accumulated with time
when company doesn't pay its taxes or employees wages on
daily basis. Long-term bonds are claims which can be called
liabilities because they are held by other than stakeholders of
the company.
There are preferred stock and acts as a cross between
common stock and debt because preferred stock ranks below
debt but above common stock in the case company applies for
bankruptcy. Also preferred stock holders do not get benefit if
its earning grows because their dividend is fixed. When
company sells share of stock the proceeds are recorded in
common stock account and retained earnings are the
accumulative amount of earning that has been not paid out as
dividend. The sum of these two i.e. common stock and retained
earnings is called "common equity". "If company's asset could

actually be sold at their book value , and if the liabilities and
preferred stock were actually worth their book values, then
company could sell its assets, payoff its liabilities and preferred
stock, and the remaining cash would belong to common
stockholders and there for common equity is called net worth
which is assets net of the liabilities" (Ehrhardt 106).
The balance sheet represent two different aspects of the same
entity, the totals must always be identical. Any change in the
amount for one item must always be accompanied by an equal
balance sheet changes in some other item. For example, if the
company pays $500 to one of its creditors, the cash balance will
go down by $500, and the balance in accounts payable will go
down by the same amount.
Balance sheet is extremely useful information for
current investors, potential investors, company management,
suppliers, customers, competitors, government agencies, and
labor unions. As a creditor I will look for hidden facts through
balance sheet, then determine whether or not a company
qualifies for loans.
References
Block, B.S. & Hirt, A. G. (eds.). (2008). Foundations Of:
Financial Management. New York, NY: Mcgraw-Hill/Irwin.
Ehrhardt, C. M. & Brigham, F. E. (Eds.). (2009). Corporate

Finance: A Focused Approach. Mason, OH: South-Western
Cengage Learning.
Lowdown: The balance sheet. (2008). Investors Chronicle,
Retrieved from
http://search.proquest.com.proxy.davenport.edu/docview/23632
3793?accountid=40195
MEET THE BALANCE SHEET. (1999, Jan 28). Palm Beach
Post Retrieved from
http://search.proquest.com.proxy.davenport.edu/docview/32214
3482?accountid=40195
Discussion Topic #4: The Goal of Financial Management
In order to understand the goal of financial management, we
first have to define what financial management is. According to
Cole-Ingait, “Financial management is a process that enables a
business to plan, direct, organizes, monitor and control its
current and future financial resources and events” (Cole-Ingait,
2015). By management of money, it includes how the spending,
the budgeting and raising of money by each organization are
handled. With this we see how vital this branch of business is
to an organization because without money, an organization does
not exist and if it does exist, money has to be constantly raised
to help with the maintenance and success of the company or
organization. Also, Das states that the financial management
teams in any organization have three important decisions to

make and they include, investment decisions (Where to invest
fund and in what amount), financing decision (from where to
raise funds and in what amount) and dividend (how much to pay
dividend and how much to retain for future expansion). In
order to meet the goals these decisions have to been taken and
looked at effectively in order to carry out the goals of the team.
Now that the definition has been established, we will
look at the goals of financial management in an organization.
Organizations cannot thrive without investors and the investors
have to make sure that their investments will yield great profits
in return. With this said, one goal is Profit Maximization.
“The shareholders, the owners of the business, invest their
funds in the business with the hope of getting higher dividend
on their investment” (Das, 2014). In addition to making the
investors happy, when a company is able to maximize their
profits, they look good to the public and attract other investors
and shareholders as well leading to the longevity of the
company. The financial management team needs to make sound
monetary decisions in order to accomplish this task of profit
maximization.
With profit maximization, there are three important
profit margin ratios used by the financial management teams to
show in the books. They are:
· Gross Profit Margin: this tells us the profit a company makes
on its cost of sales or cost of goods sold (Investopedia, 2015).

Gross profit margin = (sales –cost of Goods sold)/Sales
By doing the gross profit margin, a company is able to show
how they generate their profit based on the sales made and cost
allocated to their goods. The higher the gross profit margin, the
more profit generated by a company.
· Operating Profit Margin: Operating Profit Margin =
EBIT/Sales; where EBIT is earnings before interest and taxes.
The operating profit margin outlines how successful in creating
profits for the company by how they manage their operational
costs. Operating costs include costs of materials, labor put in
making a product, administration and selling costs. Also,
higher operating profit margin shows that a company has better
control on their spending habits, knowing where to cut costs and
getting profit on their returns at the end of the year.
· Net Profit Margin: Net Profit Margins = Net Profits after
Taxes/ Sales
Net profit margins are those generated from all phases of a
business, including taxes (Investopedia, 2015). The importance
of Net profit margins comes into play during hard times. For
example, with the financial hardship of 2008 when the economy
was down, the companies that had higher net profit margins
where ones that survived.
These aspects of maximizing profit are things that shareholders
and investors use to assess any company or organization before
they put their money into the company.

Secondly, another goal is that of Wealth of
Maximization. “Wealth maximization aka value maximization
is when the value of an asset is viewed in terms of benefits it
can produce over the cost of capital investment” (Das, 2015). It
is imperative that research and numbers are calculated before
purchasing an asset to make sure that money won’t be lost as a
result of the purchase. Also knowing when to advise their
shareholders to sell their shares in order to acquire a substantial
amount of profit is required. With a sound financial
management team, such mistakes won’t be made which might
lead to the downfall of the company.
Another goal is that of Minimizing costs for a
company. In as much as maximizing profit and market shares
are priority for the financial team, it is also imperative that a
company minimizes the operational costs and expenses in order
to be profitable. “By identifying and evaluating all of the
business’s expenses, management can determine whether those
costs are reasonable and affordable” (Investopedia, 2015). Any
financial management team that are able to master the art of
knowing when and where to cut costs for the company or
organization will generate great profits. Such minimization
range from finding cheaper means for production or
procurement of materials used to controlling phone, internet and
utility bills
Furthermore, managing risks is one of the numerous

goals achieved by the financial management team. “Insurance
and automated financial management systems help business
owners and employees to prevent or reduce the risks from fraud,
theft and embezzlement” (Cole- Ingait, 2015). Risk
management reduces unnecessary money being wasted by the
company and helps increase the profit margins of any company
or organization.
REFERENCES
Cole-Ingait, P. (2015). Primary Goals of Financial
Management. Retrieved January 6, 2015
From http://smallbusiness.chron.com/primary-goals-
financial-management-69952.html
Das, B. (2015). What are the goals of Financial Managemtent?
Retrieved January 6, 2015
From http://www.publishyourarticles.net/knowledge-
hub/business-studies/goals-of-financial-management.html
Investopedia (2015). Complete Guide To Corporate Finance:
Goals Of Financial Management.
Retrieved January 6, 2015 from
http://www.investopedia.com/walkthrough/corporate-
finance/1/goals-financial-management.aspx
Discussion Topic #5: Goals of Financial Management
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Top of Form
There are several different goals that can be discussed
when it comes to successfully managing your finances. When an
individual is looking to successfully compile a financial
portfolio, often times the main goal for this person is to
maximize their wealth and the short-term, and also maximize
their wealth for the long-term. Often times, financial
management see if you find a way in which a patient can invest
money and certain fun, whether by stocks and bonds or other
forms of investment, with an overall goal to provide themselves
with long-term income extending toward the future. These firms
will seek to call poly portfolio consisting of successful
investment, which will turn a profit for the customer over the
long-term. (Farinde, 2014)
In terms of a company, the same concept applies. A
company will feed to manage their finances in a way so that
they may be able to sustain their business over the long-term.
The money that they make from their business, is very
important and order to sustain business, dust they need a way to
properly and sure that they will have this income over the long-
term. The bottom line of this is simple: earn money through the
business by improving their bottom line, and staying in the

black as some referred to it as, and also be able to save this and
come for future business endeavors at the end of the day, the
concept is rather simple and that companies will try to operate
under a net profit, overall their business will not be able to
remain over the long term.
Successful financial management means taking hard-
earned money, and investing it and a manner in which more
money can be accrued with a goal of optimizing maximum long-
term profits. To accomplish this, financial management advisers
often use mathematical equation, which can help project be
possible gain or loss of funds for a company over the long-term.
By using these specific mathematics equations, the figures that
they come up with will help to provide a forecast by with these
companies can take and use this data before making important
business decision that will affect your company's prognosis of
the long-term.
The first of these equations that a company may use can
be referred to as the gross profit margin. This figure can be
calculated by taking the total amount of sales that a company

has, and subtracting the total cost that a company spent
producing the sold goods. (Investor Answers, 2014) This
number is then divided by the amount of revenue that the
company made in sale in order to come up with a figure referred
to as the gross profit margin. The key concept behind this
particular equation is efficiency. By using this equation, a
company will be able to tell how efficiently they are producing
and selling the good which by they do business. After a
company receives this data and make the proper calculations,
they can then go back and tweak their current business model in
order to decrease costs of labor, and production of the good
with their selling in order to maximize their overall profit
efficiency.
The next equation that can be used in order to
successfully manage a company's finances is called the
operating profit margin this equation assesses the company's
earnings before interest and taxes are applied, and dividing it by
the revenue that they generated in sales. By operating at a high
profit, a company may achieve this by having good control over
the cost themselves, however they may also achieve a high
operating profit if sales are simply that the sales of a particular
good the company is selling are increasing at a rate that is faster

then the increasing costs that the company must pay in order to
produce that particular good. By analyzing these numbers, it
allows a company to trend a good they are selling, providing a
live-action look into the evolution and changes that are taking
place in sales and the selling price.
By taking this equation a step further, we can now
analyze the net profit margin of a business. This figure uses the
earnings including interest and taxes, by coming up with this
figure we can calculate the total net profit after taxes and
interest by using all of the after mentioned variables, coming up
with the net profit margin provides us with the most accurate
assessment of how well a manager is running a business at a
given time. Furthermore, by using each of the three after
mentioned equations, a company can come up with revenues
generated at various stages both before and after taxes, so that
they can pinpoint where exactly they are operating at a profit or
a loss, and make the appropriate changes in order to maximize
the long-term generate revenue by the business.
Another way that a company may look to operate their

financial management is by minimizing all of the costs of their
spending on the production of a good. By analyzing the amount
they're spending to produce a good, and using the financial
equations mentioned before, a company can then try to seek new
endeavors by which they can decrease the production cost for a
particular good. In America, this can often be shown by how
companies outsource jobs by hiring employees to produce a
particular good which will except earning less salary than those
house here in America, the company will decrease their overall
expenditure when it comes to the production have a good, and
when plugging the figure into the equation, will result in higher
figures in terms of each of the before describe equations. (Way,
2015)
At the end of the day, there are several ways to achieve
successful financial management. This is such an important
concept to understand, and although it is complex, if a company
takes the time to learn and analyze their own finances, or go
through the trouble of hiring someone to do this for them, they
will be setting themselves up for success in the future. There
are many methods by which companies can increase their long-
term profits and decrease their long-term costs, however they
all operate under the same goal, and that is to operate at a profit
and increase their long-term net income, whether it is by
increasing the maximize profits and selling the goods for the
maximal value, or decreasing the overall cost of producing

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Strategic HR Management Case Study