A What is managing? Consider several managers and their work.
The general manager of a brick company:
“My job is simple: I have to make sure that the company finds customers in various sectors of the construction industry, meets our production targets and makes a profit.”
The manager of a major hotel:
“My job is to pay attention to every detail of every guests’s stay with us.”
The Chief Executive of a national orchestra:
“Each season we create an innovative programme that will appeal to a broadrange of audiences. We have to set realistic prices for tickets for each concert. We have to cover our costs with an agreed annual budget.”
They all work in different environments with different stakeholders, that is, all the people who can be affected by the company’s actions, and different key performance indicators to measure success, but they share some general management responsibilities:
- Identifying customers’ needs - Setting targets and putting the necessary resources in place
- Planning and scheduling their own work and the team they manage - Measuring performance and the outcomesachieved - Reportingon results.
B Mintzberg Henry Mintzberg, a Canadian professor of management, has made significant contributions to our understanding of managerial work and the role of the manager. He has identified different roles in a manager’s job and placed them in three categories:
- Interpersonal roles — a manager is the figurehead, providing leadership for the team, the department or the organisation and liaising with other stakeholders (both internal and external).
- Information roles — a manager has to be an effective communicator as information constantly moves in, round and out of the organisation.
- Decision roles — a manager has responsibility for spottingopportunities, allocating resources and dealing with conflict or the day-to-day differences that can arise in any team or organisation.
C Management practice Pavel is speaking to some new recruits at a major firm of management consultants, where he is to be their mentor during the first six months:
‘Welcome to Delboi! I have three pieces of advice as you make the move from studying management to the real-world environment in which we work:
First: you need to be a team player. Our success here comes from collaborating with colleagues to create feasible solutions when we are interacting with clients.
Second: all the solutions that you recommend to our clients have to be practical rather than academic. You have to integrate what you have been learning and constantly challenge your own assumptions. You need to be able to develop creative thinkingskills and discuss complex issues in the workplace from a ‘people perspective’.
And finally: if you do not know something, or if you are uncertain about how we do things here, please ask!
‘We hope you enjoy your time here and we look forward to working with you.’
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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2 Organisation structures
A Organisational structures
Management structures identify the different departments in an organisation and set out who answers to whom in the chain of command.
The traditional types of organisational structure are functional or divisional. In a functional structure, the organisation is divided up into different functional areas or departments, such as Marketing, Finance and Production. Multi-divisional structures also exist, where the organisation is divided along geographical or product divisions. This allows the company to grow and develop in new parts of the world and to add new combinations of products. A multi-divisionalmatrix may also be adopted. This is a combination of product and geographical divisions that allows a large company to adapt products for particular markets.
Matrix structures are especially used in large organisations that have a number of clearly defined projects. Organisations with one single owner, a sole trader, often have no formal structure.
Large organisations may have a tall structure, with complex hierarchies and many layers of management, but even a very large organisation can have a flat structure, with only a few levels of management.
An organisationchart is a diagram showing relationships between different jobs and departments. It may identify the various functional departments, the hierarchy, from the CEO and the board of managementdownwards, and the lines of responsibility, to identify reporting channels (including individual managers’ spans of control).
B An example of a divisional structure
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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4 Management in different sectors
A Private Hong works for a large hotel chain in Guangzhou, China. She is in charge of a customer service team:
‘The company is under private ownership. Ourfounder was an entrepreneur who spotted an opportunity to provide high-quality conference facilities for the growing number of trade shows and industrial exhibitions attracted to the region. Parts of the equity is still in the hands of the family; a minority of shares is held by a number of institutional investors.
‘we also have strategic partnerships with local, national and international airlines and tour operators.
‘in all that we do our mission is strictly commercial; we have to generate a profit for the family and for the institutional shareholders.
Thecustomer service team works closely with managers and staff in every part of the customer experience, so that every guest receives an excellent level of service at each stage of their stay with us. The company operates within a very competitive business. If we don’t keep our customers satisfied we won’t survive.’
B Public Jo is a public sector employee working for the City Council in Madison, Wisconsin. She is a food safety officer, with responsibility for a team of ten food safety inspectors:
‘Our mission is simple: we exist to serve the public by ensuring that health is not put at risk by unsafe food. This mission is then developed into a series of strategic and operational plans that are discussed and approved each year by the council’s senior management team.
‘Members of the team make regular visits to restaurants and other places where food is prepared and sold to the public. We also visit food-processing factories to monitor standards like cleanliness, general hygiene and cold storage.
‘We are not profit seeking, rather, we have to make sure we can provide services within the budget agreed and endorsed for each year.
‘My own job involves:
- planning and scheduling the work done by the members of the team
- ensuring that adequate resources are in placeto support their work
- monitoring the regular inspections (including any recommendations for preventative and corrective action required) so that I can provide regular reports to my own line manager.’
C Not for Profit David manages the furnitureworkshop in a social enterprise in Dublin, Ireland:
‘A social enterprise is a business with primarily social objectives, so we do not focus on making a profit from our activities. Any financial surplus we can generate is re-invested in the business or in the community. We do not have to maximise profits for owners or shareholders.
‘Our mission is to make life better in this community by creating income and employment for local people. We do this by taking in donations of furniture, repair it if necessary and clean it for resale to our customers.
‘Like other non-profit organisations, we have a triple bottom line:
- we minimise any negative effects on the environment
- we have to be aware of the needs of our staff, both waged and volunteers
- we have to make enough profit or surplus to provide a sustainable business.
‘it is never easy to balance all the three of these but it is very satisfying work.’
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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7 Screening ideas
A Criteria for screening ideas Dr. Brown is talking about the importance of using clear criteria in making decisions for selecting and screening new ideas:
It is important to have a structured approach and transparent consultation process for selecting the best ideas for further research and development. Companies typically establish screening criteria to provide an objective procedure for evaluating the potential of ideas for new products. This reduces subjectivity and provides a unity of purpose and the context for our new products planners.
Screening criteria usually involve three factors:
1. Market criteria — market size and the product’s attractiveness to a range of customers; Market share and a percentage of the market we can get; likelytrends in markets growth; market positioning and differentiation — how it is different from competitors’ products; ease of distribution
2. Product criteria — newness; will it have some novelty? Technical feasibility: can we actually make it? Compatibility: does it fit in with other products in our new product portfolio — that is, the full range of products we sell?
3. Financial criteria — sales value and profitability; return on investment; cash flow.
We use a simple checklist in a decision making grid to ensure we do not omit or overlook key criteria. Usually, three ideas are discussed in departmental meetings in which we brainstorm and develop them and make decisions about any further development work that might be required.
This is the table we use in my team to screen new ideas:
Criteria
Idea 1
Idea 2
Idea 3
Must-havecriteria
Does it fill a perceived need?
Does it have unique product characteristics that offer distinctive benefits to the user?
Will it make sufficient contributions to profit?
Is itsaleable in large, expanding territories?
Would-likecriteria
Does it fit in with our product portfolio?
Is it suitable for mass media advertising and promotion?
B Trevor Baylis: a case study on the value of market research in the innovation process - Part 2 Christopher Staines, a colleague of Trevor Baylis, talks about the development of the clockwork radio technology:
‘When I met Trevor we had a lot of work to do to protect the intellectual property in his idea and we had to ensure that the basic idea was technically feasible for mass production.
We also had to consider significant commercial realities:
- Is there a real need for the product?
- Can we make it?
- Will people buy it, at a price where we can make money?
Now, twenty years after its development, the original concept has been modified and extended for use in clockwork radios and chargers for mobile telephones.’
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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10 Intellectual property
A Patents Jon, a patent attorneybased in Sydney, is outlining some key issues:
‘Coming up with a killer idea is by far the easiest part of the new product development process. Developing that brainwave into a successful product or service can be a minefield. There are several ways of protecting ideas, inventions and intellectual property:
- Patents can protect what products are made of and how things work.
- Copyrightprotects literary and artistic works, for example, books and pictures.
- Trademarksprotect a brand of a company.
We generally ask clients to consider the following points before taking out a patent:
It is essential that you get everyone involved to sign non-disclosure agreements before they receive any significant information about the proposed innovation.
A patent search can be used, for a small fee, to find out if someone has already patented your idea; this should be done before you spend a lot of money on developing a prototype or carrying out expensive market research.
You can make a patent application; you can use the term ‘Patent Pending’ to describe your idea while the application is being processed.’
B Softwarepiracy As the Internet took off in the 1990s, games, software and music were often downloaded for free by users, especially teenagers, who did not see such activity as theft.
Shawn Fanning’s Napster, an online music file-sharing service, allowed people to share their MP3 files with other users, thusbypassing the established market for such songs. The music industrybrought cases in which they accused Fanning and his users of massive copyright violations. The service was issued a court order.
Spotify is a more recent example of a legitimate music file-sharing service. Users can get access to a mass catalogue of music of many different genres that can either be played on their computer (during which they receive occasional advertisements) or ad-free, in return for a small monthly subscription.
C Creative Commons Creative Commons is a non-profit organisation that seeks to increase the amount of creativity (cultural, educational and scientific content) in ‘the commons’; in other words, available to the public for free and legal sharing and use. Creative Commons provides free, easy-to-use legal tools to help everyone, from individual creators to large companies and institutions, with a simple way to grant copyright permissions to their creative work.
One organisation that makes its content available under a Creative Commons licence is OpenCourseWare, which provides teaching materials.
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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13 The marketing mix
A The four Ps / the seven Ps of the marketing mix The marketing mix refers to the key activities used in marketing an organisation’s products or services. It is frequently referred to as the four Ps:
Product – the features and benefits of the product or service provided
Price – the costs of production, prices charged by the competitors and customers’ expectations Promotion – how to promote and advertise the product or service, i.e. how to communicate with customers Place – how to distribute the product and make it available for consumers, e.g. through retailoutlets or via the Internet
Some peopleargue that three other P’s should be added to the marketing mix, especially for organisations that provide intangible services that are generally consumed at the time of purchase and may depend on significant human inputrather than tangible products:
People – those involved in the delivery of services to consumers; for example, staff serving in a restaurant are as important as the food on the plate.
Process – how will you deliver the services offered?
Physical evidence – what premises (such as factories and offices), or other tangibles do you need?
Senior managers can control the elements of the marketing mix to keep ahead of competition. The marketing mix can vary at different times throughout the product life cycle.
B Product life cycle Some products have a very long lifespan, requiring a series of different marketing mixes. For example, the price may be reduced or advertising might be increased at times when sales are declining. Other itemsgo out of fashion quickly. The product life cycle is the path of a product from the very beginning through to withdrawal from the market, with six separate stages:
Research and development (R&D) – market research is carried out and the product’s technical feasibility tested, before the product is put on the market.
Introduction or launch – emphasis is placed on promotion to build up product awareness, encouraging interest in its features and benefits and creating a desire to buy it.
Growth – salesgrow rapidly as most customers are aware of the product, many have tried it and are starting to develop customer loyalty.
Maturity – sales levels are maintained and the product has an established place in the market. Competition may become very intense.
Saturation – supply is plentiful and it is difficult to find new customers.
Decline – sales of the product have fallen. They are not covering the manufacturing costs and the product is therefore unprofitable. The well-preparedbusiness will have a second product ready for introduction to the market to replace the declining product.
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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17 Processes
A Managing operations overview Operations managementdeals withall aspects of how an organisation produces and delivers its products and services. These include its business processes and procedures, its supply chain and issues in quality management.
Thevalue chain is Michael Porter’s instrument for considering all the functions that transform inputs into outputs, plus the internal business functions that support the transformation process.
Outsourcingcan be another important element in an organisation’s operations management: should some business processes be kept in-house or subcontracted to an external supplier?
B Porter’s value chain This model indicates how each of the elements Porter identifies can make significant contributions to the value provided for customers. Improvementsin one area can lead to overall improvements in the organisation’s competitive advantage. Porter identifies two types of activities:
Primary activities Inboundlogistics: receiving goods into store, stock control
Operations: production processes, packaging, testing of finished goods Outboundlogistics: how the company gets its finished goods to the customers, transportation
Marketing and sales: promotion, pricing, selling
Service: installation, customer training, customer support.
Support activities Procurement: obtainingraw materials, equipment and machinery, maintenance of equipment
Technology development: R&D (research and development), design
Human resource management: recruitment, development, reward of staff
Organisational infrastructure: planning, finance, legal, management.
C Contingency planning and risk Margaret is a lecturer introducing a new module on an MBA programme:
‘Today’s businessesare exposed to ever-changing global risks, from volcanic ash to major financial challenges.
Senior managers must be able to assess the risk accurately and to understand where their business may be vulnerable. They need to be able to put in place a risk management process to deal with risk and an effectivecontingency plan is necessary.
Successful organisations will be risk aware, and will have confidence in their ability to identify and avoid potential risks that come from both predictable and unpredictable changes in the environment in which they operate. We will look at how companies produce risk profiles and develop systems to prioritise risks which eventually form their risk management policies.
Visiting speakerson this module will include senior staff involved in risk and continuity management as well as emergency planning officers and business continuity managers.’
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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22 Recruitment and selection
A Our process
Receivingapplications: applicants for permanent appointments complete and submit the online application form. A confirmation email is sent by a member of the HRstaffto acknowledgereceipt.
Shortlistingapplications: applications are sifted to identify those that meet the requirements of the job description. This stage includes competency profiling, to match each applicant’s knowledge, skills and experience against the requirements identified for the post.
Invitingshortlisted applicants to an assessment centre and interview: shortlisted applicants are sent information about their interview by the selection panel and the activities to be undertaken at the assessment centre. These consist of a range of tests, exercises and group work to match the candidates against all selection criteria and measure more accurately their competency profiles.
Making telephone offers: candidates who pass the assessment activities and interview are contacted by telephone, to be advised that we wish to make a conditional offer. This is subject to receiving satisfactory references from their previous employers or other referees.
Carrying out pre-employment checks: we carry out pre-employment checks, including formal contact with the referees and medical clearance.
Making conditional offers: within five working days of receiving a telephone offer applicants will receive a conditional offer letter from the recruitment team.
Agreeing a start date: After pre-employment checks have been completed satisfactorily a member of the recruitment team will be in contact to arrange signature of the contract of employment and to negotiate a start date. This will depend on any notice period applicants have to give to current employers and the timing of the induction programme for the team that applicants will join.
B Recruitment of temporary staff Roberto is responsible for the recruitment of temporary staff to work in his events management company on projects across Europe:
‘Because our business model is quite simple, we do not need a sophisticated human resources strategy. We do sixty per cent of our business in the summer months, providing services at golf tournaments and music concerts, for example. We need approximately 1,000 staff on temporary contracts in June, July and August to service this level of business, most of whom are hired through online recruitment services and social media such as Facebook. Weseldom place job advertisements in newspapers. Some of these temporary workers are later appointed to permanent posts in our organisation.’
C Employment legislation and equal opportunities An organisationcommitted to equality welcomes diversity amongst its workforce and seeks to comply fully with current legislation.
Part-timeworkers must receive equal treatment to full-time staff. Employers have to assist people with disabilitiesto gain equal access to all the employment benefits that are available to other staff. Whilecomplaints most commonly arise at the recruitment stage, employers should ensure that equal opportunities are embedded in ordinary employment policies.
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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29 Financial accounting and management accounting
A Financial accounting Financial accounting is about measuring the performance of an organisation and communicating this to the external stakeholders. This includes shareholders, who have only equity stakeentitling them to a share of the profits, and creditors, such as banks who have loaned money and suppliers who provide goods. Financial accounting can answer such questions as: what is the company worth? Are its shares a profitable investment? Can itpay back all the money that it owes?
Accountingis more than just recording transactions in the form of debits and credits. That activity is known as book-keeping. A much bigger picture is required to understand the interaction of all the factors affecting the organisation’s financial position. Each organisation issues an Annual Report, a public document distributed to shareholders, in which the management discusses the past year’s performance and presents the company’s accounts. These consist of financial statements representing the organisation’s financial activities in different ways. Thebalance sheet balances all the assets and liabilities of the business to show the net worth of the company at a particular moment in time. The profit and loss account (or income statement) shows revenue, expenses and the net profit or loss over a specific period of time. The report also includes a cash flow statement detailing the flow of funds from the company’s operations, investments together with financing activities, such as selling shares or borrowing to raise capital. When a company has a positive cash flow it can pay out dividends to its shareholders. If there is a negative cash flow, even a profitable company may fail because it cannot meet its short-term obligations.
B Management accounting Management accounts are issued regularly for internal use and include detailed information and forward projections for the financial year, to help in budgeting and cost control.
Managers use this information to help them examine the profitability of individual products or services. They can conduct a break-even analysis of individual products, to discover at what level of production costs are just covered by income. They can calculate the gross margin for each item, that is the margin of profit between the price that it is sold for and the direct costs of producing it, such as the raw materials, and the contribution margin of each unit to the company’s general costs or overheads. These are indirect costs, such as the cost of maintaining a telephone helpline, and may include both fixed costs, such as the rent for the premises and variable costs, which increase if production is increased.
To help identify all these different factors, management accountants allocate costs to an individual product line or use cost centres to evaluate parts of the company separately, for example, the research and development unit. A profit centre takes this step further by making a unit of the organisation function like a small business, controlling its own costs and profit-generating activities.
Another method of allocating costs is by activity-based costing (ABC), based on identifying the real cost of each activity, including its associated overheads. For example, a software manufacturer might find that 80% of the calls taken by its helpline concern a particular product. They may decide to withdraw or improve the product, to reduce the costs of dealing with the calls.
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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31 Banking and financial services
A Zopa and the banks There seems to be a storm brewing in financial services about the use of services such as Zopa, the online lending exchange where depositors can lend money directly to borrowers at a mutually agreed interest rate. Dubbed the ‘eBay of banking’, the idea behind Zopa is that, by cutting out the big banks, borrowers should get cheaper rates, and lenders get higher returns. The APR (Annual Percentage Rate) paid by the borrower consists of the rate set by the lender plus Zopa’s initial fee.
With banks setting strict lending criteria, many consumers have been turning to Zopa as a source of credit. Zopa attributes its uniquely low bad-debt rate to a risk management system, using credit rating agencies, such as Experian, also known as credit bureaux. Thesecarry out credit searches, analysing data about individuals or companies to assign a credit score based on the applicant’s credit history. Some commentators also believe that the direct relationship between borrowers and lenders in this online social marketplace creates an atmosphere of mutual trust.
B Applying for a bank loan When it receives a loan application, the bank considers the creditworthiness of the owners, the amount and purpose of the loan and how the business can generate sufficient cash to meet the repaymentschedule.
Banks will require guarantees of security for a loan, for example, an asset supplied as collateral that the bank can sell if the loan is not repaid. The bank may impose a debt covenant, an agreement setting conditions during the loan period. For example, the borrower agrees to maintain a certain level of working capital or not to pay dividends until the maturity date, when the loan is finally repaid. If the borrowerdefaults on the repayments or breaches the covenant, the lender can demand immediate repayment and take possession of the collateral.
C Cash management services and payment products Marcus Sehr, head of global transaction banking, Deutsche Bank, writes about current trends:
‘Today, most payments are executed via electronic transfers. This trend affects every walk of life, from individual consumers paying at a shop via direct debit to an importer transferring money to an exporter’s account via a cross-border credit transfer. Today’s payment products involve customised solutions designed to help control the timing and conditions of payments. Tospeed up international payments, the new clearing system of the Eurosystem Central Banks allows cross-border transactions to be processed in real time.
By centralising negative and positive balances into a single account position on a daily basis, overallliquidity can be improved, creating opportunities for the short-term investment of any surplus funds. Rapid access to payment information can be accessed through channels such as SWIFT, a system used for secure exchange of data. Banks also need information to prevent money laundering and fraud.’
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
page 68
Lesson 32 – Raising finance – equity and debt
A Venture capital and private equity Companies need to raise money for a variety of purposes. Most people think of money being required for business start-ups, but there are other stages in the development of a company where capital is required. For example, second-stage financing provides working capital for initial expansion once the company is established and bridge financing may be needed to supply capital for growers in the period when a private company is preparing to go public and make an IPO (initial public offering) of its shares on the stock market. In equity financing, investors buy shares in the stock (that is the capital originally put into the business). This is why shares are also commonly referred to as stocks.
People often think about venture capitalists as business angels, wealthy entrepreneurs who provide capital in return for a share in the company ownership. However, a larger proportion of venture capital is provided by investment banks, which specialise in finding appropriate sources of capital, and by private venture capital partnerships. In return for an equity share, these groups offer capital, particularly to young companies in the fields of new technologies or those with an innovative business model. They may even provide seed financing for the initial costs of setting up a company, such as preliminary market research. Governments may also provide grants to assist company start-ups.
B A good business plan Investors will want evidence on the potential success of your business. Yourbusiness plan should set out your vision and present the unique selling point of your product and the value proposition of your business – the tangible business benefits to your customers. Soinclude your marketing strategy and the competitive advantage of your product or business model. Most importantly, show that you have done the financial planning by including sales forecasts and projected cash flows and balance sheets for at least three years ahead. You also need to identify performance milestones: specific objectives to be achieved as the company develops. This is important because investors are often unwilling to release all their funds at once but prefer to issue a first tranche of the equity investment at the beginning and a second tranche when certain milestones have been met.
C Debt or equity financing – Microsoft and Manchester United
Dr. Gao is introducing a lecture on capital structure:
‘Microsoft Corporation recently sold $2.5 billion of its debt to investors and Manchester United football club made a debt offering of £500 million. Why would such well-known companies choose to take ondebt rather than issuing equity shares?
In considering their debt to equity ratio, companies need to trade off the risk of bankruptcy (which makes the debt less attractive to investors) against the advantage that interest payments on debts are tax-deductible, in contrast to dividend payments.
The requiredreturn on equity is usually higher than the interest on debt. For existing owners, raising money through a share issue will involve dilutingownership, reducing the return on individual shares. By issuing debt securities such as bonds and notes, the firm has fixed payments and doesn’t give away a share of the profits. Bondholders and noteholdersare patient people: repayment on Microsoft’s new note offering is due in February 2041!’
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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36 Managing in difficult times
A A year that changed the world In March 2008, there was panic on Wall Street after respected Private Equity Carlyle Capital admitted that it could not repay its debt. For every one dollar of equity, the $22 billion Carlyle Capital Corporation fund was leveraged with $32 of loans. In other words, it toppled over under the weight of unsustainable debt. A process that would bring Wall Street and the world’s banking system to its knees had begun.
In September, the Lehman Brothers, America’s fourth-largest bank, collapsed. Lehman’s 5,000 London staff turned up to work on Monday to find their employer was bankrupt. They left carrying their belongings in boxes. Lehman Brothers had a huge commercial property loan book, specialising in sub-prime debt. These were high-risk mortgages issued to US borrowers with low incomes. Thelendersgambled on the buyer’s income increasing to keep up the repayments. Worse still, Lehman, along with many other institutions, had securitised this risk in the form of derivatives, secondary financial products traded on the markets whose value depended on the value of these risky assets. A whole shadow banking system had come into existence, borrowing and lending money without the regulation and checks and balances of the traditional banks.
Fearing a bank run on the UK’s largest mortgage lender HBOS, the UK government agreed to waive competition law to allow Lloyds Bank to take over HBOS. Meanwhile, on the other side of the Atlantic, the world’s biggest insurance company, AIG, saw its stock market value collapse. If the firm went under it could bring the world banking system down, so the US Federal Reserve announced an $85 billion emergency loan. By October the world’s financial system had come closer to absolute collapse and long-term recession than at any time since the 1930s.
The continuing effects of the financial meltdown threatened entire countries in a sovereign debt crisis. By 2011 the Irish government had to be bailed out by the EU to save the country and its banking system from economic collapse, following a 36% fall in the housing market.
B Capital markets and the credit crunch After the collapse of two US investment banks and the near collapse of AIG, interbank lending rates rocketed. The London interbank overnight rate (LIBOR) is the rate at which banks across the world lend to each other – the lower the rate, the more accessible cash usually is. It is a measure of confidence between banks. Most lenders tap into this commercial market to help fund their daily operations.
A major cause of the credit crunch was the shutting-off of money to commercial markets as financial companies retained cash to protect themselves against losses from bad debts. The US government announced a $700 billion programme to buy uptoxic assets from endangered US institutions. Central banks of governments around the world have also helped the global capital markets, through quantitative easing, creating money by buying securities, but they cannot guarantee that the cash will filter down to smaller financial institutions which need it most to avoid collapse.
One solution is bank capitalisation that has larger equity buffers and is less dependent on debt and leverage. However, once banks become ‘too big to fail’ and government underwrites them, there is less incentive for the banks to move to a safer capital structure.
Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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40 Action planning
A
B
C
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Sursa:
Mckeown, Arthur; Wright, Ros. 2011. Professional English in Use. Management. Cambridge: Cambridge University Press.
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