Business Finance FIN370 Assignment Instructions
Write a 1,050- to 1,400-word paper in which you describe the relationship between strategic planning and financial planning.
Include the following:
- A strategic planning initiative for the organization.
- Identify an initiative discussed in the organization’s annual report.
- How the initiative affects the organization’s financial planning
- How the initiative affects costs and revenues of the supply chain
- Ethical concerns related to the initiative
Relationship Between Strategic And Financial Planning – General Electric
Strategic planning and financial planning are two key aspects of successful business performance. A strategic plan outlines the organization’s mission, vision and goals. It also outlines how the company expects to use resources such as capital, manpower, and intelligence among others, which are at its disposal. Financial planning on the other hand focuses on the organization’s financial health. Its purpose is to set goals that relate to availability and use of capital (Day, 1984). In this paper, I am going to discuss the similarities as well as differences that exist between strategic planning and financial planning in relation to General Electric Incorporation (Inc.). The paper will use the company’s 2014 annual report to identify and discuss the impact of the incorporation’s key strategic initiatives on its financial planning, its chain of supply, and its ethics.
General Electric Company (GE), which was incorporated in 1892, operates within infrastructure and financial services industries. The company provides a range of goods and services including aircraft engines; equipment for oil, gas and power generation; medical imaging supplies; household appliances; and financing among others. As a company that mainly deals with production of equipment, GE Inc. must constantly strive to improve its products mainly through innovation. In order to achieve maximum efficiency, the company must align its manufacturing process with the ever-shifting demand for its products and services. With a number of successful product launches major products including 2 Tier 4 locomotive, H-turbine, SIGNA PET/MR scanner, LEAP engine, and the 20K blowout preventer in 2014, the company was able to gain a competitive edge over its rivals thus potentially increasing its market share (General Electric Company, 2014).
This strategy has impact on the firm’s strategic direction. All stake holders, employees, , owners, suppliers, and customers need to take the necessary steps to prepare for the rising
Impact on Financial Planning
GE Inc.’s bottom line depends heavily on the efficiency of its process of manufacturing its products (General Electric Company, 2014). It is thus essential that the company invest in assets that will help reduce the variable cost incurred during the manufacturing processes. To ensure that the company financial plans are effective, it is necessary to employ a number of metrics among them being the Return on Assets. This ratio compares the revenue produced against the value of company assets. New technology coupled with the availability of disposable revenue have given the GE company many choices of new plant assets should the need for upgrading arise. Viewing a plant upgrade from a financial angle, one can conclude that it would increase the company’s leverage, which will increase the level of shareholder’s risk (Day, 1984). The new plant may also come with some advantages among them being the reduction of variable costs incurred during production, which will result into higher profits. The company may also find leasing an equipment to be more profitable than purchasing one. Break-even analysis may also be used to determine the exact amount of leverage that required to be generates so as to generate higher returns.
The other new manufacturing process implementation would involve the development of a detailed plan for the use of the company’s working capital and new supplier demands Working capital is defined as current assets minus current liabilities. The GE company should develop a plan that will ensure that there are sufficient liquid assets available at all times. The company should ensure that it maintains a healthy stock, which will allow it to meet its customer’s demands efficiently but also ensure that capital is not held in dead stock. Additionally, working capital is usually used to compensate company’s employees. When new employees join the team or the existing ones work overtime to meet high demand, the company should ensure that the available working capital can cover their pay without disrupting other day to day activities.
Lastly, the variable need for raw materials that the company uses in the manufacture of products affect the supply chain. A well-drafted financial plan should incorporate the increasing demand and rate of expansion into the GE company’s products demand. The plan should allow for additional expenses that come with higher demand for example, it should recognize that the company needs to have more raw materials prior to entering a products’ high demand season to avoid any inconveniences and less low materials during low season to avoid incurring unnecessary storage costs and a high level of idle capital.
The main ethical concerns in this case are related to GE Inc.’s employee affairs. GE is well known for its culture of providing employee satisfaction (General Electric Company, 2014). However, this might change with the introduction and implementation of the proposed manufacturing process. The manufacturing process is meant to increase efficiency while reducing cost of production. This may result into cutting down on labor in the form of less working hours and even redundancy. Although by so doing the company could save money spent o expenses and increase profitability, it may not be in its stakeholder’s best interests, especially the employees. It is thus important that the company finds a way make decisions that support their loyal employees even in its attempt to increase manufacturing efficiency.
The other potential concern involves sustaining the environment. The new manufacturing capabilities come with more environmental demands and responsibilities. More production means that GE Inc. will require more energy as well as more wastes. This poses a potential ethical issue but it can also be an opportunity. The energy required means that the company can start using renewable energy so as to conserve the environment. Using such renewable energy sources such as solar energy, although initially expensive, can be very cost effective over the long term by lowering the company’s variable energy costs. Embracing solar energy will also be of great benefit to the shareholders, as it will reduce their risk of being exposed to the ever-fluctuating fossil fuel prices. In addition, finding an effective way to dispose its waste without polluting the environment may be expensive but it can be used as a PR method hence attracting more customers.
The new strategy being used by GE Inc. to create competitive advantage through growth, expansion and introduction of new products has seen the company working to improve its manufacturing efficiency (General Electric Company, 2014). To implement this strategy effectively, the company will be required to pay close attention to financial planning details due to the diverse nature of goods and services produced. If the initiative is implemented successfully, it will potentially increase productivity, lower manufacturing costs, and help the company meet the needs of its customers.
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