the history and importance of management

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The History And Importance of Management

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Introduction

The importance of Strategic Management in today's business environment is an issue

that can hardly be contested as it offers continuous direction and makes sure that the

company stays permanently on the right track which leads to the achievement of its

long term goals and objectives.

For my graduation thesis, I have come up with the daring idea of analyzing and

monitoring the activity of a private railway operator on a foreign market outside its

home borders in order to identify some real life managerial problems specific for such

a big industry and then try and generate some plausible solutions in hope of solving

complex matters that require advanced strategic thinking , experience that will most

surely prepare me for facing the challenging career of a world class manager.

In my approach of the problem faced by the Romanian Private Railway Operator Grup Feroviar Roman S.A on the Serbian Market after the successful privatizationof the Zelvoz Smederevo S.A factory, I wanted to show how with effectivestrategic management a company can reorganize from scratch and get back on the

road that leads to success.

My interest in such a theme comes from the fact that throughout my educational years

spend at the University, I have had the privilege of learning about the importance that

effective strategic management has in a company with global focus because it iscertain that without it there would be no one to guide the people toward total

cooperation and remind them every once in a while the objectives that need to be

fulfilled.
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As main methods of research and investigation used in specializing and documenting

myself as much as possible in the Industry and Theme that I have chosen to defend, I

have used several books, articles and Internet Sites, as well as personal interviews, all

of which have helped me to create a rich data base from which I later on extracted therelevant information and used it in writing my graduation thesis.

General Concepts of Management

1.1 The History, Definition and Importance of Management

The History

Any society or culture assumes the existence of different forms of social, political or

economical organizations that require the knowledge of Management and the

advanced skills of managers; At national level the role of managers is undertaken by

presidents, kings or councilors but nevertheless, the modern management theories

date back many centuries ago, to ancient times to be more precise, when management

was applied under various forms to handle every day tasks.

The Egyptian Society represents the best example of a complex civilization were the

first concrete management functions can be identified as they were among the ancient

pioneers which were able to come up with advanced management practices to address

issues such as delegation of authority, the hierarchical structure of decision making

within teams as well as a complex system of tools to evaluate and forecast crop

fertility and water level of rivers, to conduct commerce and trade, to manage

governmental income and expenditure and last but not least, design one of the biggest

wonders of the world, the pyramids.

The famous German economist, Max Webber has dedicated much of his time

carefully analyzing the evolution of organizations from the early first traces ofmanagement, much before management was granted significant importance, as it was

not until the beginning of the 19th century that it became an interesting subject of

research shortly after the industrial revolution.


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In his studies, the German economist found out that organizations which were run in

the Feudal period by the few influential classes like famous aristocratic families, had

in fact benefited from the advanced problem solving capabilities of a relatively small

group of people with titles such as councilors who, even though restricted in takingdecisions, possessed many of the skills attributed today to the top managers who help

run companies efficiently.

Defining Management

Throughout history defining Management has often resulted in intense debates among

specialists because many of the given definitions were in fact only partially

describing the object of the managerial activity without successfully illustrating it's

true complexity.

The Encyclopedic Dictionary defines Management as being the assembly oforganizational and leading activities with the purpose of adopting optimal decisions

in projecting and controlling the microeconomic processes; The science of organizing

and leading enterprises.

American Specialists Reece and O'Grady consider management as being the processof coordinating human, informational and financial resources in achieving

organizational objectives.

As it can be easily seen, numerous definitions of management have a strong focus on

organization, coordination and resources allocation of enterprises but in reality

management is much more complex.

In the last decade, together with the further development of management as a science,

specialist have managed to agree upon the following definition of management:

Management is the assembly of knowledge and activities that lead to predicting,

organizing human resources, coordinating activities, personnel and organizational

structure of the company, control and evaluation of results all of which have as final

scope increasing the competitiveness and efficiency of the organization.


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Management, put in more simple words represents the act of

organizing, planning, leading and controlling an organization and its

people to achieve desired goals and objectives.

The Importance

In the modern and dynamic world that characterizes the present, management has

developed significantly as it is often seen as an art that needs special attention because if put into practice effectively it can create a true launching ramp for the

organization and arm it with a real competitive advantage that would propels it far

from its competitors and allow it the benefit of setting the pace on a continuously

changing market.Imagine what would happen with an organization if there would be no well defined

set of rules to help maintain a clear focus on the goals and objectives of the company

and if there was no one to organize the people and motivate them.

Some of the essential attributes of a specialist in management called manager are

precisely that of being able to guide the people in the lower organizational levels and

motivate them in order to obtain their maximum efficiency that will overall help the

company advance in the proposed direction.

1.2 Birth of Strategic Management

Strategic management as a separate discipline from what was, until then, known as a

universal form of Management had first appeared in the late 50's early 60's. Although

the new science had many significant contributors , the most influential pioneers were

considered to be Alfred D. Chandler, Philip Selznick and Peter Ducker.

Before the emergence of new management practices, the numerous management

functions simply were conducted separately with an almost non existent strategic

coordination between them. The many interactions which took place between the

various organizational departments had a single manager, or in the most positive

scenario two, who had the challenging assignment of coordinating and facilitating the


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flow of information which was transmitted in a closed system among the

organizational departments, and this sometimes resulted with slow and biased

decision-making framework .

It was Alfred Chandler that first identified the importance of coordinating the

different aspects of management under one well planned strategy so that the company

would be allowed to develop a long term focus when looking into the future, being of

belief that such an approach can give a company direction, structure and focus.

Another great specialist, Philip Selznick, in the year 1957, formulated the innovative

concept of creating a link between the internal factors of an organization and the

complex external environment with which it interacts. This revolutionary theory was

later redefined and put together in a different perspective by Andrews and his

colleagues from Harvard Business School and became one of the most renown tools

in modern management, the famous SWOT analysis. The basic application of the

SWOT Analysis means that the strengths and weaknesses of the company are

assessed with the parallel analysis of the opportunities and threats that arise from the

business environment.

When it comes to great achievements in management ,the name Peter Ducker, an

American economist and theorist who published several books addressing numerous

management issues, with a very rich career extended to over fifty years of dedicated

and internationally recognized work , is one of the few economist that can be

associated to great contributions in strategic management where he managed to give

the new discipline a rather new perspective. He underlined the importance of defining

and meeting clear objectives because,as he put it , a complex organization with blurry

objectives is like an explorer with no compass to guide him through dangerous

jungles. This belief of his resulted in 1954 with his famous theory of management based

on objectives (MBO). According to the American economist, setting objectives and

monitoring your progress towards completing them should involve the entire

organization from top to bottom.


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Just like it is always the case upon formulation of a new theory, there have been

several attempts to define Strategic Management as a science but only a few of the

ones that have tried have actually succeeded in maintaining the core ideas and focus

as to what it means and what it's purpose is within the organization.

Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors

and sets goals and strategies to meet all existing and potential competitors; and then

reassesses each strategy annually, quarterly or whenever it decides a revaluation is

needed to determine how it has been implemented and whether it has succeeded or

needs replacement by a new strategy to meet changed circumstances, new

technology, new competitors, a new economic environment., or a new social,financial, or political environment. (Lamb 1984)

Taking into consideration the research of many famous specialist in management

from the very birth of the first ideas that formed strategic management and up until

the present modern world of today, having a more clear insight on the purpose for

which strategic management serves, we can now try and formulate a definition.

Strategic Management is a stream of decisions and actions taken at the highest

managerial level which lead to the development of effective strategies and plans that

help achieve an organization's objectives and prepare the organization to face the

challenges of today's dynamic business environment, as well as stand prepared to

meet all possible future environmental changes.

1.3.1 A Top Level Challenge

Within an organization there can be numerous levels of management and different

people with different expertise levels involved in various tasks which all contribute to

assures the success of the entity, yet considering the complexity that characterizes the

business environment, the role of top management is always crucial as top managers

have the essential responsibility of making sure that everyone understands the


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direction and the objectives of the organization in order to stay on the road that leads

to success.

It is precisely for these reasons that Strategic Management is considered to be the

highest possible level of management in an organization as it is applied broadly to the

whole entity being the one that gives direction to corporate values, corporate culture

and corporate goals.

When it comes to Strategic Management, top managers must often rise to the

challenge of drafting, successfully implementing as well as constantly monitoring the

effectiveness of cross-functional decisions things which, provided that they are

managed properly, will allow the organization to achieve its long-term objectives.

1.3.2 A Guideline to Effective Planning

It is a know fact that managers who focus on planning can easily anticipate possible

issues before they even emerge and thus, can propose viable solutions that can be

effectively transposed in a swift action plan, eliminating costly problems prior to their

appearance.

In Strategic Management effective planning plays a key role because it is the

managerial function that represents the core layer for all the remaining essentialmanagerial skills like organizing, staffing, leading, and controlling which combined

provide direction for a company and thus increases a company's potential for success

in accomplishing its goals.

Due to the ever changing business environment, Strategic Management constantly

assures that the plans that have initially been implemented are able to follow market

changes in order to keep their effectiveness but in case a plan is outdated, it is the

responsibility of the strategic manager to find a solution and come up with a new planthat will assure the success of the company on a long-term basis.

1.3 Creating Sustainable Competitive Advantage


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Everywhere in the world, no matter in which industry a company is operating in,

creating a competitive advantage is the key to success as it gives the company the

possibility of gaining an edge in front of its main competitors allowing it to set the

pace on the market and thus consolidate its position.

In order to come across such a potential competitive advantage a company must first

identify what it does best or what does it have unique in the industry that no one else

among competitors can reproduce and that will help it achieve its goals and objectives

more efficiently; A competitive advantage can be anything from a special skill to a

unique technology and it can be used as that special secret weapon that will, in theend, add value to the company and allow it to grow and prosper.

The next step after identifying the competitive advantage is to make best use of it and

differentiate from main competitors to later be able to reach market leadership.

The important issue that needs to be kept in mind at all times is that the competitive

advantage stays a competitive advantage only as long as the competition can't

replicate it, because the moment that happens due to some technological

breakthrough of the competitor or due to industrial espionage that is gaining

popularity with incredible pace in the past few decades, the company must rebuild its

strategy and start searching for a new core competency that can be turned into a

competitive advantage.

The Global Railway Transportation

2.1 The Environmental changes that affected the Railway Industry

Ever since the European Union had decided to take the first official procedural steps

of creating a common market with free movement of goods, capital and people, the

European way of thinking took a considerable turn as both companies andentrepreneurs from all over Europe were out of a sudden changing their strategies and

reorganizing to prepare for a new and more challenging approach on the market in

order to fully benefit from such environmental opportunities.


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Before 1990 the railway transportation in all of the countries of Europe was run under

no special international norms, the absence of which permitted state owned railway

companies to use diverse organizational styles that consequently made it really

difficult for the new idea of a common market to be possible , however, afterencountering much resistance by critics, in the Spring of 1993, the first steps toward

such a unification were taken.

The state owned railway companies, slowly but surely, forced by the circumstances,

were obliged to come up with new forms of organization in order to cope with the

new emerging industry trends to avoid being taken by surprise by, what it seemed

like ,the new wind of change.

Prior to such changes, the majority of state owned railway companies were following

custom build organizational forms that included both infrastructure and train

transportation services financed by governments in a package deal but after the new

international norms for railway transportation were redefined in 1993 , the railways

companies were forced to adapt a unique organizational system which stated that the

infrastructure, passenger transportation and cargo transportation must be separate

autonomous branches of one big pyramid-like structure characterizing the new

railway regime.

The new international railway laws that entered into force in 1993, together with the

idea of improving the efficiency, quality of services and customer satisfaction were

some of the key factors that influenced the entrance on the railway market of a new

type of operator that acted independently from the state railway company having its

own buildings, personnel, and financing resources, marking the beginning of a new

and more sophisticated railway transportation era.

This idea of allowing a private operator to develop its activity in the presence of the

state's national company was a revolutionary success as in a short period of time the

private operators managed to bring more quality in the transportation service with the

implementation of ultra modernized trains and locomotives that were by far superior


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to those used by the state and thus, offered better quality to passengers for prices just

a slight higher than the ones charged by the national railway.

2.2. The Rail Transportation in Romania

The Romanian National Company called CFR S.A which is 100% owned by the

state, administrates the 4th largest railway network in Europe (11,430 Km of which

3,782Km of electrified track). Bucharest is the most important hub of Romania's

railway, with 8 main railway lines that spread from the capital to numerous domestic

as well as international routes. CFR (formerly known as SNCFR) was re-organized in

October 1998 into five separate companies:

1. CFR, Infrastructure

2. CFR Marfa, Freight

3. CFR Calatori, Passengers

4. SMF, Management services

5. SAAF, Administration of the assets

Railway

OperatorTrain Cir Train KM rut T/train %

CFR Marfa 11.926 842.791 1.206 50.37

Unifertrans 767 119.543 1.246 8.16

Rompetrol 489 71.475 1.512 5.71

Servtrans 1719 135.563 1.128 7.89

GFR 2375 216.453 1.374 15.47

ClassFer 73 8.194 1.066 0.48

TFG 364 58.087 1.185 3.69


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Cargotrans VAG 577 87.244 1.200 5.42

Logistic 20 1.739 1.650 0.17

VIA terra Sped 59 2.467 1.020 0.10

ICIM Arad 33 2.049 709 0.07

Kairos 35 2.750 1.059 0.15

CTF 244 35.993 1.159 2.33

Transblue 0 0 0 0.00

TOTAL 18.781 1.584.348

2.3 Associations that promote the new railway system

UNIFE - Also known as the Association of the European Rail Industry

is a highly recognized international association which was once

represented by three associations: AICMR (Association Internationale

des Constructeurs de Matrial Roulant), AFEDEF (Association des

Fabricants Europeens d'Equipements Ferroviaires), CELTE

(Constructeurs Europeens des Locomotives Thermiques et Electriques)

all of which were based in France.

With the creation of the single market in 1993, there became an urgent

need to focus on European transport matters, hence in 1991 the three

associations decided to merge into UNIFE.

In 1992, UNIFE moved to Brussels and since then it directly represents

European companies responsible for the design, manufacture,

maintenance and refurbishment of rail transport systems, subsystems

and related equipment. Membership in addition extends to associated

members, mostly composed of national railway industry associations.


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UNIFE's role is to represent its members' interests at the level of both

European and international institutions and the mission of the

association is to pro-actively develop an environment in which UNIFE

members can provide competitive railway systems for increased rail

traffic

2.4 Differences between State Owned and Private Operators

Unlike a state railway operator that can be defined as the country's national entity

which is directly financed from the governments budget and that has thousands of

employees and a very vast fleet of trains and locomotives used in both passenger and

cargo transportation which operate on routes covering the whole country and beyond,the private operator is a company with a privately raised capital that operates on a

limited number of routes on either bought or rented railway tracks from the state but

which has in its possession it's own trains and locomotives fleet and that conducts

many operational activities in accordance to its primary goals and objectives set by

the top management and it's shareholders.

2.5 The Railway Market Profitability

The railroad industry plays an important role in a nation's economy as it is a provider

of transportation for many basic industries and, increasingly, for exports and

imports that travel by rail.

Considering the importance of the Rail Transportation in the modern world of today

that accounts for about 45% of the total means of transportation currently in use, it

shouldn't be a surprising factor that the Rail Market is one of the most profitable

markets which brings yearly a rough 84 billion Euros.

Among other outstanding performances, it can be noted that from 2005 to 2007, the

railway industry witnessed a nominal growth rate of the orders placed in the market

of 9% per annum. And many profitability studies predict that this will grow by


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- Certificate regarding the implementation and maintenance of a quality management

system SR EN ISO 9001/2001 certified by the Romanian Railway Authority (AFER),

both for railway transportation and also for maneuver activity.

- The authorization for railway provider for current maintenance and repairs for

railway lines in manual execution.

- Authorization for railway provider for revisions and accidental repairs for electric

diesel locomotives and hydraulic diesel.

- Authorization for railway provider for accidental repairs on the merchandise wagons

3.2 Operational Activity

Considering the fact that the state owned railway company has a limited operational

activity, and taking into consideration the advantages of being a private operator,

Grup Feroviar Roman has the possibility of offering a broad range of services to its

customers

through individualized service packages, according to each beneficiary's request

guaranteeing them quality transportation activities.

Grup Feroviar Roman S.A. in its wide range of railway services at the highest quality

level offers:

- Conveyance of material on the public and private railways infrastructure;

- all types of technological maneuvers of the railways rolling stock:

- Composition of trains and maneuver convoys;

- Decomposition of trains and maneuver convoys;

- Introducing and pulling out the wagons from the loading / unloading platforms;

- Matching at the loading / unloading platforms;

- Choosing (separating) the wagons on categories given by the goods type, wagons

type, wagons condition, forwarding or receiving customers, etc.


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- Overhaul and current maintenance of the engines and goods wagons;

- Current maintenance and periodic repairs at the railway lines;

- Railway logistics;

- Specialized assistance in the railway transportation field;

- Renting wagons for goods transportation;

- Renting of engines;

3.3 Facing Challenges on Global Markets

3.3.1 Expansion plans on Eastern-European Market

As in every new company that starts at the beginning from scratch with modest goals

and objectives and then somewhere along the way gains valuable experience on the

domestic market reaching exceptional results, inevitably after a while, the people that

contributed to such performances begin to search for new challenges as ambitions

grow to replace the old goals and objectives and make way for truly complex

expansion plans.

When referring to Grup Feroviar Roman and its evolution, it is important to know

that in the past few years the company has continuously been making efforts to

expend its operational activities abroad because such strategy is part of the company's

global perspective that has served as a guideline for its long term orientation.

In addition to the already well established domestic activities through out all its home

country networks in Romania, Grup Feroviar Roman has acquired licenses to expend

its operations in Hungary, Ukraine , Bulgaria and Serbia.

In 2006,after recognizing the need of extending the companies operations abroad and

after a careful market analysis, the window of opportunity that opened up offering the

possibility of expansion pointed out to Serbia.

The market analysis conducted by GFR indicated that Serbia was considered an

economically developing country in transitional recovery after the NATO bombing in


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1999 , with a solid railway infrastructure but with poor wagons and locomotives that

need servicing and maintenance, reason for which the Serbian state, carefully taking

into consideration its interests of reducing its costs and making best use of foreign

capital, decided to organize a tender for the privatization of an old trains reparationfactory called Zelvoz Smederevo in the city of Smederevo with the purpose of

allowing a foreign private railway operator to enter the Serbian market and modernize

the factory at its own cost, preparing it for servicing domestic wagons and

locomotives.

Immediately recognizing the huge business opportunity, with the possibility of

opening up a new factory for train servicing in a favorable situation, GFR mobilized

and organized its resources to meet the tender requirements and after several roundsof negotiation with the state and its organs, where the company had to present in

detail its operational plan, it was awarded the right to buy the factory and put it back

on its feet.

Having won the tender for the acquisition of Zelvoz Smederevo, GFR beganmaking the needed preparations for putting the plan in use and reopening the factory

gates but unpredictably gets stuck on the way.

3.3.2 The Short History and Acquisition of Zelvoz Smederevo

The Factory Zelvoz Smederevo was constructed and declared operational in 1916,under the name of The Repair Workshop. It was build to satisfy the need formaintenance of railroad wagons, of the then already developed branch of industry of

railroad traffic. The first units of the factory had burned in the great fire of 1923 and

the construction of the new one followed shortly after, so that the production process

would be established on the current location. During the major part of the postwar

period, the company operated under the name of Heroj Srba, in the various formsof organizational and status character. In 1994, the company became a corporation

with limited liability, that is, a de pendent corporation or satelite company, of whichthe founder and the owner of 100% of the capital was Railway Transportation

Company Beograd, entity that was founded by the Republic of Serbia as a public,


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State-owned company, which indirectly determinated the character of the assets of

Factory Zelvoz Smederevo.

Since 2005, The Factory of Zelvoz Smederevo is in the ownership of the State upuntil the very begining of 2008 when Zelvoz is bought by the Romanian privaterailway operator Grup Feroviar Roman that becomes the majority owner buying 70% of the company's assets.

3.3.3 Major Setbacks after Zelvoz Smederevo Acquisition

Out of the four foreign markets where GFR has set up diverse activities, the Serbian

market represents the last yet most challenging one that the company has ever worked

in.

Shortly after the final steps of taking over Zelvoz Smederevo were finalized, GrupFeroviar Roman mobilized a competent team of highly trained specialist and

managers and send them to begin the necessary procedures in hope of starting up the

business, however once the team arrived at the factory with instructions to take over,

they were shocked to see a general state of chaos and serious problems that needed

careful planning and special attention before the factory could start its activity.

At the time of entry, the Romanian owner of "elvoz Smederevo " found thefollowing state of the factory :

- Employees General Strike

- Numerous unpaid monthly wages

- 10.000.000 Euros hidden debt of unpaid state taxes

- Several million Euros debt to main suppliers

- Significant debt towards management

- Technological aged equipment and installations

- Disorganized structure of the company


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- Inappropriate organization of employees with more than two thirds being employed

at administrative level, with no such qualifications and no official business contracts.

- Poor Fiscal Records

- Inefficient work programs

- Inadequate Management Motivational and Incentive Schemes

4.1 Competitive Analysis

4.1.1 Political, Economic, Socio-cultural and Technological Analysis

( PEST Analysis )

It is crucial that an organization has a good knowledge of its environment before

beginning its activity. In fact, it is advisable for the environmental analysis to be

continuous in order to complete all the aspects of planning.

At macro-economic level, the PEST Analysis helps a company asses weather it

should or shouldn't adventure on a new foreign market because in any scenario the

risks of such an important decision must be minimal.

Political Factors

The political factor has a great influence on the regulation of businesses, as well as on

the purchasing power of consumers and other businesses.

In the case of Grup Feroviar Roman and its expansion on the Serbian Market,the

political stability of Serbia in the past decade has been negative as the country is well

know for its prolonged history of wars and conflicts although there are important

signs that Serbia is making efforts to stabilize under close European Union

supervision.

The Republic of Serbia is ruled in accordance to a constitution, which was adopted by

a referendum in October 2006. The Serbian parliament is the lawmaking body of the

country. The political risk associated with doing business in Serbia is still high

compared to other countries from the region. The primary issues of concern in Serbia


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revolve around the stability of the weak coalition government in Serbia and its

response to Kosovo's declaration of independence of February the 17th 2008.

As far as the financial Incentives and regulations are concerned, the Serbian state is

trying to provide favorable investment atmosphere. State grants are offered for

Greenfield and Brownfield projects in all industries, except for trade, tourism,

hospitality and agriculture. Eligible companies are those involved in manufacturing

activities, internationally marketable services sector, and research and development.

Favorable tax policy is implemented, including 10% corporate profit tax, exemption

from corporate profit taxes for period of 10 years in some cases (investment over

EUR 7,5 million or at least 100 employees on indefinite contracts). VAT tax is 18%

standard and 8% lower rate (for basic food stuffs, daily newspapers, utilities etc)

Economic Factors

In the year of 2007 the Serbian economy managed to continue its positive

performance by reaching 7.5% growth for the 2007 year. This number marks a

significant increase of 1.8% in comparison to the 5.7% growth in 2006. The steady

increase in the GDP of the country has been a trend ever since 2001 after the periods

of stagnation in the 1980s, decline in the 1990s after the Federal Republic of

Yugoslavia breakup, and collapse and hyperinflation in the 1999-2000 period.

However, according to the Vienna Institute for International Economic Studies,

Economic growth in Serbia will slow down to 5% this year and this pace will

continue in the next two years.

Inflation

Serbian inflation is high in comparison to other countries from the region. This sends

a clear message to the domestic and foreign investors that the country still

experiences macroeconomic disorder .According to the Vienna Institute for

International Economic Studies, this year's inflation in Serbia will amount to 12% if

there are no sharp

price increases on the global market and will drop to 8% annually by


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2010. The consumer price index rose by 6.1% for the first half of 2008

which refute the government's economic plan predicting a rise in

inflation of 6.5% for the whole year. Inflation in Serbia in June 2008 was

1%. The highest price increase was recorded in industrial non-food

products which amounted to 2.2%, driven mainly by the rise in fuel prices.

Socio-Cultural Factors

Population, Language, Ethnic Composition

The following chart represents the ethnic composition of the population of the

Republic of Serbia. It is diverse, which is a result of the country's turbulent past. Themajority of the population of Serbia is Serbs. Yet, other 37 ethnicities live on

country's territory. All citizens have equal rights and responsibilities and enjoy full

ethnic equality.

The official spoken and written language in Serbia is Serbian and the script in official

use is Cyrillic.

Latin script is also used. In the areas inhabited by ethnic minorities, the languages and

scripts of the minorities are in official use, as provided by law.

The main religion in Serbia is Christian Orthodox. Beside the Christian Orthodox

population, there are other religious communities in Serbia: Islamic, Roman Catholic,

Protestant, Jewish, and others.

Technological Factors

Research and Development

Traditionally, a significant level of research was undertaken in research institutes anduniversities in Serbia. These institutes had linkages with a wide range of industrial

sectors and also had an extensive experience of research cooperation with camps in

Western Europe, USA and Canada. Many of the activities of these institutes have

now been privatized through spin-off of separate self-financing companies. The


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universities are also developing se parate campus based initiatives to fosterentrepreneurship and develop closer cooperation with foreign industry on research

and product development. These institutions, companies and campus initiatives have

developed internationally

traded expertise and prototype systems in areas such as Radio Frequency

Identification, remote data acquisition, expert process control systems,

communications software and embedded systems.

Industry Development

The Serbian government has announced that it plans to assign 43 million Euros from

the National Investment Plan for a project to set up an integrated electronic network

that will cover state organizations.

According to a recent announcement, the administration has set out a program for

rapid development of electronic equipment , with the schedule providing for the

network to be established at both the national and local level within a four-year

period. The initiative is in line with the government's policy objective of modernizing

local government and of public procurement procedures.

4.1.2 SWOT Analysis of Grup Feroviar Roman

The SWOT analysis is an analysis used to describe the Strengths, Weaknesses,

Opportunities, and Threats that represent strategic factors for a company.

A SWOT analysis should not only be used for the identification of a corporation's

core competencies, but also in the identification of the opportunities that the firm is

not currently able to take advantage of due to a lack of appropriate resources.

SWOT Analysis Diagram

STRENGTHS WEAKNESSES

- Monopoly on cargo transportation - High State Intervention

- Large Infrastructure - High Infrastructure expense


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Because the railway industry is a complex and costly one, substitutes are often seen

as alternative means of transportation like land, sea or air.

In the Railway Industry, Grup Feroviar Roman has a significant number of possible

threats coming from other transportation means.

The most significant threat that can have negative results on the railway company are

the low cost airlines that have been growing in popularity among passengers in the

last 4 years because of low travelling prices, stealing away valuable clients and thus

affecting the already decreasing railway passenger transportation even more.

In the present, on the Serbian market there are 5 active low cost airlines: Air Berlin,

German Wings, Climber Air, Norwegian Air Shuttle and Wizz Air which concentrate

on 20 major European Destinations however as Serbia is advancing toward European

Integration, more and more airlines are considering Serbia as a potential business

target.

3. Buyer Power

Like in most of the industries, the private railway industry is one that involves

offering high services to customers and if there are many suppliers on the market, like

in the case of the Romanian railway market that has more than 33 private operators,the power of the customer is high.

A buyer that comes in search for high quality at low prices has 33 options to choose

from and it is in the company's best interest to make sure that it can come up with an

interesting offer that will not draw the customer away into the webs of the competitor.

When it comes to reparation of wagons and locomotives, Grup Feroviar Roman is the

only private operator in Romania that can afford to offer customers personalized

package deals as in that sector it is the market leader.

On the Serbian Market there is little differentiation as there are little competitors

which increases the probability of a low power of buyers that will certainly allow for

more profitable earnings.


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4. Supplier Power

It is no secret that a producing industry such as the railway industry, requires the use

of raw materials for which many times a trustworthy supplier is needed.

Generally speaking, suppliers if powerful, can influence the industry by selling raw

materials at higher prices to capture some of the industry's profits.

The power of the supplier in an industry such as the railway one, is determined by the

possibility of the railway operator to easily cooperate with the supplier .

Usually the relationship between the supplier and the buyer in the railway industry

are long term oriented as there is a mutual interest for the two to cooperate at the most

efficient possible level because the necessity of often custom orders brings both parties profit as long as each party respects the other one.

Grup Feroviar Roman S.A uses more than one supplier for the acquisition of itsraw materials and with such a diversified portofolio strategy it makes sure that it does

not depend only on one supplier thus, avoiding to provide it with the possibility of

charging unnecessary higher prices.

5. Entry Barriers

In theory, any firm should be allowed to enter and exit a market whenever it wishes to

but in the real life things are different as high profitable firms that benefit from

monopolies do not allow other firms to enter and grab their share of the pie.

In the Railway Industry, the entry barriers are set in such a way that it is not easy for

a new operator to come and start-up its business.

In addition to the very high start-up costs that such an action involves, the state also

requires many special permits that do not come easy unless the conditions of work aremeat and this is why the railway industry is considered to be a pool of big sharks.

Grup Feroviar Roman S.A was forced to implement many new working norms andregulations before it was given green light from the Romanian government to start

operating on the domestic market in 2002 but now it can proudly state that it has


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become one of the market leaders that are assaulted by smaller rivals for

benchmarking.

As far as GFR's entry on the Serbian market is concerned, the government of Serbia

has been extremely helpful in lowering some of the entry barriers like the condition

of investing minimum 5 billion Euros in infrastructure or erasing part of debts at the

end of the privatization process but even so, GFR still experienced trouble respecting

the harsh labor norms which, in the end, when drawing the line, make of Serbia a

difficult market in terms of entry barriers.

3.5 Solutions to Existing Company Problems

After having seen the major proble ms that Grup Feroviar Roman S.A encounteredwhen it unsuccessful attempted to enter the factory Zelvoz Smederevo and begin itsactivity as planned, and after conducting numerous research such as PEST Analysis,

SWOT Analysis and Industry Analysis with the help of Porter's Five Forces Model,I

would like to try and bring some of my own personal points of view in coming up

with some possible solutions that can help remediate the unfavorable situation and

turn things around for Grup Feroviar Roman S.A.

Fir st, I would like to take a closer look at the organizational level of ZelvozSmederevo S.A because a factory with such serious administration problems must

be brought to order.

My solution would be to bring a whole new team of management to replace the old

one and make structural changes by removing the unqualified people from

management positions and reassign them in accordance to their expertise level. A line

manager can not occupy a top management position because he will be inefficient.

Regarding the numerous employees strikes, I believe the best solution would be toorganize a general meeting with the labor Unions and hear them out as it is

impossible to speculate the main causes of the employees dissatisfaction. After

discussing and listening to their problems, a future meeting should be established in

which the management will come up with some possible remediation solutions.


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In this phase it is crucial that GFR tries to learn about the past corporate culture of the

factory and tries to modify it in order to impose a new set of rules that must be

respected and that will guarantee order and efficiency in the future.

Another major setback in the company's planning was the unrevealed hidden debt of

10 billion Euros that seriously put the company's future in danger.

The solution that would seem most plausible in this delicate matter would be the help

of the state by debt erase. GFR should bear in mind that it is also in the state's interest

for the factory to become operational as soon as possible to help service the Serbian

locomotives fleet, therefore a debt erase from the state would see both parties

satisfied.

In the end it is not GFR's debts from direct activity that the private operator must pay,

it is the old debts of the factory to its many suppliers with which GFR has no

involvement with.

Concerning the poor fiscal documentation, my solution would be the hiring of one of

the four biggest Audit companies (Delloitte and Touche, Ernst and Young,

WaterPriceCoopers and KPNG ) in the world for a clean and from scratch audit at the

whole organizational level in order to determine exactly all other existing problems

that might interfere with the well functioning of the company as well as prevent set

backs in the future due to fiscal irregularities and by doing so, prevent documentary

fraud.

5. Conclusion

As it has been discussed in every step of the graduation thesis and demonstrated

many times in real life, careful Strategic management planning can often prevent a

company from committing mistakes that will later on take valuable time to correct.In the situation of Grup Feroviar Roman S.A , the problems that arouse after thesuccessful privatization license was obtained from the Serbian State destroyed the

company's plans of easily beginning its activity and delayed it with a few disastrous

months that only brought more debts to the company instead of profit.


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Even though the problems that have been identified will be solved in time, the risky

factor of uncertainty could have been avoided if only Grup Feroviar Roman S.Ahad used a more serious managerial approach with measures taken at the right

moment that would have guaranteed the permanent control of the situation.

Brought to analysis, I have managed to propose a series of possible solutions to

GFR's problems that might just help the Romanian Company in a few key issues.

All in all, I am very proud to have had the honor of engaging in such a complex

problematic that represented a huge challenge at every step of the way, a challenge

that will serve me as the perfect example of the real life time managerial problems

that arise in a continuously dynamic business environment.

6. References

1. Books

David, F Strategic Management, Columbus:Merrill Publishing Company, 1989

Developing Your Mission Statement May 2008

Feignbaum, A. Total Quality Control, 3rd edition (McGraw Hill, Maidenhead, 1990)

Global Strategic Management by Philippe Lasserre (MacMilann January 8 2008)

Management Strategy: Achieving Sustained Competitive Advantage by Alfred Allen

Marcus 1st Edition

Strategic Management: Concepts and Cases by Fred David

Strategic Planning Made Easy:A Practical Guide to Growth and Profitability

January2004

2. Articles- Building on the Railway's Environmental Strengths publication of January 2009

- Club Feroviar Mai Edition 2008

- Internal and External Analysis by Erica Olsen


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- Strengthening your Strength by Erica Olsen

3. Internet Sources

http://info.worldbank.org/etools/wti2008/docs/brief165.pdfhttp://www.buyusa.gov/serbia/en/doing_business.html

http://www.infoplease.com/ipa/A0108157.html

http://www.limun.hr/en/main.aspx?id=305693

http://www.marketresearch.com/map/prod/1793154.html

http://www.quickmba.com/strategy/porter.shtml

http://www.seeurope.net/?q=node/15982

http://www.srbija.sr.gov.yu/pages/article.php?id=36

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