Chapter in Theory essay ch 10

Firm/Product Description

Helios Incorporated is a firm that designs, manufactures and sells its Helios brand. The firm is based in the United States and utilizes a click and mortar strategy. The firm had previously outsourced their manufacturing needs to foreign businesses but sought to increase the quality of their products to be more in line with their motto of “if you ain’t first your last”. As such, Helios Incorporated has developed its own textile manufacturing plants in the United States to craft their fashionable clothing line to be displayed in their retail stores. Helios currently has 200 stores available for consumers to browse their wares in person as well as online purchases to be shipped to their place of residence.  

Agency Problem

An agency problem is the possibility of a conflict of interest between a firm’s upper management and its shareholders. For example, if the CEO of Helios sought to acquire a rival firm to increase the stock value of Helios but only due to his or her own gain from various incentives such as a two-million-dollar bonus if the stock value increases by 600 basis points. By the firm’s CEO taking a short-term position and not thinking of the longer time horizon of Helios, the CEO would be an example of an agency problem occurring within the firm.

Firm’s Stage of Moral Development

           Helios Incorporated prides itself on quality and ethical business conduct. The firm could be classified to be within the conventional level of moral development. Specifically, Helios sought to bring their product manufacturing back to the United States for its products produced up to the standards they set for themselves. In addition, the firm has always adhered to legal obligations set for them here in the United States such reasonable pay for a given region, up to code buildings, as well as great employee benefits. Since the firm has returned their manufacturing plants to the United States the employees have been able to utilize the same benefits that other full-time employees who had worked in retail had utilized such as medical, dental, and a 25% increase in their 401k value as long as they stay at Helios Incorporated.

Corporate Social Performance

           Helios attempts to maintain a high level of corporate social performance with the industry. What Corporate Social Performance (CSP) is the concept of utilizing data that provides ratings on numerous strengths and concerns for each firm along with a number of dimensions associated with the social performance of the firm. The firm's three most important dimensions can be listed as following community, employee relations, and product quality/safety. 

           Helios currently contributes 3% of the firm’s revenue to various causes around the United States. The two largest causes that the firm backs are the Wounded Warrior Foundation as well as the American Cancer Society. Helios also provides various charitable programs in local communities around their corporate headquarters that is based in Phoenix, Arizona. The firm’s charitable programs include programs that support children in need ranging from education to housing in the less fortunate segments of the city.

           A second dimension that the firm rates highly in is the employee relation dimension of CSP which this dimension gauges the potential strengths such as notable union relations, profit sharing, and employee stock-option plan, favorable benefits, and positive health and safety programs. Currently, Helios leads the industry in providing favorable benefits for their employees that range from health and dental insurances, as well as a 25% increase in their 401k value if they retire at Helios. In addition, has a significant stock-option plan for employees that give them the opportunity to purchase up to 300 shares for two-thirds of the market value of the securities.

           The third dimension that Helios rates highly in is the product quality/safety which the firm maintains high markets in. What this dimension entails is that the firm has an established and/or recognized quality programs regarding product quality/safety. The firm does its best to create a safe atmosphere for its employees to work in as well as adheres to ethical business practices. The firm refrains from engaging in questionable marketing and/or antitrust practices as well as does not attempt to engage in price-fixing.

Firm’s Decision Bias

While Helios is a wildly successful firm there will always be limits of management being able to make rational decisions. As such, there are various decision biases that can be seen within the firm during the day to day operations. For example, Hindsight bias occurs when mistakes seem obvious after they have already occurred. This bias can often be seen when designers craft one of a kind designs that are not received well by consumers. However, if the designers were to assume that the product is unsuccessful then the judgments about correlation and causality can lead to problems when individuals make inaccurate attributions about the causes of events. 

The second type of decision bias that occurs within Helios is the overconfidence bias. What this bias entails is when individuals are more confident in their abilities to predict an event than logic suggests is possible. An example of this occurring within the firm is when the CEO of Helios sought to purchase land for its manufacturing plants in the United States. There were many experts that have accumulated and analyzed data of where to place the optimum location for the Helios manufacturing facility, but the CEO decided to make a judgment call by purchasing the land just outside of Phoenix that all of his advisors said was going to cost the company millions per year. After two years of running a manufacturing plant the CEO’s advisors were correct that the firm would experience an increase of expenses due to the renovations needed to meet environmental standards for the area as well as an increase in fuel costs for the distribution of products that are shipping the Helios stores around the nation.

The third type of decision bias that occurs within the firm is framing bias which occurs when the way information is presented alters the decision an individual will make. On a day to day basis throughout meetings involving presentations, this instance of bias occurs from every level of management. The reason for this is that Joe from recruiting has done a poor job bringing talent that has a backbone. So, when something bad that occurs such as a fire in one of the factories, employees are reluctant to say anything that could paint the entire firm in a negative light because they fear possible repercussions.

IRME

           This case does not remind me of Timex. The reason for this is the fact that Timex did not utilize forward or backward integration, unlike Helios who sought full control of their product from beginning to end. However, where both cases are similar is in their approach to advertising their products. Both firms utilize a unique and extravagant advertising program to their products noticed through the market. 

           A case that does remind of Helios is the case of Southwest Airlines. Both firms are vastly different regarding their industries but both firms had attempted to utilize unique strategies to be competitive within the market. For example, Southwest utilized a unique service strategy that complimented their low-cost fees for travel. In addition, both firms focus their efforts to sell their products within their domestic markets. 

Multiple Choice:

1) What bias is this “when individuals are more confident in their abilities to predict an event than logic suggest is possible”?

A. Overconfidence Bias

B. Framing Bias

C. Hindsight Bias

D. Hungry Bias

2) What problem is “the possibility of conflict of interest between a firm’s upper management and their shareholders”?

A. Agency problem

B. Hindsight problem

C. Overconfidence problem

D. Hungry Problem

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