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To quote from the Tregoe and Spitzer article, "Management fads come and go, initiatives change, market and economic pressures rise and fall, but cost management must be a way of life". Of the suggestions offered by the author(s), which concepts give you the greatest insight into managing organizational costs in the organization where you work (or one in which you are familiar)? Where can they be applied within that organization?

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Reid Wolff
Reid WolffLv2
23 Apr 2019

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I need a diferent point of view and someones opinion on this article.

Reforming the U.S. system of collective bargaining Collective bargaining procedures and relationships between labor and management must reflect less conflict, more cooperation as the Nation's economy struggles to meet international competition and domestic needs D. QUINN MILLS Rules as a productivity drain Rules alone cannot ensure that an organization will perform well. They may keep it from dissolving into self-defeating open warfare, but often do not permit it to achieve its potential. An organization which depends upon adherence to a myriad of rules will always be vulnerable to competition from other organizations which operate in a more consensual and cooperative fashion, even when the latter have fewer resources. And, although an organization of rules may sometimes pull it-self together to respond to an emergency, this need not necessarily occur. It follows, then, that primary dependence on establishing and enforcing rules is a very poor way to run an economic enterprise. The existence of a multitude of rules, many of which attempt to "stretch the work" to maintain jobs in ways reminiscent of depression-era tactics, constrains productivity and raises costs. For example, maintenance classifications may prohibit an employee from doing incidental work outside the strict limits of his or her trade; multiple job classifications may exist even where a person in a single combined classification could do the work effectively, without undue effort and stress; and, job classifications may be perpetuated although technological change has rendered the incumbents' work trivial. Other restrictions may limit the amount of work a person may be assigned, such as permitting a mechanic to open only two flanges. The location of materials and inventory may be restricted by contract or past practice to retain jobs in now-inefficient areas of the plant. In some cases, rules may prohibit employees being assigned work during breaks, and simultaneously prohibit supervisors from doing the employees' work, so that emergencies occurring at coffee breaks or lunchtime cannot be legally handled under the agreement. Over time, rules tend to become increasingly costly and constraining as technology, materials, products, and other aspects of production change. Even rules which made great sense at first become out-of-date under changing conditions. But the rules are difficult to change, and particular employees may be further benefited the more outdated the rules become. Sometimes a company can pay a high price and "buy the rules out," or a union can persuade some workers to give up favored positions for the good of the membership as a group. But often, change cannot be accomplished without a bitter struggle between management and labor. Furthermore, the rule making process promotes a set of attitudes which are inimical to successful enterprise. The existence of the rulebook encourages both management and labor to assert their rights under the contract, rather than to attempt to work out problems. It gives rise to "shop-floor lawyers," rather than problem solvers. It fosters conflict and controversy. It undermines trust. To a large degree, it seems that unions have become captives of their origins. Born in adversity and conflict, they continued to act as opponents of management even when their strength had become much greater. In some instances, unions have created thickets of rules in which to immobilize management, just as spiders build webs to ensnare prey. But when the thickets of rules have crippled productivity, the unions have discovered themselves to be caught alongside management in the trap. Plants have declined in competitiveness, and jobs have been lost. The unions have discovered too late that a snare is no less a snare because they have set it themselves. A prescription for change In a recent survey conducted by the Harris organization, a majority of the general public professed the belief that unions contribute less than they once did to the growth and efficiency of business. Not surprisingly, only 15 percent of union leaders agreed with this judgment.' The need for unions to assist companies in the light of increased foreign competition is apparent to the public. To the inhabitants of the Snow Belt, it is similarly evident that unions should cooperate with local business to stem the outflow of industry and jobs to the South and West. Public perceptions of a productivity problem are supported by Bureau of Labor Statistics estimates, which show particularly sluggish growth in output per labor hour after 1973.3 Collective bargaining practiced primarily as rule making has become self-defeating for both unions and management. It interferes with management's efficient operation of the enterprise, and ensnares employees with legitimate grievances in a web of red tape. It also contributes to the vehemence of employer attempts to resist union organization drives. Study after study of U.S. managers has shown that managers fear the imposition of restrictive work practices far more than the higher wages and benefits which unionization may bring. Companies' efforts to make competitive operations out of older plants often fail because changes in current work rules take the form of additional complex rules which do not provide the flexibility needed to turn a facility around. What management really needs is fewer rules altogether, and willing cooperation from the work force. The union, for its side, needs a management sensitive to the needs of people. Both are very difficult to obtain in the U.S. labor relations environment.

Derivative

Vanguard High Yield Corporate Fund
Materials
• Website information (23/05/2016)
https://personal.vanguard.com/us/funds/snapshot?FundId=0029&FundIntExt=INT
• Summary Prospectus (27/05/2015)
• Prospectus (27/05/2015)
Anakin’s Job
In May 2016, Anakin leaves his job in Hollywood and returned to the finance industry. It is his
first love after all and the industry appears to be picking up again after the credit crunch of
2007-2008. He applies to be the risk analyst to the fund manager of the Vanguard High Yield
Corporate Fund as his quantitative training positions him well for a job that requires ever more
numerical and computational skills over the years. His solid background in applied analytics
in business management and humble demeanour help him clinch the post without much
difficulty.
The Vanguard Group is an American investment company that has approximately USD 3
trillion in asset-under-management. It is founded in 1975 by John Bogle who created the first
index fund (tied to the S&P 500 index) in the process. After an initial lull, the index grew
rapidly along with the bull market of the 1980s. The Group has since added various financial
services and products to its core business, particularly the ETFs.
Anakin is tasked by the fund manager to become thoroughly familiar with the structure of the
fund as is documented by files provided under “Materials”. After that, he is to assess the
exposure of the High Yield Corporate Fund to risks in the market. He seeks the opinion of
Darth who is a veteran market analyst with the Vanguard Guard group for over 20 years.
Outlook
Darth has this to say about the economy and fixed income market:
" The US economy is improving steadily. It will not be long before the Fed decides to raise
interest rates. Once the Fed restarts the regime of rising rates, it will about 2 years for the yield
curve to rise by 100 basis points.
Consequently, in the more stringent economic environment, companies of lower credit
qualities, namely those of Caa and below, are expected to have their credit standing further
eroded. There is a 25% chance that a Caa-rated issuer may go into default and another 25%
chance that it may be downgraded to C.
The Greek debt problem, though much stabilized than before, is still a matter of grave concern
for the Eurozone. Expect the euro to depreciate against the dollar over the course of the next 6
months. A fall of 500 pips will not be a surprise. "
Assume Anakins’ role and answer the following questions. Questions 1 and 2 concern the
Financial Environment. The Environment at large provides the context and sets the constraints
within which financial decisions are weighed and taken. Questions 3 and 4 pertain to the task
that Anakin needs to complete.

Question 4
The fund is affected by changes in the financial markets. When interest rates rise, the value of
the portfolio falls. Occurrences that are flagged by the rating agency to be credit events can
result in the downgrading of credit rating of bond issuers. Bonds that denominated in foreign
currency are affected by fluctuations in the foreign exchange market.
(a) Analyse generally the need for hedging the various market risks for the fund.

Take into account Darth’s outlook. Address some of these risk concerns by answering the
following question:
(b) Suppose that in the coming 2 years, the prevailing interest rates are expected to go up
by 100 basis points and you are concerned. Show how you could hedge away the
interest rate risk by using an interest rate swap, assuming that the fund by may
represented by a single 5-year par bond on the $18.4 billion net assets with semi-annual
5% coupon payments starting from the current date.
In your explanation, you may assume a scenario in which a flat yield curve increases
uniformly across all terms by 25 basis points per half-a-year.
(c) Credit default swaps may be used to ameliorate credit risk. Appraise the use of such
option-like derivative instruments in managing the risk of the portfolio by explaining
how such instruments function.

https://institutional.vanguard.com/VGApp/iip/site/institutional/investments/productoverview?fundId=0029

Derivative

Vanguard High Yield Corporate Fund
Materials
• Website information (23/05/2016)
https://personal.vanguard.com/us/funds/snapshot?FundId=0029&FundIntExt=INT
• Summary Prospectus (27/05/2015)
• Prospectus (27/05/2015)
Anakin’s Job
In May 2016, Anakin leaves his job in Hollywood and returned to the finance industry. It is his
first love after all and the industry appears to be picking up again after the credit crunch of
2007-2008. He applies to be the risk analyst to the fund manager of the Vanguard High Yield
Corporate Fund as his quantitative training positions him well for a job that requires ever more
numerical and computational skills over the years. His solid background in applied analytics
in business management and humble demeanour help him clinch the post without much
difficulty.
The Vanguard Group is an American investment company that has approximately USD 3
trillion in asset-under-management. It is founded in 1975 by John Bogle who created the first
index fund (tied to the S&P 500 index) in the process. After an initial lull, the index grew
rapidly along with the bull market of the 1980s. The Group has since added various financial
services and products to its core business, particularly the ETFs.
Anakin is tasked by the fund manager to become thoroughly familiar with the structure of the
fund as is documented by files provided under “Materials”. After that, he is to assess the
exposure of the High Yield Corporate Fund to risks in the market. He seeks the opinion of
Darth who is a veteran market analyst with the Vanguard Guard group for over 20 years.
Outlook
Darth has this to say about the economy and fixed income market:
" The US economy is improving steadily. It will not be long before the Fed decides to raise
interest rates. Once the Fed restarts the regime of rising rates, it will about 2 years for the yield
curve to rise by 100 basis points.
Consequently, in the more stringent economic environment, companies of lower credit
qualities, namely those of Caa and below, are expected to have their credit standing further
eroded. There is a 25% chance that a Caa-rated issuer may go into default and another 25%
chance that it may be downgraded to C.
The Greek debt problem, though much stabilized than before, is still a matter of grave concern
for the Eurozone. Expect the euro to depreciate against the dollar over the course of the next 6
months. A fall of 500 pips will not be a surprise. "
Assume Anakins’ role and answer the following questions. Questions 1 and 2 concern the
Financial Environment. The Environment at large provides the context and sets the constraints
within which financial decisions are weighed and taken. Questions 3 and 4 pertain to the task
that Anakin needs to complete.

Question 1
Describe the types of mutual funds that can be found in the market in a concise and systematic
manner, suitable for presenting to a group of investors who are high net worth and impatient.
(25 marks)
Question 2
Collect data (e.g. from the internet and/or Eikon) to plot the term structures of bond yields.
Each term structure describes the state of the fixed income market for bonds of the credit quality
corresponding to that curve. The different term structures span the space of bonds across credit
qualities and maturities.
Analyse the states of these markets relative to the shape of the curves. Compare and contrast
your analysis with current market views.
Explain your steps, present your answers and quote your sources clearly.
(25 marks)
Question 3
To better understand the structure of the fund, answer the following questions:
(a) Describe the composition of the fund.
(b) What are the risks faced by the fund according to the prospectus? Analyse the nature of
the portfolio risk accordingly and comment on whether commodity price risk and equity
price risk matter to the fund management.
(c) Discuss the performance of the fund based on the financial numbers provided.
(d) Assess the quality of the management of the fund.
(25 marks)
Question 4
The fund is affected by changes in the financial markets. When interest rates rise, the value of
the portfolio falls. Occurrences that are flagged by the rating agency to be credit events can
result in the downgrading of credit rating of bond issuers. Bonds that denominated in foreign
currency are affected by fluctuations in the foreign exchange market.
(a) Analyse generally the need for hedging the various market risks for the fund.

Take into account Darth’s outlook. Address some of these risk concerns by answering the
following question:
(b) Suppose that in the coming 2 years, the prevailing interest rates are expected to go up
by 100 basis points and you are concerned. Show how you could hedge away the
interest rate risk by using an interest rate swap, assuming that the fund by may
represented by a single 5-year par bond on the $18.4 billion net assets with semi-annual
5% coupon payments starting from the current date.
In your explanation, you may assume a scenario in which a flat yield curve increases
uniformly across all terms by 25 basis points per half-a-year.
(c) Credit default swaps may be used to ameliorate credit risk. Appraise the use of such
option-like derivative instruments in managing the risk of the portfolio by explaining
how such instruments function.

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