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2 INTRODUCTION TO RESEARCH

On August 27, 2001, Chunk Orlando, CEO of a 14-year-old automobile company,
was mentally assessing and pondering over the state of affairs in his organiza-
tion. Of late, things had not been going well, and matters seemed to be getting
out of hand. The market value of the shares of the company was down 72%,
dropping from $60 per share to $16.75. Performance and productivity levels were
on the decline and the quarterly loss of $206 million on sales of about 8 billion
did not portend a bright future for the company. The advertising agency did not
seem to be doing a good job either. To top it all, there was a lawsuit filed for
discrimination against female employees in the company. Chuck felt he had to
take a very active role in the running of the organization and make a 180 degree
change from his hitherto hands-off policy.
Instead of ruminating on the past, Chuck wanted to focus on the present and
plan for the future. Apart from the obvious changes like increasing the produc-
tivity of workers and getting a more effective advertising agency, Chuck felt that
he needed to take stock of “intangible” assets such as patents, customer lists,
brand value, intellectual knowledge of designers, and the like. These evaluations
would give investors a sense of the value of the assets and whether resources
were being effectively utilized. “Unless the accounting process takes stock of
these, capital cannot be allocated in a sensible way, analysts will not be able to
evaluate the company, and investors will not understand the worth of the com-
pany,” he said to himself.
There were several great ideas that came to Chuck’s mind, such as assessing
whether the current models of the vehicles manufactured appealed sufficiently
to the trendy tastes of the increasing number of affluent buyers in the 25 to 40
age group. However, Chuck was baffled as to how to go about these enormous
tasks. Several questions came to his mind and he posed the following important
issues to himself: “How does one increase efficiency and productivity?” “How
does one account for intangible assets?” “Does anyone know at all?” and “How
does one go about assessing advertising needs and effectiveness?”
A major concern was to decide whether or not he should slash the advertising
budget since the anticipated revenues were not forthcoming during this downturn.
He remembered having read somewhere that those who did not burnish their
brands through increased advertisement budgets might find themselves worth a lot
less when the tough times end. IBM, for instance, was stated to have lost only 1%
of brand value last year, compared to bigger declines at other hi-tech companies
because IBM had increased its advertising budget. “But from where would the
advertising funds come?” he wondered. Such thoughts very much taxed his mind.
“Certainly,” he said to himself, “the company’s problems are a function of
industry trends, the economy, idle capacity, and the like. But there is much scope
for improvement on various fronts, such as increasing gas mileage, which would
find great favor with the government and customers, better designing and engi-
neering, improved marketing, designing for the trendy mod group, as well as
catering to clients in the lower economic strata, in addition to increasing the pro-
ductivity of workers.”
Then there were the ethical issues that disturbed Chuck. At the personal level,
he wondered if he should give himself a raise in salary and other perks when