Executive Summary
The ice cream business set up Clemency Prior in a small way is on the growth path necessitating organizational and structural changes to face the challenges of the business in the areas of finance, marketing, and human resources. The objective of this report is to analyze the key issues facing the business of Prior Ice Creams in the functional areas of finance, marketing, and human resources and to recommend suitable actions to sustain the profitability and growth of the business.
Marketing Issues
For arriving at an effective marketing strategy ‘4 Ps of Marketing’ model dealing with Product, Place, Price and Promotion can be used (NetMBA, 2002). Place enables the business to decide on the distribution activities to be followed. Promotion deals with the ways of selling, advertising, and public relations. Product deals with the issues of research and development, packaging, labeling and branding. Price covers the pricing decisions and offering of discounts and credit facilities to the customers (Lilien et al., 1992; Leader & Kyritsis, 1990).
Presently Prior Ice Creams does not have an effective marketing strategy to consolidate the good beginning the business has created. This problem is due to the lack of a professional marketing person to lead the function. There is also the need to restructure the marketing channels and add new channels of distribution in addition to the independent up-market stores, the business presently using. Expansion into new product offerings is another area that needs to be looked into. Continuous research on new flavors has to be undertaken to increase sales. The idea of Clemency Prior that she will not work with supermarkets cannot hold to be correct, since the supermarkets can be found to be one of the effective channels of distribution.
Convenience stores, small retail shops, and supermarkets are the distribution channels that the company can look into for expansion. Franchising is another option that is worth considering. The company should also have a relook on the credit policies and reduce the number of days credit extended to the customers. The present credit policy will have serious implications on the cash flows. Just price reductions without strong marketing strategies will not yield any positive results. There should be an effective promotion through advertising and publicity.
Operational Issues
Lack of professional management has an adverse impact on the efficiency of operations. The critical task of management is to find a new set of organizational practices which will form the basis for managing the different stages of growth. At the end of each growth stage, the organization faces a crisis of leadership which necessitates sound HR policies to be framed and implemented to take care of the challenges of growth. Without proper HR policies and frameworks, the growth of the business cannot be sustained to enhance the value of the business.
It needs to be understood that at the early stages of business the owner has only a limited ability to delegate because of the availability of only a few employees. However with the subsequent stages of growth delegation becomes critically important and it is the responsibility of the owner to bring in more specialized and focused talent so that the owner would be able to delegate much of his/her own responsibilities for sustaining the business growth (Greiner, 1972). The entrepreneur needs to understand his/her changing role as the business grows.
Essentially there are three areas in the operations of Prior Ice Creams that need a closer look for immediate improvement. The stock of ice creams –The business cannot have stocks of ice creams to meet any exigencies of orders as this would lead to quality issues and loss to the company in case if no orders are forthcoming within the expiry of ice creams. Ice cream is a product of perishable nature that needs extreme experience and judgment with respect to production quantities and stocking.
Another area where there is a need for immediate improvement in quality control. An assessment of the competitive environment based on Porter’s Five Force Model would guide the firm on the intensity of competition and the availability of substitutes in the market. This will reinforce the need for stricter quality control. A company having a number of customer complaints is sure to find its exit from the market very soon. Research on the introduction of new products and flavors is another area that will enable the company to grow faster. This requires constant analysis of market information on the new products the competitors are introducing, ways of improving the quality, reduction in the cost of production, and research on new recipes.
Human Resources Issues
Integrated employment policies, programmes, and practices enable any organization to achieve sustained competitive advantage by leveraging people’s capabilities. This requires a strategic approach to managing employee relations. For having an effective workforce, the organization needs to employ an array of cultural, structural, and personnel techniques (Storey, 1995). PESTEL environmental analysis will be useful in guiding the management to have effective HR policies in place. PESTEL analysis looks into the aspects of political, economic, social, technological, environmental, and legal issues having an impact on conducting the business. The ‘Guest Model’ of human resource management provides an outline of strategies and practices of HR management in addition to the behavioral, performance, and financial outcomes of effective HR management (Guest, 1987).
There is virtually no HR management in practice presently within Prior. The organization has to evolve both ‘Hard HRM policies which help to integrate the HR policies with the overall business strategies by regarding employees as one of the resources available to be exploited for maximizing the return and ‘Soft HRM’ policies which regard employees as valued assets and as a source of competitive advantage (Legge, 1995). The company needs to adopt McGregor’s Theory X which advocates coercing, controlling, and directing the average human being to put forth adequate efforts towards achieving the organizational goals (McGregor, 1960).
Clemency Prior needs the assistance of a professional HR manager in this respect if she wants to achieve the aims of the business. The company should evolve proper performance appraisal systems to evaluate the staff performance. The performance appraisal should be backed by a reward system that recognizes improved performance through increments and performance bonuses. There should be a proper grading of the employees developed.
Structure and Culture of the Business
Size, business environment, strategies, and technologies are the main factors that influence the organizational structure. The structure has been defined to denote a solution or body of solutions evolved over time from different options for providing order and organization to an enterprise or institution (Boody, 2005). An organization may choose to follow a functional structure, divisional structure, or a matrix structure depending on the size and nature of the business. A functional structure provides for the grouping of the activities under different functional areas with functional managers responsible for the performance of the respective functions.
The present culture of Prior Ice Creams does not fit into any of the recognized structures. It is imperative that the organization adopts a functional structure headed by suitable professionals. Ideally Prior should have marketing, finance, operations, and HR divisions headed by professionals reporting to the owner. This will enable the owner to delegate most of her functions aiding a balanced growth of the business.
Culture is another important aspect of a business organization that has an impact on the growth and success of the business. According to Handy, (1993), there are power culture, role culture, task culture, and person culture which exist within an organization. A role culture indicates the delegation of authority within a rigid structure formed within the organization and a task culture is evolved with teams formed to deal with specific business challenges. Power culture implies the location of control at the center of the organization radiating outwards.
Clemency Prior should ensure that the company develops a proper organizational culture by enabling the staff to form teams to meet the challenges of the business. This is possible once the structure of the organization is formed and appropriate professionals are recruited to work as functional heads.
Financial Issues
All the weaknesses in the different functional areas would finally result in financial issues to be faced by the company. The company because of poor cash flow situation has become leveraged with 42% of long-term borrowing. This implies that the company is using long-term borrowings to meet short-term financial obligations. This would lead to the bankruptcy of the company if proper steps are not taken to correct the quick ratio position which is presently at 0.5 which is very low. The company should collect all the debtors in excess of 30 days and fix strict credit policies for the customers. Ideally, the debtors’ days should be reduced well below 50. The company should negotiate better credit terms with the creditors extending the creditors’ days to at least 45. An immediate improvement in the debtors’ collection is imminent.
Conclusion
With a redefined organizational structure leading to revised organizational culture and a divisional structure, the company would be able to ensure sustained growth. With a relook into the credit policies and distribution channels, the company would be able to maximize profits. There is also the need to completely restructure the roles and responsibilities of the staff with a well-defined performance appraisal system in place. These changes are imperative to make the company adapt itself to the growth situation.
References
- Boody, D., 2005. Management: An Introduction. FT: Prentice Hall.
- Greiner, L.E., 1972. Evolution and Revolution as Organizations Grow. Harvard Business Review, 49, pp.131-44.
- Guest, D., 1987. Human Resource Management and Industrial Relations. Journal of Management Studies, 24(5), pp. 503-21.
- Handy, C.B., 1993. Understanding Organizations. London: Penguin.
- Leader, W.G. & Kyritsis, N., 1990. Fundamentals of Marketing. London: Nelson Thornes.
- Legge, K., 1995. Human Resource Management: Rhetorics and Realities. London: Macmillan.
- Lilien, G.L., Kotler, P. & Moorthy, K.S., 1992. Marketing Models. Englewood Cliffs NJ: Prentice Hall Internaltional.
- McGregor, D., 1960. Theory X and Theory Y in Pugh D S (Ed) Organization Theory: Selected Readings. London: Penguin.
- NetMBA, 2002. The Marketing Mix (The 4 Ps of Marketing). Web.
- Storey, J., 1995. Human Resource Management: A Critical Text. London: Routledge.