Greed Field Ventures Limited - Case Study Example

  BACKGROUND Greed Field Ventures Limited (GFVL) is an agricultural and agro-allied company. It was registered as a limited liability company in 2001. It was initially a partnership between owners of two separate businesses. Allison owned a mixed-farming venture prior to the partnership while Garku owned a small scale starch processing plant. GFVL has in the past seven years expanded its agricultural and agro-allied production: from cereals and tubers to vegetables and fruits; and from starch processing to juice production. The company’s asset, turnover and profit have grown steady. The net asset of the company grew from $256,240.00 in 2001 to $1,061,870.00 in 2005 and $6,317,040.00 in 2009. The accumulated profit of the company grew from $35,070.00 in 2001 to $1,000,078.00 in 2009 representing 2,851% increase. Likewise shareholders interest grew from $142,570.00 in 2001 to $2,876,628.00 in 2009 representing 2017% increase. As a result of this growth the ownership structure, management structure and business strategy have been transformed. Two key partners invested in the expansion process. The management team is gradually developing a corporate identity and governance strategies. The work force has increased in quality and quantity to meet the human resource needs of the new GFVL. From on-the-farm and warehouse sales the company has developed a modern marketing strategy involving advertisement, promotions and direct supplies.   Origin Allison Madison has been in agricultural production since 1980s. He inherited a vast land at different locations. All together he inherited about 1150 acres. Only about half of the total farm land was cultivated at the initial stage. Farming was highly seasonal. Hence there the capital base was small. The turnover was about $89,500.00. Only the farm lands close to villages were cultivated. Labour was provided by villagers and seasonal migrants. There were no built structures except small round-shaped mud warehouses scattered in the village settlements. The crops produced were crops produced in the neighbouring village settlements. They were all cereals: maize, millet and guinea corn. Although production was above subsistence level, farm produce were largely sold in the village market. Thus prices were highly variable and unpredictable. There was no proper record of the inputs and outputs in the production process. Except for the processing of maize stalks into fence, there was no value added to the production process. By late 1990s Allison has settled down. The acreage inherited was fully utilized. The types of crops produced have increased. Ground nuts, soya beans and rice were produced. Manual labour was complimented by tractors. Two tractors were hired. The size and type of crops produced were not for village market. Two warehouses were consequently built, where farm produce were stored and sold when prices are favourable. A truck with capacity of conveying 3 tonnes was bought purposely for transporting produce to distant markets and buyers. Allison was assisted in the management of the farms by his son, with a degree in business administration, and his nephew with a diploma in agricultural economics. These two young men began to transformation of Allison’s business. They were initially not salaried and had no offices. They relied on informal commissions and returns from their small farms. The Launch In 2000, new windows of opportunities were opened as a result of new agricultural policies implemented by the government. The Cassava Enterprise Development Programme was more promising. To benefit from the loans, technical assistance and other incentives under this programme, Allison had to formalize his farm holdings. His son and nephew handled this task and Madison & Sons was born. A bank account was opened in the new to access the loan. Also, an office with at least a farm manager, accountant and clerical staff was needed to benefit from capacity building on farm management. The initial plan of the management of Madison & Sons, under Allison’s son and nephew, was for the production of cassava. There was no plan for processing the cassava after harvest. But cassava was perishable. The demand by local industries was not enough. The produce must be processed for markets in other cities and abroad. Given the support provided by government in cassava processing, the management thought of venturing into processing. However, the additional risks of processing a perishable newly introduced discouraged the management. To reduce these risks, the management decided to invite Allison’s old friend, who has been successful in bakery and confectionaries. Mr Garuk Gongs agreed to invest in the business and establish a cassava processing unit in the farm land. To accommodate the new investor, the ownership structure had to be changed. The registered business name Madison & Sons was incorporated in 2001 as a limited liability company. The new company was given the corporate name Green Field Venture Limited. Under the new ownership arrangement, Madison % Sons soley owned by Allison had 35% stake in the Cassava Processing unit. Garuk’s Yummy Bakeries and Confectionaries (YBC) controlled 65%. Allison and Garuk jointly raised $27,000.00 initial deposit to access $26,000.00 loan from the Agric and Coop Bank for the new cassava processing unit. The new investment accounted for about 37% of GFVL’s total asset/capital base. In view of this development, the management structure was changed. Allison became the Managing Director and Chief Executive Officer of GFVL. Allison’s son, Alonso, became General Manager Farms Operations while Garuk’s daughter-in-law, Binta, was appointed General Manager Cassava Processing. Allonso was responsible for administration and finance while Binta headed the marketing and operations of the new company. Allonso operated in the farm house office. A new office in the city centre was rented for Binta’s section. Consequently the number of salaried staff grew from five to nineteen. The wages of over 100 casual workers was standardized on hourly basis. The products of the cassava unit were solely for industrial demand. Initially, the processing unit produced cassava flour, 40% of output bought by YBC. After the first two years, the starch and animal chips production line were introduced. Selling these new products required new marketing strategies. Binta’s experience in marketing became very useful. She succeeded in branding the products, paid for advertisement and initiated while-stock-last promotions to market the new products. The strategies worked well as the company recorded over 300% increase in profit. Thus the two partners contributed only $15,000.00 out of the $45,000.00 injected on the existing 65-35% share holding in the new cassava product lines. The agricultural production including cassava production remained the exclusive business of Allison. Growth and Expansion The success recorded in the first four years at GFVL led to innovations in agricultural production and agro-allied processing. GFVL adopted all-year production as against seasonal rain-fed production. Irrigation farming was introduced. Vegetables such as carrots, cabbage, cucumber and lettuce were produced during the tropical dry season. Also wheat was produced in the same season. The decision to produce these commodities was as result of increasing demand in the local market particularly soaring demand by catering and food processing industries. In addition, governments increase in tariff on imported wheat flour compelled many food processing industries to begin to look for local supplies of the product. The market for fruit juice became very promising with the ban on importation of fruit juices and diary products. Allison and Garuk invited heir friend, who has been in the business of beverages, fruit juices and diary product to invest in the new product line. Mr Sridevi had hitherto been importing most of his products. He was therefore affected by the new policy. This invitation was therefore a ‘saving grace’. The three businessmen agreed to jointly establish a fruit juice production unit of GFVL. Sredevi invested 50%, Garuk 35% and Allison 15% of the $475,000.00 production line. Also, the experience of the three partners became very useful in the running of the expanded business. Allison’s experience in agricultural production was the key to the success of the new production lines. Almost all the raw materials needed by the production lines were produced in Allison’s farm. Allison invested in orange, mango and apple orchards. He also bought an extensive land for production of strawberry. Only pineapple was sourced from outside market. Garuk’s experience in food processing was the cornerstone of the new fruit juice production line. The success, attributable to his expertise, in cassava processing spurred interest in fruit juice production. Sridevi’s market base guaranteed the take off of the new production of line. Sridevi was one of the few major distributors of imported products. In view of the new developments, the management structure of GFVL was changed. Allison’s Madison & Sons control the largest stake in the new company. He had 55% stake. To compensate the brains behind the success of the company he allotted 10% each to his son and nephew. His control of the largest shares in the company positions him at the top of the management. He occupied the position of the Company Chairman and Chief Executive Officer. Garuk and Sridevi, who were managing their separate businesses, became executive directors. They were part of the five-man board of directors. An Operations Department was created out of the former Marketing and Operations to accommodate the latest investor. Alonso retained his headship of the Admin and Finance, Binta moved to Operations while Ranjit, Sridevi’s former Marketing Manager, became the General Manager Marketing. Fig 1 shows the new organizational structure of the company. The company managerial staff consequently increased from 19 to 45, while salaried factory workers increased to 33 and casual workers to 129. GFVL has recorded tremendous growth in asset, capital and profit. The net asset of the company grew from $256,240.00 in 2001 to $1,061,870.00 in 2005 and $6,317,040.00 in 2009. The accumulated profit of the company grew from $35,070.00 in 2001 to $1,000,078.00 in 2009 representing 2,851% increase. Likewise shareholders interest grew from $142,570.00 in 2001 to $2,876,628.00 in 2009 representing 2017% increase. Tables 1 and 2 provides breakdown of the company’s balance sheet and, profit and loss account.   Fig. 1: Organization Structure of GFVL Table 1: BALANCE SHEET Fixed assets 2001($) 2005 ($) 2009 ($) Property (less accumulated depreciation) 45,000.00 237,250.00 567,000.00 Intangible Assets 13,800.00 117,000.00 198,500.00 58,800.00 354,250.00 765,500.00 Current assets Cash 207,000.00 2,078.100.00 4,756,300.00 Managed funds 50,000.00 234,300.00 1,058,140.00 Debtors and prepayments 34,000.00 101,200.00 267,220.00 Stocks -- 118,050.00 567,130.00 291,000.00 2,531,650.00 6,648,790.00 Current liabilities Trade creditors (owed to suppliers) --- 123,780.00 214,750.00 Accruals (bank interests, overdrafts, etc) 34,760.00 346,000.00 117,000.00 34,760.00 469,780.00 331,750.00 Net current assets Long term liabilities -- 156,700.00 567,680.00 Net Assets 384,560.00 3,198,980.00 7,178,360.00 Share capital 107,500.00 987,650.00 1,876,550.00 Accumulated profit 35,070.00 234,764.00 1,000,078.00 Shareholders’ interests 142,570.00 1,222,414.00 2,876,628.00 Table 2: PROFIT AND LOSS ACCOUNT 2001 ($) 2005 ($) 2009($) Turnover (sales) 85,876.00 387,909.00 2,347,000.00 Cost of Goods Sold 9,008.00 45,078.00 675,876.00 Gross Profit 76,868.00 480,131.00 1,872,000.00 Admin Expenses and Overheads 2001 ($) 2005 ($) 2009($) Staff cost 1,055.00 156,700.00 389,500.00 Distribution Costs 9,070.00 28,760.00 57,990.00 Marketing 7,500.00 10,000.00 115,050.00 Bank interest 4,500.00 17,060.00 107,980.00 Depreciation 7,800.00 11,090.00 75,000.00 Profit before tax 46,943.00 256,521.00 1,126,480 CHALLENGES FOR THE FUTURE The success story of GFVL is associated with a number of challenges. These challenges can be broadly categorized into i) leadership and succession, ii) lack of suitable HRM strategies and iii) Leadership and Succession Challenges The success of GFVL, especially as it regards the new ventures, can be attributed to the entrepreneurial team spirit and creativity. The personal relationship between the three major stakeholders has been beneficial to the business. The experience of each of the three has contributed to the success of the new agro-allied venture. However, the level of success is affected by founders’ syndrome. Allison always domineers in agricultural production. Besides, he is stuck with idea of business as money-making venture with little regard to building a corporate image. His view of maximizing profit limits the recruitment of competent hands to take the company to the next level. While Mr. Alison gives managerial impetus to the young generation, he displays his reservations as to who is to succeed him. Controlling the largest shares therefore gives his son an edge over other managers. Alonso has distinguished himself in the management of all the sections he was posted. However, he has little experience outside the agricultural experience to lead a team of managers GFVL needs to create a corporate identity for GFVL especially given the plan to explore international markets. Binta or Ranjit fit better into the new position. In addition to the academic and professional qualifications, they worked with more organized companies and headed marketing sections as well. This makes them potential CEOs that could provide leadership to the emerging corporate organization. Allison strongly objects recruiting an expatriate or non-family member as CEO, as suggested by Garuk and Sridevi to reduce political ripples in the succession. Thus as Allison plans to resign on his 80th birthday, a succession problem looms. HRM Entanglement Related to the leadership and succession problems faced by GFVL, the lack of consolidated HRM strategy serves as an impediment to its success. First, departmentalization was crafted to fit the ownership structure of the company. Departments were created to accommodate the representatives of the three main shareholders.   Plan for the Future The first step to reposition GFVL is to embark on departmentalization by unbundling the three-men-in-the-garage management structure and reducing the span of control of existing managers. The new structure shall have Customer Services department, given the increasing inroad into food and drinks; Marketing, to rebrand the products of the company including farm produce for local and international markets; HRM to ensure that the new corporate mission and values of company are pursued; Corporate Service to cater to corporate interactions; and Production to manage production in farms and plants. Each department will headed by a General Manager with middle managers down the ladder.   The second step is to develop a HRM strategic plan. The new HRM department will periodically prepare HRM strategic plans touching on issues around manpower planning, recruitment, performance management, training and development and staff relations. Under manpower planning the department will map out strategies for succession and turnover. The succession plan will factor in turnover in managerial position and identify candidates for promotion or recruitment to occupy these positions in the future. The plan will also include trainings for those identified to be inn the succession line as well compensation packages. GFVL will also switch to the state of the art technology in management and production systems. This will boost the productivity and performance of staff, farms and plants. This will be successful achieved when staff undergo massive and intensive training in information technology, use of robotics in production and use of genetically improved seedlings. The designing of interactive website will launch GFVL into the 21st marketplace.   Read More