The Strategies and Appropriate Solution - Essay Example

 The strategies and Appropriate Solutions Sir Lewis Robertson entered the company (Stakis Plc.) approximately in 1990 after a relevant decision of the company’s Board. The appointment of Sir Robertson has been thought to be the appropriate solution for the elimination (or at least the limitation) of the company’s debt which had been caused because of the firm’s participation in an extensive hotel and nursing home development program. Sir Robertson decided to proceed to a series of changes in order to achieve the increase of the firm’s profits. For this reason he made significant changes in the firm’s senior management. He also decided to include a major restructuring in the firm’s administration and its operational activities. Under these conditions, the appointment of David Michels, in 1991, as a chief executive should be considered as justified. The experience of David Michels in the particular industry (ex Executive Vice President of Hilton International, Deputy Chief Executive of Hilton U.K.) made him the most appropriate candidate for the particular position. One of the priorities of David Michel has been to examine and evaluate the performance of the company for the last three years (1990-1992). The results of this research were disappointed showing a loss (after tax) of 47.4m pounds for the year 1992 and a relevant loss per share of 47.3m pounds for the same year. For this reason David Mitchel stated that “It was worse than I thought. I didn’t know the company had quite as many difficulties as it had. I don’t think the company knew all its difficulties”. The above statement of David Mitchel could lead to the following thoughts: a) David Michel was not appropriately informed in advance for the firm’s financial difficulties. In this case Sir Robertson could be considered as having the responsibility for the inadequacy and inaccuracy of the information provided; b) David Mitchel would not be able to respond to the firm’s needs. More specifically, his statements could be considered as showing his inability to resolve the problems that the firm had the specific period of time. Again the choice of Sir Robertson could be strongly doubted. On the other hand, possible responsibility of David Mitchel could exist to the extension that he did not provide accurate information regarding his skills and his competencies on the particular field. As for the strategies followed by Reo Stakis and his son, these should be evaluated throughout the firm’s operation since its establishment in 1947 in Glasgow. In fact, at that time, the first restaurant of the firm was established in Glasgow while the other ‘brands’ of the company were to follow. The restaurant of Reo Stakis was based on the ‘self-service’ strategy including a good range of dishes while decor was used to provide a sense of comfort. Reo Stakis decided to expand his activities in the area of hotels with the support of Scottish and Newcastle Brewers. The relevant project was proved successful and by 1967 the company owned approximately 50 restaurants and many hotels around UK while a casino was added in 1964. Sir Reo was working hard during all this period allowing only Sundays for rest. His hard work was rewarded and his company had by 1977 26 hotels, 32 old-world inns or restaurants, several public houses, eight casinos and some betting shops. At that time, the firm’s turnover was estimated approximately to 38 million pounds and the employees were estimated to be approximately 4,000. In 1983, the firm entered London through the acquisition of St Ermin’s Hotel. In this decade, operational activities were further expanded to property and financial services. Because of the addition of these sectors, the firm’s divisions were differentiated in order to respond successfully to the firm’s daily activities. More specifically, the firm’s divisions were structured as follows: a) Hotels and Inns, b) Casinos, c) Property and d) Finance. The decisions taken until this period, when Reo Stakis was to be succeeded, should be characterized as absolutely successful. Reo Stakis managed to develop a restaurant into a major firm operating into many different sectors like hotels, property and finance. In August 1986, Reo Stakis became the firm’s Chairman increasing his share in the company to 26.3 million. Moreover, in 1988 the firm’s divisions were restructured as following: a) Hotels and Inns, b) Leisure, c) Property and d) Healthcare. At this stage, the son of Reo Stakis, Andros Stakis, first participated in the firm’s development through a 500 million investment programme. It was in the specific period that the further expansion of the company was decided (and approved by the firm’s finance director Neil Chisman). The relevant decision should be considered as crucial for the firm’s financial turbulences the years that followed. More specifically, in the Summer of 1989 the first Stakis Corporate Plan was applied. The specific plan referred to the expansion of the company based on borrowing for the construction of several Country Court Hotels and nursing homes across UK. However, this decision was not appropriate since it led to the increase of the firm’s debt up to 99million pounds (almost doubled). It should also be noticed that the participation of the company in the Sterling Commercial Paper market in 1987 was another wrong decision. This decision, which was approved by the firm’s finance director O’Callaghan, was based on the justification that the entry into this market could help the company to broaden its source of funds and its presence in the market. However, because of the stock market crash of October 1987 the above plan caused severe financial damages to the company. Despite the losses, the firm’s position was strengthened in late 1990 through the acquisition of Barracuda Club (West End, London) and the Firkin chain of pubs (London). These two acquisitions offered to the company an increased presence in the capital. The contribution of Andros Stakis in the development of Stakis Plc has been significant. In 1981, Buchanan Properties managed by Andros achieved a profit of approximately 200,000 pounds. The development of the Property division of the company was achieved mainly through the decisions of Andros. Under his administration the Property division achieved a profit of 2 millions in 1987 while in 1989 this profit was increased furthermore in 4 millions. It should be noticed that the structure of the firm’s Board has changed in 1992. In accordance with the new structure, Sir Reo Stakis was president while Andros Stakis was not included in the Board. This was a significant change from 1988 when Sir Reo Stakis was Chairman and President and Andros Stakis was Group Managing Director. The ‘exclusion’ of Andros Stakis from the firm’s board can be explained by the firm’s losses in the period 1990-1992 when the restructuring of the firm’s operational activities was decided. The particular decision actually was taken by Sir Lewis, the firm’s Chairman since 1991. The resignation of Andros Stakis was explained as a result of the firm’s loss of 45.1million up to March 31 1991. In accordance with a relevant statement of Sir Lewis at that time, the firm suffered ‘financial and other stress, following ambitious development programmes’ which reflected ‘some lack of clarity of management’. In accordance of these statements, the role of Andros Stakis in the company should be considered rather as negative having led the firm to severe financial turbulences. On the other hand, it was noticed by Sir Lewis that Andros Stakis should be praised for his ‘originality and imagination’. Because of the existed financial problems, Sir Lewis had to proceed to a series of changes in the firm’s structure. In this context, Firkins and restaurants were sold in June 1991 for 8 million pounds. Furthermore, in the same year the firm’s 25 pubs, five off licences, five discos and one steakhouse were sold for approximately 22 million pounds. The main priority of Sir Lewis was the establishment of a new regime promoting the cost control and the improvement of the customer service and the staff quality. The above decisions of Sir Lewis supported by David Michels could be characterized as absolute justified regarding the firm’s financial position in the post 1990s period. Both Sir Lewis and David Michel managed to evaluate appropriately the firm’s financial strength and its position in the market promoting the quality in both the customer service and the firm’s human resources. We could refer at this point in the study of Santos et al. (2000, 2) who supported that “according to its characteristics, objectives and the resources available (human, physical, financial etc.), each company prioritizes some competitive criteria, according to market tendencies and concentrates its efforts to get a competitive position relating to concurrence”. In the case of Stakis Plc. Sir Lewis and David Michel proceeded to significant decisions for the firm’s restructuring. The value of these decisions was proved afterwards through the financial results of the years that followed during which the firm achieved a significant recovery. If compared the strategies followed by Reo - Andros Stakis and by Sir Lewis – David Michel could be characterized as totally different. More specifically, the decisions of Reo and Andros Stakis were characterized by innovation and risk, due to which the firm managed to reach such a significant expansion. However, because risk was a necessary element of the corporate strategy, when not appropriately controlled led the firm to severe financial damages through its participation to high profitable but extremely risky schemes (included in the Stakis Corporate Plan of 1987). Instead, the strategies followed by Sir Lewis and David Michels are characterized mostly by the existence of high security in the efforts attempted. The restructuring of the company and the reduction of costs were also proved significant plans. In the long term, the strategies of Sir Lewis and David Michels could be characterized as more appropriate for modern commercial market not only in UK but also internationally. It should be noticed that the strategies of Sir Lewis and David Michels as well as these of Sir Reo and Andros Stakis should be also evaluated using as a basis the conditions of the particular market and the position of competitors. Towards this direction, Porter’s model (five forces) as well as the PEST analysis would be particularly important in order to understand the decisions of the above persons regarding the firm’s strategies throughout its operation. On the other hand, the firm’s strategic decisions were differentiated after the appointment of Sir Lewis. For this reason, these decisions and the firm’s position in the market are going to be evaluated separately for the following periods: the years until 1990 when the company was under the control of Sir Reo and his son and the years that followed 1990 when Sir Lewis entered the company after a relevant decision of its Board. A. Porter’s Five Forces (Analysis of British Nursing Industry) Figure 1 - Porter’s Five Forces of Industry Competition (Porter, 1998, 22) Position of Competitors In order to understand the position of Stakis towards its competitors, we should refer primarily to its activities. In 1983, Stakis operated in the following sectors: a) Hotels and Inns, b) Casinos, c) Property and d) Finance. In 1988, the firm’s operations were differentiated. More specifically, during the specific year the firm’s operations were divided among the following divisions: a) Hotels and Inns, b) Leisure, c) Property and d) Healthcare. The firm stopped its operations in the Finance Sector mostly after the loss suffered due to its participation in the Sterling Commercial Paper Market in 1987 and the collapse of the Stock Market that followed shortly. In this context, the firm had to face a strong competition by the firms already operating in the sectors described above. And the financial losses of the company during 1987-1990 were a severe problem for the firm towards its competitors. The firm, although developed at an extremely high level the previous decades, should put limits in its activities in order to survive in the market. After the appointment of Sir Lewis in 1991 the company started to improve its position towards its competitors although reducing its activities in the British market. Threat of Substitutes: Because of the extremely high quality of the services offered by the firm, there was no problem of substitutes. This quality however was related with debts which should be paid in order for the firm to retain its position in the market. In other words, at a first sight there was no issue of substitutes but the survival of the company was a difficult target if taking into account its financial position for the years 1987-1990. In the years that followed 1990, the threat of substitutes could not be an issue as the company put a limit in its activities through the selling of several organizational assets. Power of customers: The history of Stakis in the British market was long. The company had created its base of customers who preferred Stakis mostly because of the quality of the services delivered. For this reason, even if in some cases the cost of these services were higher from its competitors, customers remained loyal to Stakis both in the pre – 1990 and the post – 1990 era. Power of Suppliers: The suppliers of the industry sectors where the firm operated – as described above – are many. For this reason, there could be no issue of pressure by the suppliers in relation with the activities of the particular firm. The firm would have the power to choose among different suppliers in accordance with its needs and its financial strength. Entrance in the Industry: The firm should not worry for the possible entrance of other companies in the industries in which the above firm already operated. More specifically all the industries involved (Hotels, Leisure, Property and Healthcare) require significant amount of money as an initial investment. At a next level, the PEST analysis can be used in order to explain the failure of the particular firm’s Division despite its ‘superiority’ towards its competitors. B. PEST analysis Political conditions: When firm was first established, in 1947 political conditions in Britain were still influenced by the war that had been terminated approximately 2 years before the establishment of the first restaurant of Reo Stakis in Glasgow. During that period, efforts were made for the country to recover from the damages suffered during the war. At the same time, unemployment rates were extremely high and citizens in the country were trying to improve their standard of living. In the years that followed the political and financial conditions in the country were improved and the company achieved a significant development which was continued until 1987. Afterwards, the wrong strategic decisions of Andros Stakis caused severe financial losses to the company. This situation changed in 1990 when Sir Lewis entered the firm. His entrance was followed shortly by the increase of the share price from 3 pence to 39 pence (a significant increase). Even if the country’s political conditions were difficult, sir Lewis managed to improve the firm’s position in the market and led the company to a successful recovery after the long period of business failures that caused severe financial losses to the specific firm. Environmental conditions: As already known, the establishment of every business unit requires a good knowledge on the environmental issues related with its operation. As it can be observed in the particular case, Andros did not pay any attention for the application of relevant measures. At a next level, these measures would require a significant amount of money to get realized. And the company did not have this financial strength at that period – where problems in the Financial Division had already appeared. As for the internal environment – not the natural one – i.e. the firm’s shareholders, they seemed to be opposite to the plans of Andros to expand the firm’s activities. The high cost related with the establishment and the operation of new business units was a significant point for the rejection of Andros’ plans by the firm’s shareholders (an opposition that led to the replacement of Andros as a member of the firm’s Board the years that followed). Social conditions: The investment made on the establishment of new business units – expanding the firms operational activities - should be considered as inappropriate mostly because the public did not show the expected response to the firm’s projects. It was clear that a different approach was necessary and that the public’s needs were not appropriately evaluated. For this reason, any plan suggested in the pre-1990 era (especially between 1987 and 1990) was led to failure. After the appointment of Sir Lewis, the limitation of the business activities, the implementation of an improved cost control system and the detailed evaluation of the market led to the increase of the firm’s profitability in all its sectors (the remaining ones). Technological Conditions: It should be noticed that the establishment and the operation of new business units (as suggested by Sir Reo) in the years 1987 – 1990 would be related with advanced technology the cost of which would be extremely high. And if taking into account the firm’s financial pressures at the particular period, we could assume that there could be no way of retrieving the necessary funds – or even if they could be retrieved this could cause to the company a significant financial damage. After 1990 and the appointment of Sir Lewis the company continued to use advanced technology in all its existed units however because the number of units (and the operational sectors) was reduced, the use of advanced technology in all firm’s operational centres was not a problem – from financial aspect. The company was now capable to respond to the relevant cost. C. SWOT Analysis The SWOT analysis of the company that follows also support the assumption that the company was not prepared to proceed to the particular strategic plans mostly because its failure to respond to its high expenses in all its divisions. The lack of an appropriate cost control (implemented later, in 1991, by Sir Lewis) was obvious. SWOT analysis of Stakis will be divided in two periods: the period until 1990 and the period that followed this year. In the particular year the corporate strategy was transformed. More specifically, since the establishment of the company Sir Reo and his son were acting more as ‘entrepreneurs’. After the appointment of Sir Lewis, a ‘pure’ corporate strategy was implemented in Stakis. The elements of SWOT analysis presented below can show this difference. A. SWOT Analysis for Stakis until 1990 Strengths Innovation Market share Quality of services Use of advanced technology Weaknesses Financial pressures Lack of cost control Opportunities No similar firms existed in the Scottish market Investors were interested in the firm’s activities Development of national economy in the post –war era Threats Financial turbulences in Britain under the influence of the international market Low profits from operational activities after 1987 B. SWOT Analysis for Stakis after 1990 Strengths Quality of services Market share Effective cost control High quality of staff High level of customer support Weaknesses Limited funds available for the firm’s restructuring Lack of innovation/ use of standard market tools Opportunities Positive response of the British market Chances for further development after the recovery Threats Limitation of profits in the long term Entrance of new competitors in the particular market 2. Evaluate the contributions Sir Reo and Andros Stakis made to the strategic leadership of Stakis with that contributed by Sir Lewis and David Michels In order to evaluate the contribution of Sir Reo and Andros Stakis in the development of the firm’s strategic leadership especially comparing to the activities of Sir Lewis and David Michels we should primarily refer to the relevant literature taking into account all the particular conditions related with the firm Stakis Plc. At a first level, it should be mentioned that Rand (1999, 97) supported that “businesses fail because management does not have effective control of the business as management is too far removed from revenue-producing processes; the interval between the time a revenue plan is launched and the time the actual revenue is collected is, to all intents and purposes, a black hole into which human resources are poured with no mechanism to measure their effectiveness; Visibility is nonexistent or, at best, extremely limited”. In accordance with the above view, the financial failure of Stakis Ltd would be explained mostly by the wrong decisions made by Reo Stakis and Andros Stakis regarding the involvement of the firm in risky programmes. Towards the same direction, Robertson et al. (1995) noticed that profitability is considered to be the major element of the firm’s success. For this reason the above researchers noticed that (1995, 547) “organizational effectiveness is more readily measured in terms of efficiency and profitability; as a result, change activity can be implemented and assessed using these narrow criteria as the primary basis for evaluating their success, possibly making it easier for these change efforts to be successful”. However, it seems that even in cases that the firm’s profits are decreased, the firm’s position in the market can be enhanced if appropriate strategies have been implemented and have been made known to the public. In this context, the study of Parnell (2003, 16) showed that “in many respects, the evidence for the existence of a strategy can permeate an organization; its customers appreciate knowing what a company is attempting to accomplish while sharing strategic information with lower-level managers and employees may enhance both job comprehension and organizational commitment; hence, the arguments for a "public" strategy are intuitively obvious”. However, the existence of corporate strategy is not sufficient to support the development of the firm. It is necessary that the corporate strategy will be differentiated from the strategies of other firms in the same sector. For this reason, O’Sullivan (2001) supported that innovation should be a necessary element of corporate governance for every firm operating in modern market. On the other hand, it is necessary that the appropriate tools of strategic analysis are going to be used. Towards this direction, the Nattermann (2000, 22) who tried to evaluate a specific tool of strategic analysis, benchmarking, stated that “best-practice benchmarking--the measurement and implementation of the most successful operational standard or strategy available in an industry--can be one of the most effective tools for increasing a corporation's efficiency, productivity, and, ultimately, earnings”. In other words, benchmarking as described above can increase the firm’s performance through the provision of accurate info to the firm’s stakeholders. The strategic decisions made by the firm’s management team will have to be based on the following three dimensions: ‘product characteristics, price, and market opportunity’ (Nattermann, 2000, 22). In any case it is necessary that the strategy followed will be in accordance with the firm’s needs and its strengths. For this reason, it has been supported by Chase et al. (20006, Ch.5, 2) that “a process that does not match the needs of the firm will punish the firm every minute that the firms operate”. In the particular case the strategies followed by Reo Stakis throughout the firm’s operation led to the creation of employment for approximately 8,000 while he also contributed to the change in image of public houses. Regarding specifically the development of the firm’s strategic leadership, Reo Stakis introduced a ‘dynamic’ pattern of leadership through his active involvement in the firm’s operations from different positions since the firm’s establishment in 1947 (as a restaurant) in Glasgow. His son, Andros, continued the particular pattern of leadership applying innovative and profitable corporate plans. In this context, Bielski (2005, 26) noticed that successful CEO’s use to have the following attributes: “a) they value managing and leading people, i.e., getting work done through others; b) they are intellectually curious, c) they ‘walk the talk’; d) they are comfortable with their authority e) they understand that to deliver full value, every aspect of the leadership system must be aligned with strategy: structure, processes, people, and human resource systems”. However, the particular mode of leadership although successful for many years, it was proved to be inappropriate in cases that the firm joins plans that are characterized by high risk. Of course the existence of innovation in all decisions taken by Reo and Andros Stakis is an issue that should be evaluated accordingly regarding the development of the firm across UK. In the particular case innovation has been appropriately adapted in the corporate plans and it was just an issue of wrong evaluation regarding the potentials of a specific plan that led the firm to severe financial damages. In this context, Kesler (2000, 26) supported that innovation could refer to the following issues: “1. Finance, 2. Process, 3. Offering and 4. Delivery”. On the other hand, O’Neill (2002, 15) stated that leadership should provide answers in the following questions: “a) what were the critical success factors in previous successful change efforts? b) what caused other efforts to fail? Are you prepared to take on the obstacles? c) who can veto? Can anyone say yes? d) what is the organization's risk profile? e) what has created a window of opportunity? How long might it last? f) what is the up side for stakeholders? g) what Have We Learned?”. From a different aspect, Buono et al. (2004, 5) referred to leaders as members of virtual communities and supported that “the challenge for leaders of virtual teams is to create a level of collaboration and productivity that rivals the experience of the best collocated teams, and to accomplish these outcomes against the backdrop of the rapid changes facing nearly every business today”. The above view is in accordance with that of Viceri et al. (1997, 28) who argued that “improving "strategic leadership development" is the single most potent focal point for strengthening an organization's strategic competitive position”. In other words, the contribution of Reo and Andros Stakis in the strategic leadership of Stakis Plc has been significant. If evaluated in the long term, this strategy was effective as it has led to the expansion of the company in many industrial sectors across UK. However, in plans related with high risk the above strategies should be considered as inappropriate. In the particular firm, the application of the Stakis Corporate Plan in 1989 should be avoided at least if having the specific content. A detailed review of this Plan should be made before its application in order for the relevant risks to be revealed. In fact, the use of cost controls and performance measurements (Cioffi, 2004, 237) is necessary in all firms operating in modern market. On the other hand, the contribution of Sir Lewis and David Michels in the firm’s strategic leadership can be revealed primarily by the firm’s financial results in the years followed 1992. In fact, the improvement of the firm’s performance since the appointments of Sir Lewis and David Michels proves that their leadership mode is more appropriate for current market conditions. In fact, as David Michels admits, the firm’s policy should be focused on the increase of its profitability. On the other hand, David Michels tries to have a continuous communication with the firm’s managers proceeding to regular visits of the firm’s units across the country. The strategic leadership followed by Sir Lewis and David Michels led gradually to the recovery of the firm. It should be noticed that in January 1993 shares in Stakis reached the price of 45 pence (a 4 pence increase comparing the price of the share in 1992). Although Sir Lewis was replaced in late 1992, his style of leadership proved to be extremely positive for the firm’s performance in the long term (in 1994 the pre tax profits were increased to 10.4 million). It is due to his decisions that the firm managed to recover and becoming in January 1994 “a normal company, boring even” according to a statement of David Michels. References Ackroyd, S., Fleetwood, S. (2000). Realist Perspectives on Management and Organisations. Routledge, London Bielski, L. (2005). What Makes a Good Leader? the Go-To "Guy" with Vision and Passion Will Top the Org Chart-And Lead Change Management. ABA Banking Journal, 97(12): 21-27 Buono, A. F., Kerber, K. W. (2004). Leadership Challenges in Global Virtual Teams: Lessons from the Field. SAM Advanced Management Journal, 69(4): 4-11 Cioffi, J., Miller, A. (2004). Measuring Marketing Effectiveness and Value: The Unisys Marketing Dashboard. Journal of Advertising Research, 44(3): 237-243 Chase, R., Jacobs, R., Aquilano, N. (2006) Operations Management for Competitive Advantage, 11e. The McGraw-Hill Companies Kesler, G. (2000). Four Steps to Building an HR Agenda for Growth: HR Strategy Revisited. Human Resource Planning, 23(3): 24-38 Nattermann, P.M. (2000). Best Practice [Neq] Best Strategy. The McKinsey Quarterly, 22-27 Porter, M. (1998) On Competition. Harvard Business School Press O’Neill, R. J. (2002). Government's Change-Management Challenge: Key Questions to Which Government Leaders Should Find Answers as They Embark on System wide Reform. The Public Manager, 31(1): 15 O’Sullivan, M. (2001). Contests for Corporate Control: Corporate Governance and Economic Performance in the United States and Germany. Oxford: Oxford University Press Parnell, J.A. (2003). Five Critical Challenges in Strategy Making. SAM Advanced Management Journal, 68(2): 15-25 Rand, T. (1999). Why Businesses Fail: an Organizational Perspective. Emergence, 1(4): 97 Robertson, P. J., Seneviratne, S. J. (1995). Outcomes of Planned Organizational Change in the Public Sector: A Meta-Analytic Comparison to the Private Sector. Public Administration Review, 55(6): 547-558 Viceri, A., Fulmer, R. (1997). Leadership by design. Boston: Harvard Business School Press Read More