Promoting Innovation and Change: Metcash Trading - Essay Example

Promoting Innovation and Change Management Report for Metcash Trading Introduction Metcash Trading Ltd Australasia1 is the third largest grocery retailing force in Australia and its biggest wholesaler. It consists of three main trading groups. IGA2 Distribution, Campbells Cash and Cash and Australian Liqor Marketers. IGA is a brand that is, in all essence, virtually a franchise operation managed by Metcash, who provide stock, management service and financial assistance to a increasing number of "independent" supermarket stores, ranging from small convenience3, through medium format to large supermarkets4. We have evaluated the innovation and changes that have taken place and made recommendations where we consider appropriate. Report Metcash takes an active interest in the independent retail grocery market. The innovative approach and ability to change, which has taken place over the past few years has proved successful and profitable in most areas. i) Store development Metcash corporate motto is "the Champion of the Independent Retailer" (see company website) and it actions support this, servicing over 4500, independent stores. It's own franchised IGA stores reached 1,100 in number by 2003 and today numbers around 1,400, Stephen McMahon (2006). That number continues to grow. The company assists these businesses by providing a range of services, including 24-hour retail system support, in-store training, refurbishment, equipment, and via the creation of a specialist service team network. The company is also involved with refurbishing and building new sites, equipment and development services. Unlike grocery retailers, Metcash's activities have developed through the strength of a three-tier approach to its retail outlets. a) Small convenience stores, concentrating on high level service b) Medium sized neighbourhood stores, in a mid-sized supermarket format c) Large format stores, which are Supermarket size. Whilst a large part of this store development has been through the growth of owned and franchised stores, an element of it has been acquired via acquisitions. 2000. Metcash purchased a Queensland based company, Stewart & Co, allowing it to expand its ALM5 arm and restaurant and bar supply service. 2001. Metcash took over 120 of the failing Franklin's chain of stores. 2003 Cape Business News (2003) reported that Metcash had purchased 200 7-Eleven from liquidators, mainly in the Western Cape area, to complement its Friendly Grocer IGA convenience stores. 2005. After a hostile takeover battle, Metcash acquired 60 Action supermarkets plus the Western Australian franchise and supply business from Foodland Australia Ltd, business editor, The Age (2005). 2006. Metcash acquired a 25% stake in Dramet pty Ltd, a supermarket chain. Reuters (2006). In 2003 Metcash extended its core store format by introducing the Supa IGA, Sydney Morning Herald, (October 2003). These are mainly situated across the eastern states and have are the redevelopment of 138 stores. They include petrol stations that offer customer discounts and keep up the company's competitive edge with Woolworth's and other supermarket competitors. ii) Wholesale development. In consort with the retail side, Metcash has continued to develop the wholesale side of the business, culminating in 2006 when it formed an alliance with the New Zealand supermarket group Foodstuffs, creating a unique buying group with a joint budget of over 15 billion, Australian Financial Review (March 2006) Technology Metcash has not forgotten the operational side of the business either. In March 2006 the Company announced that it would spend millions on a new and up to the minute ERP6 system. It will also extend its Voicepick warehouse management platform technology, The Australian Financial Review (2006). The Company deny that this was a cost saving exercise. Challenges However this is expansion is not happening without challenges. Because of its high-profile position and challenge to other groups in the industry, Metcash has needed to protect its own position. Thus it was no surprise that they have been building substantial stakes in some of the larger franchises, Jimenez and West (2006). The holding protects it against predators. The financial markets are also showing concern at the lower than expected performance of the company over the year, Stephen McMahon (May 2006). They are not yet certain how successfully the Foodland acquisition is integrating with the group. Summary It is apparent from our research that the board has been set on a path of pushing the group to achieve, and exceed, the performance of their competitors. This has been apparent from its acquisition and store growth programme. Our concerns are that the rapidity and scale of this expansion programme may be bringing pressure to bear in other areas of the business, in terms of the financial and administration facilities. Administratively, it is difficult to maintain control of a constantly fluctuating business structure. Of necessity, in the early stages of such a programme the supply chain and administrative procedures may not be expandable at the same rate, thus creating inefficiencies and a loss of control. In addition rapid expansion brings with it the danger of short-term cash flow difficulties, as the capital investment in re-branding, new project costs and investment and integration of acquisitions, create an initial drain on resources. It is clear from the press report, Stephen McMahon (2006), that Metcash are feeling these effects, as they did not execute an expected share buyback and earning were less than had been expected. The result of this was a massive 5% fall in the share value, in itself adding extra pressure. Conclusion and Recommendations Based on our research and investigation into the business we would recommend a period of consolidation. We would suggest that the group decelerates it programme for a while for four reasons. 1) To allow the info structure of the Group time to evolve to a position where it can adequately cope with the re-sized business. 2) To enable adequate testing and evaluating of the new ERP system. 3) To give the Group the ability to resolve its cash flow position, allowing the turnover of the enlarged group to flow back and replenish capital 4) To enable management restructure to meet the needs of the enlarged business. The group needs to eradicate any weakness that may tempt potential predators, by consolidation as well as strengthening its holdings throughout the franchise network. In our view, due to the independent nature of franchisees, this is the weakest and most vulnerable element of the business chain and the one over which the management has least control. References Business editor. (2003). Lucky Seven for Metcash. Cape Business News. Group about us. IGA in Australia. From company website. www.iga.net.au Group Summary: Metcash Trading Limited. From company website. www.metcash,com McMahon, Stephen. (2006). Metcash whacked by investors. Sydney Morning Herald Unknown. (2006) Metcash replaces old stock with new tech. The Australian Review AAP. (October 2003) Super IGA builds on Metcash petrol deal. Sydney Morning Herald. AAP. (May 2005) Woolworths gains New Zealand footprint. Sydney Morning Herald News Report. (January 2006) Metcash Ltd Acquires Stake in Dramet pty Ltd. Reuters. Jimenez, Katherine. and West, Michael . (March 2006) Metcash seeks protective stake. The Australian. Unknown. (March 2006). Food groups join forces. The Australian Financial Review Promoting Innovation and Change Management Report for Fisher & Paykal Healthcare Introduction Formed from the demerger of Fisher & Paykel in 2001, see Roger Armstrong (2001) where the other half of the business, "white goods", held it back, F&P Healthcare has seen a phenomenal growth pattern over the past five years. Freed to concentrate its efforts on medical products and therapies for use by the medical profession with its patients. In preparing this report we have studied the innovative ideas and products that have affected the company within the past five years, and evaluated the changes that have taken place. Where we consider it relevant, we have made recommendations as to tactics and directions. Report F&P7 Healthcare Ltd is a company that, through research, provides "technical skills and clinical partnerships to design and develop innovative products and therapies which assist healthcare professionals", company website (factsheet). Since its demerger from Fisher & Paykel in 2001, the company has created a number of innovative products and business changes that have brought substantial benefits both to the industry and to itself in terms of its performance in the financial markets. Administration In 2003, Paul Shearer (May 2003), explained the key factors for a good distribution strategy, one that F&P had used. " Control your distribution channels with pricing. Maintain your own brand. Make your distribution contracts separate and non-exclusive. Place your own people in market to manage the business and help drive demand. Have as many distribution channels as you can. OEM, direct or using distributors. The more channels more sales. Have good products." This essential supply chain element had helped the business to get its innovative products to the marketplace quicker and efficiently. Having an eye for future growth, the company bought land adjacent to its research and development centre, allowing for expansion of manufacturing. In addition it has cemented the customer link in the supply chain by forming a close working relationship with all areas of the medical profession, including conducting trials in local hospitals and making significant medical donations. New Products The development of new products has been a cornerstone of the business growth and success over the years. MR880 Humidification System. Specifically designed to give benefit to "patients with severe respiratory illness such as chronic obstructive pulmonary disease (COPD) and patients with conditions such as xerostomia (dry mouth) and cystic fibrosis." National Business Review (2005). A product for laparoscopic, or keyhole surgery was developed, which is expected to be another large contributor to the company's revenue, Andrea Fox (2005) Neonatal warming and breathing equipment. This is a critical product for pre-term babies at early as 24 weeks. Barbara Weil (2005) Products are a central element of the company's continued success; As Lewis Gradon (2005) said "that innovation is so central to the culture of our company that it can be considered an unconscious, autonomic state of mind." Financial Markets The success of its products has made F&P, as an investment, attractive to the financial markets. So much so that market annalists believe that by 2010 it may become New Zealand's number 1 company, Andea Fox (2005). Similarly, the company maintains continual and profitable growth, and pays out a large part of its profits in dividends, which satisfies its shareholders, Andrea Fox (2005). The other aspect of the business, which is attractive to the financial markets, is the quality of the company's management and key employees, for whom it provides subsidised canteen and fun day facilities. This, together with a positive cash flow, gives the business a solid foundation for its development projects. The performance of the $ can have a positive effect on the company's fortunes. Every cent the $ falls increase the business net profits by $ 2 million. The Dominion Post (2006). Challenges One weakness that F&P has, due to its expanding international sales, is the strength of the dollar, Andrea Fox (2005). Dependent upon the turnover share this represents this could significantly affect earnings. 98% of the company's revenue is accounted for by overseas sales. Every cent costs the company $2 million, although there is a hedging policy in force to combat this problem, The Dominion Post (2006) Conclusions and Recommendations F&P is an extremely well run and efficient company, whose success is attributable to the quality of the staff, the business management and financial planning. At present it is highly respected in financial circles. However, having conducted our research, there are a few areas of the business and market that needs to be closely monitored. 1) Quality of labour. At the moment the company has an enviable reputation in this area. But quality staff commands a premium and, with markets such as the USA open to them it is possible that this might be a temptation. 2) As the vast percentage of revenue is generated from overseas, the company is vulnerable to both exchange rates and economic climates over which it has little influence. It needs to strive to avoid too much dominance from any particular marketplace. 3) The other area, which should be noted, is that at present F&P concentrates manufacture within New Zealand. However it needs to keep an eye on other countries for this purpose. In particular this comment relates to China where there is a relentless growth of encroachment into areas previous thought to be "western business only". Countries such as Spain are finding that China is more competitive than them in, what was previously considered, their unique products, in that instance textile. The company should closely monitor this situation. Work Practices The adoption of innovative work practices within an organisation, despite the fact that it incurs cost, does produce benefits. In order to achieve this we would recommend that the organisation adopt the Total Quality Management (TQM) system strategy. TQM is a process that aims for continued improvement, seeking quality in all areas from production through to service and the end user or consumer. In this respect it works on the basis that the quality of service as required by the customer is more important than that which is determined by the supplier. To be effective TQM must permeate throughout the whole business from management downwards. Key Elements of strategy The success of any innovative strategy is dependent upon an understanding its key elements. In the case of TQM, these elements can be summarised as follows. i) Business Plan. The management should construct a mission statement for the business outlining its aim and ambitions in terms of the quality it wishes to achieve, internally in terms of production, supply and workforce, and externally for the customer. It will also outline how it expects to achieve this plan and lay some ground rules regarding the business operation, including steps needed to build a quality relationship with its customers. ii) Continuing Improvement In the modern world no business can stand still. Therefore it follows that an effective strategy should not be based on the "old" method of a problem having a beginning, middle and end. It must be monitored and regularly updated to meet the changing demands of quality. iii) Training Formal training of staff at all levels is important to the success of a business. This training should encompass an understanding of the business and its vision, quality and service skills and, in the case of manager, leadership skills. Education of customers is also important. Only if the customer understands what the business is seeking to achieve can they be of help to the business when asked for constructive comments regarding quality requirements. iv) Teamwork Confrontational management and management by domination does not work. One should create a teamwork environment where every person feels that they are involved with and part of the organisations business plan and future. This concept should extend beyond the workforce to both the supplier and customer element of the chain. The most successful businesses are those that create a "family" atmosphere. Tesco's in the UK is an example of this. It's slogan "Every little helps, together with the quality, has produced a customer pride in shopping at their stores. v) Monitoring Every innovative strategy requires monitoring as to its success and TQM is no different. This should be done on a regular basis. It can be achieved by the use of survey based statistical information. For example, levels of productivity and increase in market share, quality of satisfaction both from employees and customers. Employee involvement A crucial element to the success of a business is its workforce. Therefore it is important to involve staff in business strategies. This can be achieved by a number of methods. i) Involvement It is important that staff feel involved with the business. To promote this they should be encouraged to think about the business aims and make suggestions in regards to improvements to processes or business conduct. Such suggestions must be dealt with in a professional manner by managers with open discussion and considered responses. ii) Teamwork Working as a team increases enjoyment at work and will lead to greater productivity and staff commitment. To this end managers should encourage all departments to work together, no matter what their status or position, not allowing for departmental rivalries to develop. iii) Reward Profits should not only be seen as a benefit of the board and shareholders. Employees should be rewarded for their efforts and contribution to the success of a business. Therefore an equitable reward system should be implemented. Similarly if an employee suggestion is taken up by the business and incorporated in their business operation, the employee concerned should receive recognition of that fact. Advantages There are a number of advantages to be derived from the implementation of this system within the organisation. They include: - Enhanced productivity Greater profitability Improvement in employee moral and job satisfaction Improved quality of service to customer Resource and time savings More effective problem solving References Fox, Andrea. (2005) No 1 Contender. Unlimited Magazine. Gradon, Lewis. (2005). F&P Healthcare. New Zealand Innovation Festival May 2005. Group about us. Vision. From company website. www.fisherpayke.com.au Group Products. Factsheet. From company website. www.fisherpaykel.com.au NZPA. (2006). F&P Healthcare up 14%. Financial Review. Rmstrong, Roger (June 2001). When break-up means bonus. Unlimited Magazine Shearer, Paul. (May 2003) Speech. Technology Investment Network Ltd 2003 Unknown. (2006). From fledgling to flier. The Dominion Post. Unknown. F&P Healthcare: Humidifier leads the way. National Business Review Weil, Barbara. (2005). F&P Healthcare bursting at the seams. Times Newspapers. Read More