Table of Contents
Strategic management is a management tool that organizations use to steer their success in their respective industries (Kotler 1997). It tries to analyze all the initiatives that a company takes in order to ensure that the available resources are effectively used in the process of achieving the goals and objectives of the organization. The detailed plans, and resources allocated to the execution of the plans are well elaborated in the strategic management process so that every person working in the organization knows what the required target is and the timeline to achieve it. In this case, everyone is involved in the process of achieving the goals and objectives. At the end, a scorecard is developed to determine the extent of success or failure that the organization achieves by the end of execution of the plans (Martin 1995). All stakeholders, form the organization owners, to the management team and the rest of the employees are involved in each of the stages of strategic management (Martin 1995). The process of strategic management is a very important one because it completes the strategies with well-explained methods of evaluation of success or failure. This is a feature that many management tools lack (Kotler 1997).
The organization- Laura Ashley Holdings PLC
Laura Ashley Holdings PLC was established in 1954 by Laura Ashley and her husband Bernard. It was initially home based and produced Designer clothing and home furnishings in the retail domain. Its products had an aim of ensuring that the customers received an English rural feeling in their homes and they were innovatively carved out by Laura. The company grew very first and within the first year of their existence, they were able to establish a company that was well polished and had a good response from the market. It was then introduced in the United Kingdom stock market in 1985. However, weeks before the entry, its founder died in an accident and analysts have always argued that her death at that point of the company history was the main source of all the predicaments that followed the expansion into an international retail outlet. Today, the company has moved from the primary apparel industry and is moving towards household furnishings which has become among its most profitable business wing. Its numerous expansion programs were later reversed and a new management team oversees the daily running of the organization. Between 1988 and 2000, the company went through a rough economic and managerial crisis which led to its change in ownership from a family business to a shared company whose 58% of its shareholdings is controlled by Malaysian company MUI.
The Strategic Issues That Faced The Company
In 1985, the company founder, Laura Ashley died just before the company was floated in the stock market. She was, along with her son, the main innovator for the designs and among the key managers. The company was valued 34 times higher because it had been doing well in the previous years. However, due to the fall of the main innovator, there was a very integral part that fell with her. The level of innovativeness and the management team was disorganized and unable to cope with the market dynamics. The death of Laura Ashley and economic depression of the British companies could not come at a worse time to the company since it used most of the money received from the sale of shares for an extensive expansion in the United States and several other countries in the world. Laura had been pivotal in the management and her death led to haphazard decision making which led to the quick expansion with little research on the implications. In many of the countries it was operation in, there was little success, especially in the North America. This was attributed to the brand that Laura had created an elegant and floral feminine brand that was very harmonious with the Britons. The North American style was, on the other hand, very stylish and vogue and sharp which made it clearly impossible for the company to operate. The corporate structure was disorganized and decentralized, a feature that the then management team could not handle. Its radical expansions failed and had created a different picture about the company which eventually affected its operations quite significantly.
Due to these poor management and decision making, the company plunged into the largest economic crisis which saw it nearing a takeover in 1990. The situation was not getting better and it posted a loss of £11.5 million that year. Later, at the verge of further slump, Aeon, which is a Japanese retailer, infused money into the company to save it. In return, the company obtained 15% of Laura Ashley Holdings. From this year, 1992, there was a series of innumeral changes in the company Chief Executive officers, which added up to 14 different CEOs in a span of only 11 years. During this period, there were many occurrences that were very dire to the company and the employees never took their job as a lasting one. This eventually led to further slump in terms of sales and diminished any chances of making profits.
By 1998, the company was in serious crisis to an extent that their lenders were afraid to offer any more credit to the company because they seemed to be in a position where they could not redeem themselves. Eventually, MUI Asia limited came to the rescue and bought and controlled over 55% of the company shares. By this time, Laura Ashley had closed down their retail outlets in the United States and were starting to embark on children wear and home furnishings, as opposed to the traditional products that primarily targeted British women clothing. After the MUI take-over, the company image started to slowly faded as new products, away from what the company had been developed, started to take the centre stage. The company also improved on online marketing and ensured that they reached masses through their online shops which has worked fairly well for the company. Today, the company is embarking on home furnishings since it has become the most profitable wing of the company. The current CEO was intending to reduce fashion in favor of home furnishings from 22% to 14% of total sales.
The two main strategic issues that arise from the case of Laura Ashley are the move to expansion into many countries in the late 1980s as well as the decision to change from their traditional British dresses to new products into the market. The first created a very significant effect on the company because it can be fairly attributed to the sharp drop of the company in the late 1980s and the period through 1990s.
According to Porters, there are five forces that determine the scale of competitiveness that a company can have in the market. They help the company to come up with strategies that should be employed in order to achieve the goals of the company. The forces are outlined below with their relation to the Laura Ashley Holdings case.
One of the key issues that Porters highlighted was the threat of new competition (Martin 1995; Porter 1980). When organizations venture into a field that has a lot of demand from the market, there is a likelihood that there would be an emergence of other companies. This creates a threat to the company that was first into the venture because there are cases where the first in the market is displaced by new entrants. All this depends on the management strategies that every organization has put in place. After its expansion, there was a general feeling that apparel industry was very profitable especially in the Northern America. Companies in the region straightened their strategies and started to diminish the sales of the company. The geographic location away from the North America was harmful to the Laura Ashley because they lacked good strategies to reach their goods in time, which resulted into lateness and merchandise lying in the store long time after the season for that type of clothing had passed. At the same time, the companies in the United States started to increase their taste of the people and ensures that they met the needs of the market, unlike Lara Ashley who had the English touch. Eventually, the American companies became too good for Laura Ashley to compete with, which led to Laura Ashley withdrawal from the region between 1997 and 1998.
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In another analysis tool, VRIO, which stands for Value, Rarity, Imitability and organization, the company, failed in the organization part (Kotler 1997; Porter 1980). This is because despite having a very competitive finance base from the sale of their shares, they failed to centralize their operations and only came to realize this when the damage had already been done . Their different channels of transportation of goods into the Northern American stores was disorganized and at one point, a winter shipment was two months late and was stocked in the warehouses rather than their stores. The winter was almost over and they had to sell their products at much reduced prices. This disorganization eventually led to deterioration in their ability to recover from the financial slump. It was further made harder by the increased number of chief executives that the company employed. Each of them knew that the company was facing financial difficulties and came up with strategies that in most cases worked for a moment then failed. It was therefore hard for any of the 13 chief executives to help the company recover since their time would be too short to have any long term impact.
Secondly, the threat of substitutes is another important feature that would affect the operations of a company (Kotler 1997). When the product is not very appealing to customers, the always tend to move and look for a substitute for the same. This was one of the issues that Laura Ashley scored right because despite their poor performance, the quality of their products was never questioned, especially in the United Kingdom. People still believed that the company taste was the best in the market and that no other company would beat the serenity and sense of life that their products brought to families. The goods were unbeatable and still had great respect from the people in the country. However, the expansion program was ill-timed. The products were popular in the United Kingdom, but the management team went for expansion in the Northern America region. This was a mistake because there were better substitutes in the North American region since people opted for a fashion that was crispy and sharp, as opposed to Laura Ashley’s homely and lifestyle fashion. This was a big let down and there was little chances of making profits.
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In the VRIO analysis, it was very tricky for the company to retain its image in terms of rarity and imitability. Over the years of its existence, there was a feeling of appreciation from the people of the United Kingdom that the products from Laura Ashley Holdings were rare and unique. Laura Ashley had developed a very rare and likeable brand that was a hit in the market.
The third force that any company should look into to ensure a strategic management process is the bargaining power that the customer possessed (Reichheld 1996). This would eventually translate into sales and would be important in the eventual profits. The bargaining power of the Americans was well timed and the change of business into household furnishings was equally commendable. The only problem was the execution of the plans since there was little possibility that there would be a good reception of British products in North America.
In the VRIO tool, there was a loss of the company value as they attempted to venture into the American market. There was an eminent threat of competition from other companies in the new market and the company had enough resources to curb the threat and possibly use it to its advantage. The company had enough money to expand, but they made a big mistake in determining that they would introduce their English brands into the American market. This proved fatal because it was a new market with different dynamics and needed a different approach altogether. They were eventually kicked out of the region and forced to concentrate on the home market in the UK. Worth noting is that the company even sold its retail outlets in Japan.
The other force is the bargaining power of the suppliers (Reichheld 1996). The company had just been entered in the stock market and their shares had been over scribed by 34 times. This was a very big plus because it showed the financial strength of the company and its ability to get into a better position if all the necessary management and expansion strategies had been well executed. In this case, the supplier had the power to bargain but failed in the management of the process of bargaining their segment in the American market.
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The company also failed in the delivery strategies. First, there was poor relationship between the market, management and distribution channels. Surprisingly, some clothing would be manufacture in Hong Kong, transported to Wales into a warehouse, then taken to Japan to a retail outlet. This confused product movement was experienced in the North American market when a winter merchandise was two months late and winter was almost over. It compelled the company to sell the merchandise at reduced prices which always resulted into losses and further diminishing of the company. This was a failure in organization and value.
The final force as outlined by Porter was the intensity of the rivalry that face the company. The most important thing that increases the competitive advantage in fashion industry is the ability of the company to invent and introduce new and likeable designs that are appealing to the market. This had remained the case among the Laura Ashley brand and the main innovator, Laura, had been pivotal in the process of innovation. She had made a mark in the apparel industry if United Kingdom that she was a force and important person due to her innovativeness. Her products were unique and likeable, and despite the management difficulties that the company went through, there was no doubt about the quality and respect that the products retained from the people. It was therefore a very important issue that the company took back its management issues and tried to streamline the processes since they had already beaten most of their competitors in the innovation phase. However, the company faced a big blow when the main innovator, Laura Ashley passed on. This eventually led to the fall of the product line and the introduction of new products such as home furnishings. In fact, the company is currently slowly phasing out the apparel section of the company in favor of home furnishings.
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The company had had unrivalled acceptance in the market by the people of the United Kingdom. Laura Ashley Holdings brands were highly respected and they were always on demand, despite the poor performance of the company. Customers found value and rarity of the products as well as their imitability. However, the death of the founder, Laura Ashley led to a very big gap in innovation. She was the main innovator and her absence could not be filled easily. This was a major undoing by the managers who took over the company. They started to expand the business, yet the main strength of rarity and imitability had suffered a big blow from the death of the company founder. Their expansion into the North American market was to be taken carefully because they needed another innovator who would then design products that would suit the new market. This would later severely affect the company and its sales. The process of expansion was poorly planned and done shabbily such that it could only result into disappointments to the company and its clients.
The Diamond Strategy in the case of Laura Ashley Holdings
Donald Hambrick and James Fredrickson came up with a strategy that was meant to carry out a deep analysis, visualization, summary and concrete sharing of the busieness or products that are taken to the market. They named this tool as diamond strategy.
Its main aim was to show that the small pieces of an organization matters in the final outcome or performance. The tool was meant to articulate the small issues in the organization in order to come up with a concrete formula that the organization would use to achieve its goals and objectives. The strategy contains five major elements namely:
- Economic value of the elements
The arena determines the areas that needed closer attention such as the market segments, the technologies that needed to be put in place, the categories of products and the stages for creating value (Hill & Jones 1998). The Laura Ashley case was lacking in the determination of the arenas. There was no determination of the segments that needed attention in the Northern American market and the introduction of the goods that the company did was proven to be a wrong idea. The managers entered the market without a clear determination of their targets which led top dire failure. It should be noted that the company was very popular in the UK because their products were a reflection of the lives of British people. When the same products was introduced in the American market, there were difficulties due to the difference in culture and perception by the intended people.
The vehicles that would be used to ensure that the arenas are reached are the channels such as acquisitions, partnerships and other international issues that needed a clear following (Hill & Jones 1998). Laura Ashley expansion was poor and the vehicles were poorly designed. The management team did not put in place the correct vehicles that would steer the expansion process. Since they decided to out alone, they assumed that the popularity that they enjoyed at home in the UK would be taken to the American market, which was wrong perception. The two countries had different tastes and a good example is the high popularity of casual clothing in the United States as opposed to official clothing in the United Kingdom. This would eventually have very dire effects to the retail outlets in the Northern America.
The third element is differentiation (Hill & Jones 1998). This refers to the strategies that a company needs to put in place to ensure that they win in the market that they venture into. While many companies assume that their popularity in one region would be transferred to another, there are important issues that one needs to fully understand about the composition of the new market. This would then be used to demine the pricing strategies, product specifications, any customizations as required by the market among others. Laura Ashley Holdings entry into the North America disregarded most of these important issues, notably the customization part. The company needed to determine the special needs that the people in the Northern America would want in their clothing and then try to give them the taste that they desired. Their failure could be attributed to the disregard of this important fact.
Staging is the fourth element that would be required to determine the strategy of expansion (Porter 1979). This would lead to the management team to determine the rate at which the expansion would be carried out, the quality, and number of initiatives that needed to be done, a clear and rational forecast of the expected period of returns among others. This is the most important stage that any organization needs to determine before any expansion is done, especially in markets that had never been ventured by the particular organization. It is therefore rational to state that this is the stage that Laura Ashley Holdings missed most hence the huge deterioration in their operations. They concentrated more on the move to expand and very little in the specific stages of expansion.
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The final element that the diamond strategy looks into is the economic logic of expansion (Reichheld 1996). This sums up all the possibilities that the company would face if they went ahead and ventured into a new market that is geographically different from the area that they had been earlier operate in. It would put into clear consideration the financial returns that are expected and the time that the first returns would be recovered (Moore 1995). It sums up all the other elements that are included in the diamond strategy and simply highlights all the processes that should be followed to ensure that a business decision is beneficial to the organization and the stakeholders. Laura Ashley Holdings had little of this and this reflect some f the reasons that led to their fall in the American expansion. In later years, the company has gone back to a new way of expansion where they try to kill their fashion and apparel sales and replace it with household furnishings. The company has developed a better way to determine the whether their process of expansion would be beneficial. They have determined a detailed process to come up with the best products to the market and the tastes and needs of the market. If this process is done correctly, there is high likelihood that it would never fall into financial crisis that are instigated by poor management or any other internal factors again in the near future.
Strategic Recommendations to Laura Ashley Holdings PLC
The company was founded o the basis of unique and inimitable clothing that was aimed at the population in the United Kingdom. The People in the UK were the best people to target with the clothing because they felt close and homely with the brands from the company. It was therefore important that the managers exhaust the home market and ensure that they create a barrier of entry by other competitors from the home market due to their line of products. This way, there is a high likelihood that despite the death of the chief innovator, the market would still hold the mentality that products from Laura Ashley Holdings were the best and unbeatable in the market. They would have retained the home market and ensure that there was no choice in their products. In order to enter into the US market, the company would have got an acquisition that was popular or get into a joint venture with a retailer that was already popular among the Americans. This would have been an easier venture and safer in case there was a resistance from the market. It would also have been reasonable to carry out a survey and determine the best products that would be acceptable by the American market. Designers who are conversant with the American taste would have been vital and helpful in determining a new line of products, since the company had a rich financial base before they ventured into the expansion process.
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The company failed in the analysis of its internal analysis of its strengths, weaknesses, threats and opportunities. When an organization takes a major step in its operations, it should ensure that it mitigates all the probable external factors. The death of the chief innovator and listing in the stock market needed the managers to come up with strategies that would ensure there was little chances of failure (Bradford, Duncan & Tarcy 2000). Apart from the internal analysis, the company ought to have carried out a thorough external analysis, as noted by Saloner, Shepard & Podolny (2006).
Personnel is a key ingredient in the running of an organization (Bradford, Duncan & Tarcy 2000). At some point, the company ran without a chief executive for 13 months in the middle of their management crisis. As Thomson & Martin (2010) notes that such an event leads to poor flow of information and poor process of making decisions. At the height of these cases, the board hired a competent chief executive, Maxmin, who decided to end the American market for the company. He even led the company to profits but was then fired leading to another collapse of the company. The board should have retained him until the economic status stabilized.