Abbey Properties Limited in Recession - Dissertation Example

?Running Head: Abbey Properties Limited in Recession Abbey Properties Limited in Recession [Institute’s Abbey Properties Limited in Recession Without any doubts, out of the few businesses, which were hit hardest by the recent recession, housing and real estate businesses were amongst the top of this list. Important here to note is that this is true for two important reasons. First, as mentioned earlier in the literature review as well that this has been the historical trend that just before the recession, real estate prices hit their peak that is followed by the recession that causes the real estate prices to decrease by strong percentages (Hitt, Ireland & Hoskisson, pp. 30-32, 2009). Second, this current recession had its roots in the bursting of the housing bubble in the United States. Long before this recession formally started, the housing bubble started to fall apart and the housing prices started to fall. Due to strong connectedness between the United States and United Kingdom, the effects in form of decreasing prices were visible long before other businesses could see the same on financial statements. Abbey Properties Limited did go through the recession of 1990s during its 27 history but without any doubts, this was the toughest time in the history of the company (Weale, pp. 5, 2009; Stanyer & Dimson, pp. 19-20, 2010). Model of Entrepreneurial Strategies used by Abbey Properties Limited The literature review mentioned four possible entrepreneurial approaches that small and medium sized firms in United Kingdom use during a recession. Despite the fact that the case of Abbey properties limited did not appear to be fitting completely in any of these four categories, it was somewhere between the “Migrating Geese” and Lambs to Slaughter” model with a greater inclination towards the former. Without any doubts, Abbey was far away from being the “Hibernating Beers” since it did not shut its operations. In fact, the recession hit the United Kingdom in the second quarter of 2007 and the company’s financial statements did not show any signs of a recession for the year 2007. In fact, there was no need for an emergency up until the start of 2010. Even that the company was faced with a period where there were no sales at all for the company, it did not shut its operations or went into the hibernation mode. In fact, there are also no signs that the company had fired any employees, shrank in terms of size, shut down its offices or any others (Landstrom, pp. 160, 2009). Furthermore, the evidence suggests that the company did not also fit the description of “Sensible Squirrels”. In fact, it is important here to note is that many small and medium sized organizations in United Kingdom and United States are least likely to fit into the description of “Sensible Squirrels”. Many of these companies operate on a day-to-day, week-to-week or monthly basis (Buckley, pp. 69-71, 2011; Stokes, Wilson & Mador, pp. 26, 2010). This is exactly what differentiates them from large organizations. Big corporations and companies are more likely to have a vision, mission, clear and well defined strategy with long-term plans. On the other hand, small and medium sized organizations are more likely to look at the short term opportunities and challenges and due to their limited, scope, financing, funding, resources and others, they will restrict themselves to the “wait and watch” zone (Weale, pp. 5, 2009; Stokes, Wilson & Mador, pp. 26, 2010). This explains why every year, thousands of small and medium sized business go bankrupt or they announce closure because of their short-term mentality. Gone are the days when businesses had the chance to have short term or reactive mindset. The macroenvironment is quickly changing that firms, which take more than a while to react, find themselves having outclassed by their competitors in every possible way (Arestis, Sobreira & Oreiro, pp. 201-202, 2011). The interviews with the Director and General Manager of Abbey Properties did indicate that the company was far away from taking a proactive approach about the recession and financial crunch. Instead, the company took a “reactive” approach and reacted to the situations when the company faced them (Tanabe & Watanbe, pp. 241-242, 2005). Abbey Properties took more of a “Migrating Geese” approach because both there was a consensus between the General Manager and Director of Abbey that most important which they did to overcome recession was to “restructure”. Rather than taking a traditional 50/50 approach towards sales and lettings, Abbey restructured to take an 80/20 approach towards lettings and sales. The company even asked its sales staff and other employees to take the jobs of the lettings department so that the company could ensure a constant flow of cash. Furthermore, another approach step taken in this regard was to focus on the DSS housing tenants. As the General Manager of Abbey Properties indicated that, “we thought that basically, what might be a good avenue was to go down the route of DSS housing tenants where they get their money from the government. The government was quite clever as they would offer private landlords, who would normally not take council tenants, very very high rents … so you would get lots of landlords who would previously not consider that type of rent entering into these long term rental agreements with this council tenants. Subsequently the council will then drop the rents so they tied landlords in, drop the rents and leave landlords with nowhere to run … we would also get incentive payments from council, we would get very very high rents and get long term tenancies which meant that we could invoice for large commissions” (Thompson & Martin, pp. 85-89, 2010). Another very important change that the company undertook was to streamline its operations. Like most of the business, even the large corporations, companies tend to centralize their operations during recessions since they when sales shrink and when departments are fighting over the limited and scarce resources, it becomes important to keep a track of the spending by the employees (Thompson & Martin, pp. 85-89, 2010; Fitzgerald, pp. 145-149, 2008). Therefore, rather than giving them a free hand and taking the risk, managers, directors and owners take as much matters in their hands as they can and poke their nose into all possible operations of the company (Michael & Robbins, pp. 39, 1998). The same was true for Abbey Properties Limited that streamlined and centralize its operations to take maximum matters in the hands of the central management of the company. Furthermore, to some extent, there was a hint that Abbey also took the “Lambs to Slaughter” approach. However, important here to note is that the applicability of this approach was restricted to a certain extent. This is true because the company did not completely deny the presence of a recession; neither had it appeared to be overconfident about the prospects of a recession. Nevertheless, the people at Abbey did move forward with a positive and opportunistic mindset, which was exactly the requirement for this time. In addition, the company did not engage in any practices of relocating, downsizing or any other such approaches, which could indicate that the company is being highly proactive (Arestis, Sobreira & Oreiro, pp. 201-202, 2011). Entrepreneurial strategies used by Abbey Properties Limited The literature review shed some light on the six important entrepreneurial strategies, which the small real estate companies employ during the recession. Diversification The evidence suggests that Abbey Limited is a small company with business of almost 12 people and considering its resources, financial base, and owner’s vision, it appears unlikely that it would diversify into any other business in near future. Diversification can be classified into two board categories of related and nonrelated diversification. As the names suggests, a soft drink company diversifying into the business of mineral water is a related diversification. Therefore, any decision of Abbey to diversify into a completely new business that has nothing to do with real estate, rent, property and such business would be unrelated diversification (Hill & Jones, pp. 354-355, 2009; (Blanchflower & Shadforth, pp. 65-67, 2007). Quite understandably, neither does it appears that Abbey has the capability, nor does it have intention of any unrelated diversification. However, there are hints that during the previous recession Abbey decided to diversify into to broaden its scope to DSS housing tenants as its customers as well. Perking up the liquidity position Although, not directly but indirectly, the bottom-line of all the steps that any company takes, during a recession, is to improve its liquidity position. Surprisingly enough, the efforts that the company has taken to improve its financial position are diverse and not focused enough. Abbey’s strategies to maintain and ensure that its cash flow position is lucrative enough have appeared not to be strong enough since the company does not have strong and well defined mechanisms to ensure the same. It relies heavily on the luck and optimistic factor that even if in any month, the company is not able to score the required financial numbers, previous sales or receipts would help it to save the day. This explains why the small businesses are so vulnerable during a recession (Hill & Jones, pp. 354-355, 2009; Landstrom, pp. 160, 2009). They fail to focus on the fact that managing their cash flows is crucial to their business and when they fail to do the same, they find themselves in a position of insolvency. To make matters worse, neither do investors nor banks are ready to lend money to small business on reasonable interest rates (Landstrom, pp. 160, 2009; Cummings, pp. 198-199, 2008). Abbey is lucky enough to be able to make it through the recession despite its inability to recognize the importance of managing cash flows at all times (Hitt, Ireland & Hoskisson, pp. 30-32, 2009). It is possible that this is the manifestation of the fact that the company has been able to make it through the past couple of decades. It has seen the recession of 1990s, the impacts of Asian Financial crisis, the aftermath of 9/11, the impact of 2005 bombings in London, this current recession of 2007-2010 from which it is recovering and others events. Furthermore, for much of its history, the company has had very low turnover for its management positions that has allowed the management people to develop this belief that they can make it through every thick and thin (Nwankwo & Gbadamosi, pp. 352-354, 2011; Cummings, pp. 198-199, 2008). Furthermore, an experience spread over 27 years is enough for a small business to be certain about which events are real threatening to the company’s survival and how to cope up with them (Buckley, pp. 69-71, 2011). Buying Old Houses Instead of New Houses There is a possibility that at some level that Abbey and its salesman may have done this but the interviews and the evidence available to the researcher does not allow the conclusively claim the same. However, the company did shift its focus from Sales to Lettings that has been mentioned earlier as well. This was because there was nothing there for the company to earn with focusing on sales since there were no sales for obvious reasons. However, there was a little potential in lettings and the company started spending most of its resources to extract that potential in the lettings area. Implementing Cost Effective Technologies Considering the type and nature of business of Abbey, there was little room for Abbey during these past three to four years in terms of implementing new technologies, which could allow the company to generate cost savings. The interviews have indicated that the company has had a close eye on the medium and media that it is using for its promotion. It is quickly updating the websites, magazines, billboards and others that it is using for the promotion of the company. However, it is important to note that there were various different cost effective techniques, which the Abbey employed in order to cope with this recession. First, the company provided its new employees with different pay structures with lower base salaries. Important here to note is that it did not do the same for its former employees which is actually a positive sign. Companies, which actually take the risk of downsizing, freezing wages, cutting the benefits and benefits of their employees, find themselves with employees with a very low morale, satisfaction, and motivation level. Furthermore, the company also ends up sending the message that if such a situation arises again in the future then the company will get rid of as many employees as possible since it sees its employees as a variable expense and not as resource (Crossan, Bansal, Killing, White, & Zietsma, pp. 19-25, 2011). This creates a sense of job security and when the economy recovers and market witnesses a boom, the rest of the employees will end up taking jobs at firms where they think that they are more secure. Therefore, the point here is that by not deliberately undertaking the operation of downsizing and not decreasing the salaries of the existing employees, Abbey ensured that it could keep the morale of its employees at a high enough level. The new comers in the company would understand that this different pay structure is not the manifestation of any discrimination but this is the manifestation of the tough economic climate (Thompson & Martin, pp. 85-89, 2010). Nevertheless, Abbey cannot allow this disparity in the pay structures of its employees for a long period since it may create a sense of discontent and dissatisfaction amongst the new employees (Hill & Jones, pp. 354-355, 2009; Fitzgerald, pp. 145-149, 2008). Therefore, Abbey has to ensure that when the dark clouds, it should take some serious measures to ensure that equality in the pay plans and pay structures of all its employees. Second, the company created an environment where its employees were motivated enough to work late and after office hours. This provided the company with an important edge over its competitors. Abbey was not paying its employees anything extra for staying late in the offices but the employees had the energy and positive mindset to work late so that they could steer the company and themselves out of this difficult economic time. Important here to note is that this strategy was crucial in attracting the tenants since they were looking for agents once they were free from their own jobs (Crossan, Bansal, Killing, White, & Zietsma, pp. 19-25, 2011). Third, as mentioned earlier that rather than giving a freehand to the sales agents and other employees, the management of the company tried to take as many matters in their hand as they can. Previously, the agents performed even much of the administrative work but now the company restricted them to the negotiation part and took the rest in its own hand so that it could keep a closer eye on the operations of the company (Nwankwo & Gbadamosi, pp. 352-354, 2011). Furthermore, it also ensured that the agents did not have the excuse of time for not meeting their quotas. Abbey’s management knew that during this economic climate, their agents might deliberately underperform and put all the blame of their decreased sales (even the portion of their own ineffectiveness and laziness on the economy). In order to avoid the same, the company decided to provide these agents with the maximum possible time in the field so that they have lesser excuses (Hitt, Ireland & Hoskisson, pp. 30-32, 2009; (Stanyer & Dimson, pp. 19-20, 2010). Signing Big Customers As mentioned earlier that the Abbey employed a very effective approach of targeting the DSS housing tenants which helped the company to earn extra ordinary profits. Despite the fact that this segment evaporated within a year or so but the company did not its best to exploit the same. Furthermore, Abbey did not try to sign or get hold of any big customers, although, it did try to ensure that it retains it old customers, which are very crucial to the company (Crossan, Bansal, Killing, White, & Zietsma, pp. 19-25, 2011). It was understandable enough that during the recession, it was not going to able to attract new customers since there were not much new customers and the ones that were ready to buy homes were like the “few little fishes which were left to a large group of sharks” (Thompson & Martin, pp. 85-89, 2010). There was intense competition over those few customers, thus intensifying the competitive pressures and decreasing the chances for Abbey to attract those customers (Whitley, pp. 206-207, 2007). Therefore, Abbey did not the right thing by focusing its energies to retain its old customers, which knew the company, who were loyal, who required little orientation and effort and who were most likely to do word of mouth advertising (Newell & Sieracki, pp. 89-91, 2010). Quite understandably, it was much more profitable than going after the few customer left in the market since for attracting those customers, the company may have had to spend more money than it could have earned (Hitt, Ireland & Hoskisson, pp. 30-32, 2009). When competition intensifies, companies have to spend more money on their sales, marketing, advertising, promotion, research, and other activities. Furthermore, in order to attract cost sensitive customers, companies decrease their prices which means that towards the end of the day, they are being hurt by a double edged sword, decreasing revenues and increasing expenses which results in the nightmare of shrinking profit margins (Tanabe & Watanbe, pp. 241-242, 2005). Resilience and vulnerability View One of the most important aspects of this research is to explore that whether it was the resilience view of vulnerability view, which Abbey adopted towards the recession, and how did it influence the firm. Considering Abbey and its approaches, it was difficult to classify its approach and strategies in either of the categories of resilience or vulnerability. This is true because it appears that the firm had elements from both of these models. Earlier in the literature review, both these models and approaches have been discussed in much detail. Abbey had vulnerability view towards the recession because deep down inside, the company and all its employees knew that the company and its business are highly vulnerable to these economic conditions. This explains why the company quickly responded by making so much changes which have been discussed earlier in the section as well. All the quick changes that the company made to its approach and its operations were a manifestation of the fact that Abbey knew that it had to take drastic measures in order to survive through this recession. Without any doubts, Abbey Properties had its reasons in believing the same. As mentioned earlier that real estate in one of the earliest business affected by recession and the most strongest. The loss of 15000 jobs of real estate agents alone in the year 2008 and the loss of 40000 jobs in the period of 2008-2012 is an alarming figure. Recession means that this it becomes difficult for people to get mortgages, due to lower prices sellers decide to hold their properties and people who want to buy homes have lesser cash and resources so they also wait for the good times (Crossan, Bansal, Killing, White, & Zietsma, pp. 19-25, 2011; Forrest & Yip, pp. 206-207, 2011). Furthermore, the real estate market is an extremely competitive one. There are too firms in the market which are trying to get the same share of customers which means that every firms feels that the competitive pressures of acquiring new customers and retaining the previous customers is extremely high (Whitley, pp. 206-207, 2007). Abbey is the seller of a service or product that is not urgent for all customers. Many people who want new homes have the capability to hold back their purchases and looking at the economic climate, they decide to do the same. Therefore, from the moment the recession hit the market. Abbey knew that the company, as a small real estate firm, was extremely vulnerable to the recession, which forced the company to make so many changes in its operations, approaches, and strategies (Michael & Robbins, pp. 39, 1998). On the other hand, Abbey did not only take the defensive approach but it was able to make it through the recession because it knew that this tough economic climate would not only present challenges. However, it would also open the doors of a few opportunities for the company and if it is smart enough to capitalize on them, it will reap the rewards (Crossan, Bansal, Killing, White, & Zietsma, pp. 19-25, 2011). In fact, the evidence suggests that that it was able to capitalize on these opportunities in a profitable manner. As mentioned earlier that when the opportunity appeared to target the DSS tenants, it did not leave the chance. The company even opened its offices until 10pm on some days waiting for those customers to get free from their jobs. Furthermore, the company was also quick and spot-on when it came to capitalizing in the opportunity of lettings. Rather than employing new people, it went into the exhausting process of restructuring the entire organization. The company was previously focusing equally on lettings and sales, however, during this recession; it merged many of its departments to focus solely on lettings. The employees which were not happy with the strategy or who were not comfortable with lettings were asked let go. The director and General Manager of Abbey revealed in their interviews that they did not view the economic climate as harmful or dangerous but they repeatedly mentioned that this recession has changed the demand and consumption patterns and the firm needs to ensure that it could adjust to those new demand and consumption patterns (Chiquier & Lea, pp. 21-23, 2009). Abbey knew that despite all the hype, it is large corporation which is at a higher risk of failing during the recession and small businesses are in fact more likely to thrive (only and only if they have a visible, well defined, communicated and strong competitive advantage) (Whitley, pp. 206-207, 2007). Furthermore, even the data from the year 2009 reveals that more than half of the companies on the Fortune 500 list for that year begin their business in an economic recession. Therefore, Abbey started putting its energies in focusing on the small opportunities, which the big firms would not be able to focus on because of their size (Weale, pp. 5, 2009). Therefore, the point here is that it is difficult to say that whether Abbey took the resilience of vulnerability since it does not fulfill the criteria for both of them. 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