Strategic Analysis of Hackney Homes - Essay Example

? HACKNEY HOMES- A STRATEGIC REPORT Executive Summary In this report, a strategic analysis of Hackney Homes is done using relevant academic models. Porter’s five forces analysis show the organization not in a competitive position. The credit crunch made it difficult for the landlords to make developments on the building and work on nonperforming assets rapidly unlike the early 1990s. The consumer confidence also deteriorated significantly since 2007, which is obtained to have affected the property prices. Reports show lack of liquidity in the commercial property market mainly due to the pricing uncertainty. Moreover, the low economic growth is obtained to have damaged the rental values. Many recommendations are made for improvement of the organization in this report. Table of Contents Content Page Number Introduction 4 The Company 4 Competitor Analysis 5 External Environment Analysis 8 Overall Environment 12 Conclusion and Recommendations 14 References 16 Hackney Homes-A Strategic Report 1. Introduction Hackney Homes is one of the most famous organizations in UK which manages the council homes there. In this report, a strategic analysis of Hackney Homes is done using relevant academic models. Based on the definition by Waal (2007), the success of an organization needs to be evaluated based on its targets as well as the strengths and weaknesses .The targets are examined by mission and vision statements and the strengths and weaknesses are evaluated through internal and external analysis. The various positive (opportunities) and negative (threats) external factors influencing the performance of an organization are evaluated through external analysis. This analysis is very relevant for assessing a company’s present situation in order to develop new strategies or change existing strategies by making use of the opportunities and threats to the company. In this report, the services offered by Hackney Homes, its targets and strengths and weaknesses are examined through different academic models. The report has six sections. Section two discusses the targets and services offered by Hackney Homes. Section three discusses the competitive environment of the company. Section four analyses the external environment of the company .Section five examines the overall environment of the company. Section six concludes the report and makes recommendations. 2. The Company The main services offered by the company include management of council homes, rent collection as well as repair and maintenance of these homes (Hackney Homes, 2011a).Community service is the main aim of this organization. According to Collins and Porras (1996), the mission statement of a company gives its important ideology and visionary components. The three major components of the mission statement are generally identified as the committed core values, core purpose and the visionary goals to be followed by the firm to fulfil its mission. The mission of the organization is to ensure the delivery of homes to people which are excellent, accessible and high quality homes (Hackney Homes, 2011b).It works as an agent which manages the Hackney Council. It was formed in 2006 as a subsidiary of Hackney Council and is formed as an Arms Length Management Organization called ALMO (Hackney Homes, 2011b). Based on the mission statement, the main objectives of the company include provision of services which are excellent and accessible, delivery of modern homes, sound management of homes and neighbourhood improvement. The main values of the organization include service, honesty, achievement, respect and pride (Hackney Homes, 2011b). In the next sections, the competitive position and the general and specific environment of the company are examined using relevant academic tools. 3. Competitive Analysis According to Coulter (2005), there are both specific environment, like customers, competitors, suppliers etc which influence directly the company’s strategic decision and general environment like political, economic, social and technological sectors that indirectly affect the company’s strategic decisions. The specific environment factors affecting a company’s strategic decisions are analyzed based on the model of the five competitive forces by Porter (1980). Porter’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the organization’s external environment. This model includes the analysis of determinants of the intensity of competition and profitability of the industry like bargaining power of buyers, bargaining power of suppliers, threat of entry of new competitors, threat of substitutes and competitive rivalry (Pavlicek, 2008). However, the main criticisms against the Porter’s models are their focus on only profitability and survival and the assumptions of classic perfect market, simple and static market structures and competitive markets which disables to capture the dynamics of markets .Hence, it cannot consider new business cycle models (Speed, 1989 and Sharp, 1996). In spite of these criticisms, this model is still popular for external analysis. The results of Porters five forces for Hackney Homes are given below. 1. Threat of New Entry The reports show very strong entry threats from private external contractors who are fresh. Moreover, the entry criteria like turnover, equality, diversified staff all create huge new entry threats. The environmental problems also create another major entry threat. 2. Competitive Rivalry The competitive rivalry is mainly from medium to large scale contractors. Based on the council requirements, only 25 percent of contractor turnover is needed which creates strong competitive rivalry for Hackney Homes. 3. Buyer Power The reports show poor package for obtaining discount by the company. The procurement process here is in such a way that outcome is not a concern here while process is the only concern. The other issue include big tendering and the process of procurement which is not measured by value for money. Thus this force does not act in favour of competitive position. 4. Supplier Power The main issue associated with customers include lack of choice among suppliers. This gives more bargaining power to the existing suppliers. The arrangements with the existing suppliers are single and long term with stable price but based on the OJEU law. The suppliers bid for everything to fulfil OJEU law, which again gives more bargaining power to the suppliers. Moreover, the contract is not supposed to be split into smaller elements to avoid OJEU law. Thus this force does not act in favour of competitive position. 5. Threat of Substitution There is evidence of threat of substitution from TMO, housing association and property management companies. The councils are strapped for cash and the old people’s blocks are given away. Moreover, all the chipping away is done at housing stock. Thus this force does not act in favour of competitive position. The above analysis shows that all the forces do not act in favour of competitive position and hence Hackney Homes is not in a competitive position based on the Porter’s five forces analysis. In the next section, the external environment analysis of Hackney Homes is done. 4. External Environment Analysis According to Coulter (2005), there are both specific environment, like customers, competitors, suppliers etc which influence directly the company’s strategic decision and general environment like political, economic, social and technological sectors that indirectly affect the company’s strategic decisions. The political factors include stable political factors, liberalization of markets, foreign investment etc. The economic factors include economic growth, market credit, profit taxation, interest rates etc. The social factors consist of health condition of the population, endorsement of computers, internet access, lifestyle etc. The technological factors consist of technical communication possibilities, data protection, possibilities of data storage; progressive technologies etc (Pavlicek, 2008). The general environment analysis for a company is done by PEST analysis. PEST analysis means the analysis of Political, Economic, Social and Technological (PEST) factors that assess the strategic decisions of a company (Oxford University, 1998).This analysis is also called STEP analysis(Peng and Nunes,2007). According to Wall and Rees (2001), P.E.S.T Analysis can be defined as an analysis system for the general environment within which the firm operates. David (2004) suggests P.E.S.T Analysis as “A review of a company’s business environment in terms of four major factors.”. The results of PEST analysis for Hackney Homes are given below. 1. Political Factors In the housing, market local people are mainly employed. Moreover, the evidence shows a huge need for housing but not translated into demand. The significant decline in demand in housing market which is reflected in the decline in gross lending from the third quarter of 2007 and the financing constraints due to the worldwide credit crunch have been the two characteristics of the housing market since 2007. Due to these, many mortgage products have reported to be withdrawn. The rapidly growing internationalization of the mortgage markets in UK has been reported as one main reason for the decline in housing market prices and the recession. In spite of the government incentives to promote new building construction at low cost through the easing of restrictions, the building of many homes is still getting delayed and waiting for approval. Moreover, the evidence shows government cutting funding for capital budgets. 2. Economic Factors The rising unemployment rate and inflation as well as the decline in personal disposable income due to the financial crisis (UK National Statistics, 2010) will adversely affect the buying power of customers. The poor mortgage availability is another factor that can seriously affect the buyer power of the customers. The preference for the common man in UK is own house rather than rented or shared accommodation. Hence they buy houses with a small deposit and the rest huge amount is borrowed at interest rates which are competitive in the market called mortgages, which needs to be repaid later. The change in the interest rates announced by the government can adversely affect the raying capacity of the customers. This becomes more problematic and will be difficult to afford at times at economic crises. The prices of houses and housing affordability have got adversely affected by the crisis. From 2004 onwards, the housing affordability indicators started declining due to the continued house price rises together with the rise in the interest rates. The housing price affordability decline has reached its peak in 2007(Joseph Rowntree Foundation, 2008). There has been significant decline in the house price inflation from 11.4 per cent in August 2007 to –0.9 per cent in April 2008(Figure1). Figure 1: Monthly and Annual changes in Nominal House Prices Source: Joseph Rowntree Foundation (2008) 3. Social Factors A more awareness about health issues has emerged among the people (UK National Statistics, 2010), which can affect the demand of the customer. Hence, the company has to provide services according to the choices of the individual. With the growing importance of sustainable devel9opment, green issues have become an area of concern all over the world. Hence a balance of housing and environmental problems is needed .Moreover, a balance between housing and areas like education, leisure facilities is also demanded by reports. The loan rate is increased in the case of more expensive and thickly populated areas. The consumer confidence is obtained to have deteriorated worldwide especially in UK which is obtained to have affected consumer confidence in the property market. It is likely to have impacted the property prices (rightmove plc 2010). The commitment to put people first is another social factor affecting housing market in UK. The staff prefers working to local authority. Value for money is the ethics of local authority. 4. Technological Factors The rapid technological changes like internet booking of houses as well as distribution of products using new technologies have become common in UK. Hence, the companies need to adapt to the situation by implementing new technologies to remain in a competitive position. The changes in this regard in Hackney Homes include investment of 1.5 m in repairs appointment system, installation of new IT and phone systems, while there is lack of investment in plants. 5. Legal Factors The legal factors include the legal obligation to reservice, and to repair occupied properties, obligation to support OAPs. Moreover, there are many legal obligations for maintaining the health and safety of the tenants and staff. The legal system also allows for collective bargaining to the tenants. 6. Environmental Factors The environmental effects of housing market development on the country side have been a topic of concern to environmental groups. In spite of the incentives provides by the government to promote housing market development on the countryside, this has been an area of concern. Thus recent moves have been to promote housing market development in less desirable city areas. In the next section, the overall environment of Hackney Homes is discussed in detail. 5. Overall Environment The word SWOT stands for strengths, weaknesses, opportunities and threats (David, 2004).For the SWOT analysis, both the internal resources(strengths and weaknesses) and the external factors(opportunities and threats) need to be considered (Oxford University Press, 1998). The evaluation of internal factors need to be done in areas such as company culture and image, organizational structure, key staff, access to natural resources, position on the experience curve, operational efficiency and capacity, brand awareness, market share, financial resources, market shares, exclusive contracts, patent and trade secrets(Bennet,1999). The evaluation of external factors need to be done related to customers, competitors, market trends, suppliers, partners, social changes ,new technology, economic environment, political and regulatory environment(Bennet,1999).The SWOT analysis summarizes these internal and external factors as a list of strengths, weaknesses, opportunities and threats. A SWOT profile is generated after the SWOT analysis .This profile is used as the basis of strategy formulation, implementation etc. The main limitations with the SWOT analysis are the inappropriate classification of the factors and thereby oversimplification of the situation and arbitrary .classification of factors as strength or weakness and opportunities or threats (Hill and Westerbook, 1997).The results of SWOT analysis for Hackney Homes are given below. Strengths The main strengths of Hackney Homes include readymade workforce, thorough knowledge of the products by the operatives, established suppliers, very good relationship with the customers and the funding which is very secure. Weaknesses The main weaknesses include regular opposition from the unions, the employees which are very aged, lack of opportunities to bid for new work, very high overrates and expensive schedule of rates. Moreover, the lack of choice among suppliers increases the bargaining power of existing suppliers. The procurement process here is in such a way that outcome is not a concern here while process is the only concern. The other issue include big tendering and the process of procurement which is not measured by value for money. Opportunities The main opportunities for Hackney Homes include strategic partnerships that help in the expansion of work. Moreover they undertake specialist works. The other opportunities include tender for regeneration work, tender for printing work and tender for light civil work. Moreover they undertake decent home work and disability work which provide better opportunities for Hackney Homes. Threats The main threats to Hackney Homes include decline in main works, selling off council blocks, decline in budget and the council properties now TMO. Moreover, there is only one client which imposes a strong threat to the organization. 6. Conclusion and Recommendations In this report, the various services offered by Hackney Homes and its external and internal environment analysis is done. Community service is the main aim of this organization. The report shows the organization not in a competitive position. The credit crunch made it difficult for the landlords to make developments on the building and work on nonperforming assets rapidly unlike the early 1990s. The consumer confidence also deteriorated significantly since 2007, which is obtained to have affected the property prices. Reports show lack of liquidity in the commercial property market mainly due to the pricing uncertainty. Moreover, the low economic growth is obtained to have damaged the rental values. The problems in the banking sector especially the interest rate problems are reported to have acted as a dampening factor on housing market prices. Based on the report, it can be recommended that employee training needs to be improved in Hackney Homes for improving its performance. The intake of apprentices needs to be improved for its better functioning. The disrepair properties need to be utilized for apprentice training. The strategic partnerships with contractors and new build organizations can be recommended for improving the competitive position of the organization. Investment in plant machinery is needed with spread cost of items over three years. Improvements in tender for light civil work and drainage work also are recommended. The train operatives need to install disability equipments, ramps etc, the train electricians need to install and maintain door entry systems and the train carpenters need to install security doors. There is the need for strategic management department, staff consultation and business development manager in Hackney Homes. Close relation with the union is needed. Benchmarking the feedback for supplier services, stores, employee attitudes, jobs need to be done in this organization. After benchmarking. A training programme is essential lt the managers and the other staff. References Bennett, R. (1999). “Corporate Strategy”, 2nd Edition, Glasgow: Bell & Bain Ltd. Collins J C and Jerry I Porras (1996): “Building Your Company’s Vision”, Harvard Business Review, September-October. Coulter, M. (2005). “Strategic Management in Action”, 3rd Edition, New Jersey: Pearson Education, Inc. David, R. F. 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