Potential Problems to Fast-Growing Firms - Assignment Example

?Question Potential Problems to fast-growing firms From an organizational perspective, one of the problems that a fast-growing firm such as X-Windcan develop as it tries to grow is loss of clear insight into the performance of the business and its profitability. In an effort to meet the increased market demand, such companies will make quick responses like acquiring expensive facilities, expanding their services, hiring many employees and even planning for acquisitions. However, most of these are done without the required capital, and proper coordination. One major problem that arises due to first growth is poor coordination. With a huge workforce working for the organization and a lot of resources being utilised to ensure high productivity, there are high chances of poor coordination setting in. Although the company might record increased sales, this does not automatically mean that the company is becoming more profitable. The organization may in fact be spending more to achieve less. In this respect, there are chances that lack of proper coordination could lead to cash flow shortages, which at first may be subtle and easy to ignore but with time, expenses will start exceeding revenues at a higher pace with each new month of business growth.  Under this circumstance, the company then begins to haemorrhage and becomes less profitable. Although hiring more employees results in increased production, it could negatively affect its performance. This is mainly because as the number of employees increases, the company and its principles begin to loose touch with the key employees, most of whom are more experienced, well trained and are more depended on by the company. Such employees will suffer greatly from loss of job satisfaction, become demotivated and could even quit the company. Having many employees could also lead to unproductive divisions that could strain its profitability and performance. As they try to control increased business activities and increased employee base, the management could lose track of the business functions that are more essential and this directly impairs its performance. The other potential problem that fast growing firms could encounter as they grow is lack of proper business planning. This problem mainly arises because the decision to expand in such companies is driven by the desire for personal/company satisfaction and the need to take advantage of available business opportunities instead of economic analysis, market studies and sound financial evaluation. As a result of this, the management of the company will end up creating for themselves a challenge beyond their capability and experience. Because of the improper motivations, such firms end up making rash decisions and developing projects or buy machinery that may not necessarily increase the profitability and performance of the company. Such projects or machinery could block the ability of the company to develop more appropriate projects or purchase more effective machinery due to incompatibility with the rashly established projects or acquired machinery. It could even lead to incompletion of these projects due to the problem of underfunding and this will have used funds for setting up more appropriate projects. Question 2: Solutions Solutions to loss of clear insight into the performance of the business and its profitability The company’s management must ensure that all its undertakings aim at supporting the core activities of the business. This means that the company must ensure that all the activities of various functions are properly coordinated. Good governance also plays a great role in the success of companies experiencing fast growth. The management of the organization should see to it that good decisions are made and that policies created by management apply throughout the organization. The company should limit all new projects to those it has the capacity and experience of handling. If not, it should hire people who are experienced and competent enough to handle such projects. This solution is crucial in that it will ensure that the company management does not venture into projects it is not able to handle or manage because under such situations, these projects might not perform and pull down the company’s overall performance and profitability. They should also ensure that they mark and continuously motivate their key employees and inquire about their levels of job satisfaction. This will ensure that such employees do not suffer silently from job dissatisfaction that could cause them to lower their performance deliberately or leave the company. It will also motivate them to influence other employees to perform for example setting group targets. Solutions to lack of proper business planning The company should make an in-depth market analysis to ascertain the essentiality of its new move as it tries to meet the increased market demand, for example, finding out if the increased demand is long-term or unpredictable. If it is long-term, the company should them make a sound evaluation of the economic situation and its financial position to ensure that it has the capacity to sustain new projects directed towards meeting this demand. This solution is important in ensuring that the company does not begin projects whose value will be short lived yet they consumed a lot of capital. It will also ensure that the company does not start projects it is not able to finance to avoid getting into debts which might drain resources necessary for running the company. An analysis of the economic situation will direct a business to plan only for projects that are economically viable in the existing economic situation. The company should also improve its monitoring and information systems. In this way the company will be able to obtain information on competition, market situation, internal costs and budget, sales growth, inventory controls, cash flows among others in a timely, efficient and organized manner. This will continuously provide the pool of information required for making proper business planning. This will lead to the development of business plans that are most appropriate for the company and those that will increase its competitiveness. Question 3 (20%) From an organizational perspective, what potential challenges would you check for in a situation where a firm acquires another firm? Please first identify and explain the general structure for your answer (i.e., how you would approach this question for any firm that you would have to analyze). Please make sure to carefully explain your arguments. Business acquisition involves the acquiring of a company by another with the aim of building on the weaknesses and strengths of the latter. Companies in this respect normally engage in acquisitions (and mergers) so as to become more profitable and achieve faster growth than they would under normal circumstances. While mergers and acquisitions (M&A) have remained a favourable growth strategy for many an organization, they are prone to failures. Mergers and acquisitions commonly fail as a result of several challenges that they face. In order to ensure that the merger succeeds, there are a number of factors that should be checked. These are discussed hereunder. When making a decision to acquire a business, the investment involved is normally substantial. Apart from the costs of acquiring the business itself, hidden costs may also be part of the offering to the acquiring business. In consideration of the above, the management of the business must consider how much is being spent and how much to expect in return. The strategy adopted by the acquiring company in ensuring that the cost and premium paid during the acquisition is less than the value that the firm will get in the long run. Without a proper strategy, the organization may end up having very limited resources with which to manage the new acquisition. One common cause of failure among organizations is poor governance and coordination and communication. Without proper governance, various departments may lose focus of what they are supposed to do. Yet again, with poor coordination, the organization instead of working as a unit may end up acting in disunity thereby failing in the achievement of corporate goals. Lack of proper leadership and governance may result to the demoralisation of the workforce. Given that the human resource is an organization’s most valuable resource, the acquiring organization should see to it that the human resource of the acquired company is retained. With an acquisition taking place, the employees of the firm under acquisition may resign or lose focus out of demotivation. This is especially the case considering that in the acquisition process management and even employees may be distracted from current operations leading to poor performance. The management in particular may lose focus of the factors that served as the firm’s foundation of success. Yet again, instead of focusing on achieving higher competitive advantage, the management may focus more on running a diversified business entity. Given that different companies have different organizational cultures and standards, acquisitions may face challenges in respect of the same. Yet again, considering that people from diverse cultures may be working for the different organizations the problem of intercultural communication may be part of the offering for the business. Attempting to adopt an organizational culture that is organic as opposed to one which is more mechanistic, for example, may be met with a lot of difficulties and resistance from employees. This may also lead to high turnover which means that the company may be losing the very resource(s) it sought to exploit. What this also means is that when the acquiring company adopts an ineffective integration strategy, there are bound to be a lot of problems and resistance to overall success. This is especially the case where the values and attitudes of the two businesses were significantly different. Question 4 (20%) In the case of X-Wind and Z-Power, which organizational challenges would you expect, given the information you have? Going beyond the information that you have available, what information would you look for in order to identify organizational challenges arising from the Z-Power acquisition? Please make sure to carefully explain your arguments. As noted in the case, Z-power is co-owned by several partners who are also employees of the organization. The shareholders previously owned different amounts of shares in Z-power. In consideration of the above, it is evident that the culture of Z-power and X-Wind are significantly different. While in the previous setup, the workers also own the company, in the new setup, they are mere employees. Considering that they appreciate their loss of ownership of the firm, their motivation may decline leading to poor performance. One major problem with managing larger entities is in relation to coordination and governance. From a relatively small employee base to an increase in the number of employees, X-Wind will definitely need to adjust its coordination levels. The organization will need essentially to ensure that its various functions continue to work seamlessly even with the integration of more employees and new expectations. With the acquisition taking place, the management of the new entity will be a major challenge with potential loss of some talented employees. This is so considering the employees/shareholders originally engaged not in manufacturing but in providing services related to innovation. As such they have almost nothing in capital that ties them to the organization even so considering that they work on project-basis. Furthermore, considering that X-Wind focuses on wind related technologies, the employees from Z-Power with expertise in automotive, aerospace, water power may end up being redundant. In this sense, the management of the new entity may have to lay some of Z-Power staff which again may lead to knowledge loss and loss of innovative capacity. Given the extensive processes involved in the acquisition, the management of X-Wind may be distracted from their objective of harnessing the strengths of Z-power and instead concentrate on managing the diversified business. Similarly, the employees and shareholders of Z-Power may be distracted from performing their functions even as they struggle to integrate into the new setting. One challenge with the new setup will be in respect of knowledge sharing or knowledge integration. Considering that Z-Power employees have certain knowledge that have kept them in the market as leaders, there is a high chance they may not be willing to share this knowledge with other workers in the new setting. Furthermore, they may be unwilling to apply some of their learnt skills for the benefit of the new entity considering that they have lost ownership of their shares in the new arrangement. This in turn may lead to a general decline in the company’s innovativeness and competitiveness in the market. Lack of trust among employees in the new setup is also a potential challenge to its success. With distrust playing its toll among the employees, their performance levels are bound to get low. The experts in various fields may be unwilling to share their skills with others for fear of losing their jobs once their competencies have been realised by other employees. Question 5 (20%) How should X-Wind organize in order to achieve its objectives with the acquisition of Z- Power? Please identify specifically what organization you would recommend, and make sure to explain why you think that this organization is appropriate to achieve the objectives. Please make sure to carefully explain your arguments. The success of X-wind depends mainly on its ability to remain innovative and lead change. The company therefore needs to remain open to new ideas and rely on experts to lead this change. With the acquisition in place, the company has the required workforce to lead the change. On the other hand, the organization need to get its products marketed, materials purchased and other activities done to see full success of the business against competition. The best organization for X-Wind to adopt in consideration of its objectives and line of business is the divisionalised configuration. The divisionalised configuration will see a number of functional units including engineering, marketing, purchasing and management perform their special functions best. X-Wind does not concentrate on stand alone projects but needs to produce a lot of innovative products (wind turbines). Once innovative designs have been made, the various wind turbines can be produced in relatively large numbers with middle level managers coordinating the various functions of the organization. With the number of employees relatively large, divisionalised organization is easier to manage as coordination is done by the managers and supervisors. Furthermore, standardization of products and processes is easy with this configuration so that managing quality is made easy. This kind of configuration ensures that professionalism, proper coordination of various activities, cooperation and autonomy are all applied toward the success of the organization. Xxxx | In most of these question I thought of seeing | Coordination problems and coordination mechanisms as solution | co-operation and Governance mechanisms in responce to these | Barrier to knowledge intergration, division of knowledge, knowledge loss emphased, standardisation of work, standardisation of output and standardsation of skills challanges and solution spoken of. | Read More