The utility of strategic plans in effecting strategic change for Randstad Holdings NV - Essay Example

RUNNING HEAD: STRATEGIC MARKETING & PLANNING STRATEGIC MARKETING & PLANNING of Introduction This paper will critically appraise the utility of strategic plans in effecting strategic change for Randstad Holdings NV. The present strategic plans of the company will be evaluated using different models and proposed strategies will be recommended if justified on the basis of the evaluation of the first. 1.1 Background Randstad Holding NV (or “Randstad”) has it base in Netherlands. It is global company engaged human resource (HR) services industry by providing temporary and contract staffing to various clients. It functions under its five divisions including Staffing, Professionals, Resources (HR) solutions, Search & Selection and In-House Services. Under its Staffing division the company can provide temporary staffing, permanent placement. Under Professionals division, the company recruits of middle and senior management position and employees who must have professional qualifications, either for permanent positions or project basis. Human Resources (HR) Solutions division offers, HR management and HR consultancy services. In-House Services guides clients to improve labour flexibility, retention, efficiency and productivity (Reuters.com 2010a, Randstad, 2011). Its global operations beyond Netherlands extends those in Chile, France, , Canada Greece, Mexico, India, Germany, Belgium, Bulgaria, Luxembourg, Spain, Switzerland, Poland, Portugal, the United States and the United Kingdom (Reuters.com 2010a). 2.1 Industry Overview Randstad falls under HR Services industry which can be described to still a growing industry. Having not yet reached it maturity stage based on the recorded growths in the industry (Reuters.com 201Ib) and the flexibility being experienced in the world of work and as demanded by players of the globalized economy, the company is thus facing a very favourable environment (Carroll, 1983). 2.2. Macro Environmental Analysis The significant macro trends in for the past five years cannot escape the financial crisis of 2008 to 2009 which has reached its global effects. The crisis could actually be considered a global one as biggest economies in the world were severely affected. Until this time, the unemployment level in the US and the UK are still at very high levels and it would appear that the stimulus packages implemented by their governments as a result of the crisis has not yet restore the lost trust from in the capital markets and the banking system. A number of good companies however have reflected positive growths in their revenues and profitability starting in 2010 and onwards. 2.3. Competitive Environmental Analysis The Porter’s Five-Forces Model (Porter 1980) would be preferred model for this paper to extract the industry opportunities and threats. Industry opportunities can be viewed as favourable conditions that afford better profitability for the players in the industry while threats are just the conditions what will lessen the said profitability for the same players (Kotler 1994, Pearce and Robinson, Jr. 2004). Threat from new entrants (High) There is high threat from new entrants in the HR services industry because the industry is not capital intensive due to the non-requirement for industry players to really invest in big equipments or building. Thus economies of scale as bar to entry could not be easily availed of. Similar agencies that provide HR products in form of staffing, recruitment and other HR related business could easily come into the industry. This therefore makes it favourable to new comer but unfavourable to present industry players because more competition generally means lower profitability. Although the industry may be expected to grow, the growth could easily be eaten up by entry of new players thus causing profitability to dwindle. Bargaining power of suppliers (high) Bargaining power of suppliers should considered as high due to the numerous sellers or potential providers of human capital for employment from which these industry players could get people including the educational institutions that produce millions of graduates yearly. Given the size of suppliers, a strong force coming from these suppliers of human capita should not be surprising, particularly because of existing rivalry also. This can be considered as industry threat since suppliers could put pressure on industry players to bring down prices. Bargaining power of buyers (High) Bargaining power of buyers would be considered as high due to presence of many corporate customers who could do recruitment in house rather than outsourced the same from industry players to develop their people and there could be no switching cost at all to another industry player. Almost every corporate consumer of HR services may have a wide array of choices from market. They can actually do the hiring themselves given the level of technology that would facilitate many aspects of the trade. This is a threat to the industry as it could leave buyers shifting from one player to another or developing their own. Threat from substitute products (low) Threat from the availability of products substitute can be considered as low as brought by the small number of apparent substitutes. This may be due to the many pressures for better profits in terms of higher productivity from labour which could turn seeming substitutes to be technically closed substitutes of HR services as outsourced by customers. Highly trained human resources are difficult to imitate and companies and in continuous search for the best. This could explain highly paid CEOs and managers because of their unique skills. Intensity of competition or Rivalry among Existing Firms (High) A strong rivalry among existing firms may be considered as high. This can be supported being affected by the recent financial crisis which caused players to compete heavily on how to satisfy their clients who required more flexibility. Viewing this as threat for players would be proper since as player competes for the market, they would have to increase cost and thereby lessen their profitability as a result. The HR services industry moves at its growing stage and therefore and immature get attracted by the ease on entry. 2.4 Competitive Environment Analysis Drivers of several strategic growths thrive as due to the need for flexibility, increased penetration, and continued deregulation. Moreover, clients want for fewer suppliers and look for a total offering. These drivers may actually be deemed as significant business phenomena that could amount of industry opportunities in addition to those identified under the five-force model (Randstad, 2011). Nevertheless, taking them as part of the competitive external environmental analysis for HR industry to be taken advantage by industry players make them more meaningful. To accomplish this part, the combined used of the following models are expected: Porter’s five-force model, financial analysis and unique features identification for the company The competitor included as part of this paper is Penna Consulting plc (PC) which is engaged engage in providing human management consultancy support services (Penna Consulting, 2011). For purposes of the evaluating the degree of completion in the HR industry, the latter is considered belonging also to the business support services industry and purposes of comparison with another company. 2.5 Internal Analysis - Financial Analysis Financial analysis is constructed by comparing the overall financial situations of Randstad and PN based on their financial statements as retrieved from their Annual Report for year ended December, 2010 (Randstad, 2011) while that of PN for the latest year ended March 31,20 10 (Penna Consulting, 2011). 2.5.1 Financial Ratios Analysis As to profitability Randstad appears to less profitable compared with PN. While Randstad had a merely 1% profit margin for 2009, PN had only 15% for the same years. The difference becomes clearer in terms of return on assets and return on equity, were Randstad has at least five times less than that of PN. However, the profitability rates are still positive. See Table A below. See Appendix I for more details. Table A- Profitability Ratios: Source (Randstad 2011; PN 2010; Reuters.com 2010b) Return on equity (ROE) of 10% i for Randstad would show things about the how the company has performed better in 2010 compared to previous year surpassing even PN at negative 3% but not industry average of 12%. . See Table a above in relation to Appendix I. As to liquidity, which measures the capacity of a company to meet its currently maturing obligations using the current ratio and the quick asset ratio (Helfert, 2001; Higgins, 2007; Bernstein, 1993), Randstad can be still liquid. The quick ratios of Randstad are 1.18 and 1.20 for the years 2009 and 2010 respectively while the current asset ratios for same years are 1.24 and 1.25 respectively. This must be because almost all currents assets are also quick assets of Randstad. See Table A above. As against competitor, Randstad reported current ratio of 2 year average of 1.24 which is lower r than industry at 2.97 See Table A above. Randstad must be more liquid or is faster in generating cash from its operations than PN at below 1.0 current ratio and has better ability of paying its short-term obligations although below industry average as seen. As to solvency, Randstad also showed a less superior position in terms of average debt to equity ratio of only 1.53, which is riskier than that of PN at 1.19 and industry average of 0.15. See Table A above. The lower the debt equity ratios, the better it is for the company since its means less exposure to risks. This means that its competitor PN has less debt obligations in relation to capital investment from investors (Arnold, 2004; Atkinson, et al, 2005). 2.5.2 Internal analysis- Identifying exclusive features Using the above approach, Randstad can be considered to have strength of being market leader in an attractive industry. The company is considered to be the second largest HR services provider in the world after its merger with Vedior in 2008 (Randstad, 2011). The company is operating in number of developed nations including the US, Japan, Netherlands, UK, France other countries in Europe. It claims to have a number of segments its operation after its merger with Vedior (Randstad 2011). 2.4 SWOT Summary This part in effect summarizes the discussions made in the external and internal analysis using the general environment, Porter’s five-force model, unique characteristics, and financial analysis. Strengths These are conditions or characteristics of the company, which could be tapped by the company in its design of its strategies. The following are the company’s strengths. Market Leader in an Attractive Sector - The Company may be considered to be the second largest HR services provider in the world. Minimal Investment Requirement - The Company could easily expand because of low capital requirement or not being capital intensive. Generally Liquid - The Company is generally liquid with current ratios of above 1.0 for the last two years and even better than competitor is. The company’s capacity strength to wealthier short-term insolvency could be further used to improve profitability (Baker and Powell, 2005; Fridson, and Álvarez, 2002). Less superior leverage position than industry– Its debt to equity ratio is higher than its competitor PN and against the industry average in 2010. Weakness: The company was found to have weak point, which it should make stronger or avoid in its design of its strategies so that it could accomplish its objectives. Low profitability - The Company’s low profitability is evident as the industry average. Industry Opportunities These are derived from Porter’s five forces and the greater macro-environment that may cause decline in the profitability of the company. Low availability of product substitutes – This could increase the chance to earn more profit as the different economies go for higher productivity and employers have seen the same in terms of better flexibility in managing their human resource components. Threats High Bargaining power of buyers – This could aggravate the company’s low profitability as customers would need to cut their expenditures due economic pressures cause by present recession in the US High rivalry of competitors – As found earlier, this forces existing player to for profits as evidenced by the competition in terms of prices Ease of entry by new entrants – Not requiring much capital could actually encourage more to come in easily to the retail industry. High bargaining power of suppliers –There are many suppliers of human capital as could triggered by continuously increasing population and difficulty of reaching full employment for many economies. 2.5 Evaluation of Business & Corporate Strategy To evaluate the present strategy, there is need to know whether the company follows some of the principles that may be learn from some models for strategic management. The following questions will have to be answered in determining the strategic issues now faced by the company: How does present strategy fare in relation to strategic management models? In using Porter’s Five-force-model, does it take advantage of industry opportunities, protect itself from industry threats, make uses of its strengths and correct its mistakes? In using GE Matrix, does it choose the strategy that could logically derived using the model? The McKinsey 7s Model would instead by be used in implementing the strategy that would result from the needed strategy to address the strategic issues that will have to be derived. The present strategy is geared toward expansion as can be analyzed 208 mergers with Vedior. Management plan to defer dividends to stockholder for the coming years and company plans for continuous investment in its people in preparation for its expansion plans. A strategy from the company’s annual report of 2010 (Randstad) was in fact good as it takes advantage of industry opportunity and protects the company from identified industry threats. although not expressly and clearly stated. Strategies then applied the Porter’s five forces model and financial analysis. To determine the application of GE Matrix (Kotler, 1994) for Randstad, requires determination of its business strengths and industry attractiveness in a graph using the model per Figure A below. Given the identified strengths in the SWOT analysis, the company could be generally classified to have “medium” business strength because of its being a market leader and financial strengths of liquidity and leverage and with weakness of low profitability. Given also the still growing stage of the HR industry, the industry attractiveness could be considered as “high”. This makes the strategies recommended under the model for the need to invest heavily (Kotler, 1994). 2. 6. Identification of Major Strategic Issues facing the Organization The strategic issues faced by the company could always be reduced simply on asking the question: Should the company remain at its status quo, expand or diversify into other industries? To remain at status quo would be to do nothing is rather not responsive to the growing industry. It just watching others to become wealthy when you are given the chance to do so. It would be abnormal not to grow the present stage of the industry in the life cycle. At the very least, Randstad would just have to continue with present growth. This however appears not supported with what have been done with the merger with Vedior, making now the company a market leader (Randstad, 2011). To diversify is also neither wise at this point, since the HR industry is still growing and there are profits that could be extracted cannot be refused. This leaves the company with the option of growing organically or others. This is evidently supported in this analysis as made in the preceding part on evaluation of company strategy. The only question now is the details of expansion, which will now be discussed next. To do the detail strategies have to be formulated or proposed based on models stated earlier. As expansion was chosen s proposed strategies for Randstad and changes if any with that of the company would be noted and explained using the McKinseys 7s framework (Kotler, 1994, Mind Tools 2010). 3. Conclusions and Recommendations Randstad has what it takes to make big. Its track record can attest to is capabilities. Its stock price growth after the crisis is evident. See Appendix 2. It has lasted a crisis and its strengths as identified in the paper could not be kept in storage. The company can make use of them by taking advantage industry opportunities. At the same, it has the capacity to protect itself from industry threats with a very logical connection to while improving its weakness of low profitability. It has just finished integration of its processes after its merger with Vedior and it is now ready to face the challenges of the growing HR services industry. Further expansion or making further strategic alliances with related industry player while investing in R&D to further its differentiation in creating switching cost would put the company in its right direction. This paper recommends pursuit the propose strategies further expansion or making strategic alliances with related industry player while investing in R&D to further its differentiation. This would creating switching cost and put the company in its right direction. Implementation of the same strategies should make use of Mckinsey 7s framework to effect any changes, as alignment of the elements of the model is necessary for success. This paper has witnessed the usefulness of the company’s strategies in effecting necessary strategic changes in pursuit of wealth maximization objectives (Gitman, 2006; Bodie, Kane and Marcus, 2007). Appendices Appendix 1: Sources (Penna Consulting, 2011, Randstad, 2011; Reuters, 2011c) Appendix 1 – Summary of Comparative Financial Data and Ratios Appendix 2 Graph of Stock Price; Source (Reuters, 2011b). References: Arnold, Glen (2004). The Financial Times Guide To Investing: The Definitive Companion to Investment and the Financial Markets. 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Financial Analysis: Tools and techniques: a guide for managers. McGraw-Hill Professional Higgins (2007). Analysis for Financial Management, Eighth Edition. The McGraw−Hill Companies Kotler, P (1994), Marketing Management: Analysis Planning, Implementation and Control, London: Prentice-Hall Mind Tools (2010), McKinsey’s 7s Framework, Retrieved 20 October 2011< http://www.mindtools.com/pages/article/newSTR_91.htm> Penna Consulting plc (2011) , Financial Report for 2010 , Retrieved 20 October 2011 Porter 1980. Competitive Strategy. London: Free Press Randstad (2011), Annual Report for 2010, Retrieved 20 October 2011 Reuters (2010a), Company Profile, Retrieved 20 September 2011< http://www.reuters.com/finance/stocks/companyProfile?symbol=RANJF.PK> Reuters (2011b), Stock price Graph of Randstad, Retrieved 20 October 2011 < http://www.reuters.com/finance/stocks/chart?symbol=RANJF.PK> Reuters (2010c), Industry Ratios for Business Support – Services Industry, Retrieved 20 September 2011 < http://www.reuters.com/finance/stocks/financialHighlights?symbol=RANJF.PK> Read More