Entrepreneurial Strategies - Lee Lacocca - Case Study Example

Entrepreneurial Strategies Introduction The pain of failure or even closure of a business is physiologically distressing to many companies. Thus, a change plan becomes a better choice for restructuring it to become effective. It is vital, therefore, to analyze the current context situation of a crumpling company and try to see the possible strategies that can be employed to bring it back to track. If this target is achieved, the trouble with most companies experiencing the same challenges would significantly reduce leading to remarkable growth. Many businesses have three strategic routes when operational and financial performance is habitually negative for a long period of time. These include; merging with competitors, turn around or maybe close the entire business organization. Out of the three possible options, research has proved that a turnaround option is always the best or preferred option for the revival and success of a crumbling organization. Currently, medium and small scale enterprises face a decline in organizational life cycles and financial capabilities. The cause for this decline include; managerial inexperience, improper timing, poor financial strategies and control, and most importantly, poor application of marketing strategies. The alarming concerns of decline led to research being done and this was one of the conclusions; Boyne (2006, p.26-8) resolved that many businesses failure was commonly ascribed to matters of management control. Objectives The aim of this report is to analyze the different strategies for reviving a crumbling business. If this is achieved, then most businesses would succeed therefore leading to economic growth. Case Study Lee Lacocca (Chrysler automobile company) Lee began his career in automobile industry with the commonly known Ford Motors. He began as an engineer but soon shifted to sales and ultimately further shifted to product development where he was much comfortable and passionate. The year 1956 was his breakthrough in his career with the Ford motors and this propelled him to rise and become the president of the Ford in 1964. Strategies employed by Lee in Ford Motors Lee helped in the design and marketing strategies and this included the Ford Mustan, the commonly used Fiesta and the celebrated Lincoln Continental Mark III. He also assisted in reviving the Mercury brand, which included Mercury Marquis and the Mercury Cougar. This assisted Ford in making Billions in profit, but despite his success, he was fired. Lee eventually joined the Chrysler Company to help them revive the crumbling automobile business. This was the period Chrysler was in the midst of a crisis and was almost heading to bankruptcy. Strategies employed by Lee in Chrysler Automobile The moment Lee stepped into the Chrysler office as the head chairman; he restructured all levels within the company. This involved removing and shuffling staffs, selling part of the units that stood to be losing resources and also brought along some experts from his previous company. In addition, he brought the MiniMax project which was a minivan model that Ford II despised and rejected to incorporate into the Ford category of products. Lee’s major success in Chrysler Company came when he introduced small compact vehicles. The majority of the Americans liked the car model as it was cheaper and consumed less fuel compared to other wagons. The very same copies and the minivan idea were the ideas that had been despised and rejected by Ford. The above case study is a typical real example of companies that have failed and later bounced into success. The reason is as a result of employing various significant strategies that we are going to analyze in this report. Theories One of the theories behind the Chrysler automobile company initial failure was engulfed around environmental factors. These environmental aspects can be as a result of internal or external factors. Internal factors may include poor organizational structures, whereas external factors may include poor infrastructure and failure to compete, or poor technological adoption. In addition, the most fundamental and main cause may have resulted from poor managerial actions and insights. According to Wilkinson (2012, p. 25-37), poor managerial actions and insights have been the most common cause of failure in many organizations. In their analysis, they noted that, decline’s initial stages occur when a company version to its micro niche weakens. The next stage happens when an organization’s financial resource tends to lessen. Both of these stages is an indication that the organization has become less adjusted to its position and is less effective at exchanging its innovativeness and strategies (Schendel, 2006, p. 67). The analysis further proved that decline in an organization is an exact opposite of successful adjustment to the external factors. Chrysler was almost failing because of failure to expect, avoid or recognize the internal challenges and pressure within its environment. Chrysler also failed since it failed to adapt and neutralize the pressure within. It is therefore crucial for any organization to cultivate turnaround policies to equalize the pressures of its surrounding thus becoming competitive. Reasons leading to Failure i. Internal Problems This may come as a result of the failure to update various products, capitalizing in core competencies and control outlays or costs. O’Neill (2012, p. 57) notes that, overconfidence and distraction from other successful business entities normally lead to organizational decline. ii. Inadequate or poor financing Poor or inadequate financing is mostly attributed to limited access to other exchanges and institutional credits. Many organizations seem to believe that it is risky to finance its members due to the nature of the business. In addition, many of these organizations have glitches in creating a policy to access money from financial bodies. This creates bad relationship with most financial bodies (Schendel, 2006, p. 72). iii. Poor infrastructural base Most organizations face inadequacy in infrastructure as a result of poor business foundation strategies. Others include; poor roads states and also poor drainage systems and impractical telecommunication amenities (Desai, 2011, p. 105). iv. Poor planning execution Execution of policies and plans has been a major challenge to most establishments within the organization (Burns, 2008, p. 79). Many which verbalize good policies and even set aside measurable budgets but in the end, control and disbursement to various functions becomes a challenge. This may come as a result of poor managerial skills or issues of corruption in most cases. v. Poor managerial skills Most of the failing businesses have less exposure to management models, training and practice. Companies tend to fail in their structures of hiring staff. This leads to the creation of incompetent management staff (Wilkinson, 2012, p. 37-8). In the case of Chrysler, Lee had to remove the incompetent staff that was dragging the company into damages. Therefore, it is important that capacity building policies among enterprises is tailored to suit the needs of the business. Strategies for Change Organizations need to implement turnaround plans and strategies as a set of long-term decisions and actions aimed at withdrawing the perceived crisis that threatens the business survival. According to Carter et al. (2009, p. 41-47), turnaround is a reversal of historically low financial performance or major changes in policy that bring organizations back from near failure. There are two major principles used in turnaround strategies and this include; consolidation and contraction. Both of these are usually used when an organization’s problems are not widespread. Contraction is a principle of merger and involves the blend of two or more organizations into one existing company. In this principle, all organizations except one lose its identity in a merger. On the other hand, Consolidation is the principle where two or more organizations combine to form a new company (Desai, 2011, p. 98-103). In this case, all the companies are dissolved and a new subject created. The acquired company assigns its resources, shares and responsibilities to the attaining company for exchange of shares. Basic growth schemes The basic growth schemes are diversification and concentration. Diversification is usually done at the corporate level whereas concentration is done at the business level. LeBreton (2011, p.123) cited that, diversification is the entry of a firm into new lines of actions, through internal acquisition. This can take the method of investing in new resources, customer’s agent, services or environmental markets which includes international expansion. On the other hand, concentration can be realized through horizontal or vertical growth. Vertical form of growth occurs when affirm takes over a role previously given by a distributor. Horizontal form of growth occurs when the firm expands products into new locations or adds the variety of products and also services in current marketplaces (Cater, 2008, 48-51). Turnaround strategies a. Top management change Literature cites that, the top management implements and develops turnaround strategies that usually address impending organizational crisis. Top managers are the drive towards the reversal of organizational failure. Burns (2008, p. 117) argues that, there is an almost general need to change the immediate top management in a turnaround condition. The removal and reshuffle of the top management provides significant signals to the external stakeholders. Through the radical changes, the organization will send the picture that it has separated itself from the previous past failed policies. b. External executive skills The available literature also supports the functions of external executive skills as a crucial factor in positive stage of turnaround guidelines. Although organizations tend to be well informed about their immediate tasks, they tend to frequently lack the needed broader knowledge and capabilities to introduce and direct various organizational alterations. One of the important ways of achieving quick access to required skills is by outsourcing an outside source (Barr, 2010, p. 972), for instance management consultants and analysts. c. Retrenchment This involves taking measures to reduce costs and regain the lost resources. The money can be generated through means of selling assets like land and reducing the affiliates of the organization, closing old factories, introducing expense control systems or even closing peripheral businesses (Casson, 2010, p. 216). In this procedure of retrenchment, companies link their present strategic and financial stands in order to buy time for change. Retrenchment suggests a decrease to the important elements of the organization that have the highest chance of making profits in operations. Retrenchment expanses the organizations remaining assets to the limit and tries to give substantial pressures on organizational staff (Burke, 2006, p.265). d. Operational Rearrangement Operational rearrangement is divided into two categories namely; turnaround and entrepreneurial stage. The operational stage entails efforts to soothe and recover profits, by inputting solid and stringent cost reductions. The target of operational rearrangement is to gain profitable long-term advance, by aiming on the market requirements (Burke, 2006, p. 272-78). Operational rearrangement also involves increasing promotion outlays to fuel demand. It also involves sales, integration of additional fixed resources such as office equipment and decline in short-term resources such as; debtors and portfolio. The main target is to regain efficiency of both current and fixed resources. e. Assets rearrangement When an organization is undergoing downfall, assets reshuffle becomes vital for a whole turnaround (Ries, 2011, p. 184). The focus is to deprive all nonprofit producing resources that consume cash, non-essential assets for the drive of raising money to ease financial suffering and turnaround. f. Financial Rearrangement This includes cash generation approaches such as asset divestment, resolving creditors, reducing interest cost and refining cash flows. Financial rearrangement is thus categorized in to dimensions: debt dimension and equity dimension, equity dimension includes; growth in reserved earnings as well as obtaining other sources of supporting the organization. The debt based dimension on the other hand entails replacing existing debt with a new contract, either by using principle reduce approach or by debt equity switch approach (Cater, 2008, p. 53-55). It is, therefore, clear that, to achieve a complete turnaround, the organization must first stalk its decline and then take a suitable strategy for retrieval. This mostly requires increasing a firm’s competence, steadying its internal processes and recommencing vital stakeholder backing (LeBreton, 2011, p. 106). In undertaking these steps, the range of realistic decisions available to the organization will be contingent on relentlessness of an organizational decline. Turnaround measures necessitate immediate managerial measures, to stop the downfall and thus bring the company back to track. It however, does not guarantee recovery, but can be made real if done in a careful and calculated manner (Boyne, 2006, p. 24-27). Challenges of turnaround strategies In most instances, turnaround may not be achievable. The challenges may be as a result of organization’s lack of capabilities to implement appropriate strategies (Burns, 2008, p. 189-92). Even if implemented properly, in a feasible environment, organizational results of a turnaround strategy still rely on emergent features, which could delay or prevent any form of turnaround. Finally, the turnaround strategies or attempts often face new challenges in the form of extreme time pressure, limited resources and fading stakeholders backing (Barr, 2010, p. 973-76). Entrepreneurial Strategy to overcome Competition Externally Establishing a SWOT analysis is important for the success of a company over the others. SWOT analysis can be essential in planning organizational budgets, as every entity realizes distinct spending priorities with strategic outcomes. It is therefore important that every organization uses this analysis as it is crucial for its success. Prioritize on Strengths Strengths symbolize assets or the company competencies that give it a strategic edge over other companies. This category of the SWOT analysis helps to identify primarily what it is that allows the company to obtain market share from fellow competitors. It also helps in identifying the defining factor that sets a company from the rest (Boyne, 2006, p. 29). Therefore, it is important to continuously strengthen the company further to keep it a notch higher al through. If it is evident that your company has efficiency than competitors, go a notch further and strategize the next segment or next year’s plan in order to intimidate and give pressure until they can’t keep up with the pace (Desai, 2011, p. 104-05). Overcoming Weakness This type of analysis identifies the areas in which the company might be weak. This might be the area where other competitors are stronger or much efficient. This area helps the company determine how much of the budget is to be dedicated to addressing this weakness in the future (Cater, 2008, p. 46-49). It is imperative that a company does careful research to identify this area and establish the root cause. If this is realized earlier, the company would have easier and efficient strategies to improve it over time (Carter et al., 2009). For instance, if a company finds that a certain product frequently loses money, it might decide to end the production of that product, assigning valuable resources to more profitable goods. Taking advantage of Opportunities The next category, opportunity, depicts possible profitable savings that the company can create to expand, lower or increase revenue. Opportunities mostly require costs, and creating room in the budget to take lead of new opportunities. This enables the company to stay one step ahead of other competitors (Burke, 2006, p. 312). Readiness to Threats This is the final category of the SWOT analysis and helps the company to prepare for external threats in the outside environment. It helps in determining the possible channels that foster weakening of the company (O’Neill, 2012, p. 232). Detecting threats early can give the company time to set aside funds to mitigate the outcomes of such threats and stopping them from occurring. It is thus paramount that companies realize these threats early in order to reduce spending in unimportant areas, therefore setting more resource to address the future threats (LeBreton, 2011, p. 107). Innovative Approach Blue Ocean Strategy In this strategy, demand is created rather than being fought. It employs a good strategy of reducing competition in some way. In this type of approach, there exists ample opportunity for development and growth that is both fast and profitable. It tries to dig the wider and deeper potential of the market that is yet to be realized. In Blue Ocean strategy, new industrial sources arise and more frequently, companies adjust the borders of current industries (Burns, 2008, p. 287). Blue Ocean uses the Value Innovation approach which is an immediate pursuit of distinction and low cost, generating value for the consumers, employees and the whole company, therefore initiating new and unconcealed market space. The aim of this approach (value innovation), is not to compete, rather to make the whole competition irrelevant by interchanging the playing arena of strategy (Burns, 2010, p. 295-301). This strategic step must increase and generate value for the existing market. It is therefore important that a crumbling company adopts this strategy as it enables it to extensively play a fair game, which in turn yields high profits and development. Summary It is important to note that, an organization that is in a crunch must change its top executives in order to allow room for fresh ideas. Most companies have also emphasized that external meddling from shareholders and the government shakes their functions and performances. Most analysts are in the view that, retrenchment still doesn’t add much weight towards effective turnaround in an organization. Instead, the turnaround management should enter into an agreement with staff to cut their salaries in a period of crisis, and then should be restored back once operations are back on track and the business is viable. Finally, financial fitness has an important influence on turnaround strategy. It is therefore important that organizations are willing to make sacrifices such as selling assets such as land, equipment, so as to raise funds to finance the turnaround strategy. References Barr, P. (2010). Linking top managers attributions to a strategic reorientation in declining firms attending turnaround. Journal of Business Research, 12, 963-979. Boyne, G.A. (2006). ‘Turnaround Strategies’, Journal of Business Strategy, 1 (1 summer), 19-31. Burke, R. (2006) Small Business Entrepreneur guide to running a business. London: Burke Publishing. Burns, P. (2008). Entrepreneurship and Small Business. London: Palgrave. Cater, J. (2008). Company Turnaround. Journal of Business Strategy, 7 (4), 34-56. Carter, N. M., Gartner, W. B., Shaver, K. G. and Gatewood E. J. (2009) The career reasons of nascent entrepreneurs. Journal of small Business Venturing, 18 (1), 13-39. Casson,M.(2010) The Entrepreneur An Economic Theory. Cheltenham:Edward Elgar Publishing Ltd. Desai, K. (2011). ‘Decline in Organizations: A literature integration and extension’, Administrative Science Quarterly, 23,94-107. LeBreton, I. (2011). Managing for long-run: Lessons in competitive advantage from great family businesses. Boston, MA: Harvard Business School Press. O’Neill, K. (2012). Understanding Enterprise: Entrepreneurship & Small Business. Basingstoke: Palgrave Macmillan. Ries, E. (2011). The lean Start-Up: How Constant Innovation Creates Radically Successful Businesses. London, Penguin. Schendel, D. (2006). Strategy formulation: Analytical concepts. St. Paul, MN: West Publishing. Wilkinson, A., (2012). Organizational failure: a critique of recent research and proposed integrative framework. International Journal of Management Reviews, 5-6 (1), 21-41. Read More