Business Model Interrogation and Development - Berendsen Plc - Case Study Example

Business Model Interrogation and Development Table of Contents Table of Contents 2 Introduction 4 Berendsen’s Business Model 4 Core Growth Division 4Workwear 4 Flat linen 5 Facility 5 Manage for Value 5 Flat Linen 5 Clinical Solution and Sanitization 5 Current Organizational Structure 6 Business Strategy of Berendsen Plc 6 Delivering continued organic growth 6 Improving capital effectiveness 6 Improving financial returns 7 Maintaining an enthused workforce 7 Maintaining health and safety as a priority 7 Reducing the impact on environment 7 Technological Changes 7 Method of Improving Quality 8 Product Life Cycle Approach 8 Capital Market Conditions and Strategy 9 Internal Organizational Structure 9 Conclusion 10 Reference List 11 Introduction Berendsen Plc is a top British-based supplier of textile preservation services having it’s headquarter in London. The company operates in sixteen countries including United Kingdom (Berendsen, 2013a). It is having three business lines such as workwear, flat linen (healthcare and hotels), and facility (clean room, mats, and washroom). Therefore, it offers textile provision, supply, maintenance, and cleaning services to the customers in sixteen countries. More than 150,000 accounts of customers are serviced through 15,000 employees. The company generates more than £1 billion of yearly sales and is also in the 4th year of executing a strategic re-evaluation that targets definite financial and operational objectives (Berendsen, 2014). At Berendsen, effectual governance is realised by collaboration and leadership resulting in sensible and focused business decisions. The board of directors certify effective governance as well as meets with the senior management and executive board on a daily basis. The business model of the company is build upon two areas i.e. manage for value and core growth. The structure of Berendsen focuses on the ‘core development’ and ‘manage for value’ divisions through their business lines (Berendsen, 2013b). The objective of this report is to interrogate the business model of Berendsen Plc and to analyze how the company makes money by showing the relation between the product market and capital market. Berendsen’s Business Model The business model of Berendsen Plc is underpinned by their strategic objectives of long term, which are supported by sequence of medium-term key areas and main actions at business as well as group line level. The business model of the company states that they are paying more attention on the value creation. They add value through managing their two divisions i.e. core growth and manage for value differently. The core growth division includes workwear, facility, and flat linen (Berendsen, 2013c). Core Growth Division Workwear Berendsen rent, maintain, launder, as well as deliver workwear to broad range of public and private organizations (Berendsen, 2013c). Flat linen Berendsen supply laundering services and rental linen to the healthcare and hospitality sectors in United Kingdom (Berendsen, 2013c). Facility The facility business line of the company is divided into three different areas i.e. mats, clean room, and washrooms (Berendsen, 2013c). Mats: They offer floor shield mats for the commercial customers, reducing the moisture and dirt carried in their premises. The company also deliver a discount on the entire cleaning costs (Berendsen, 2013c). Washroom: Berendsen facilitate commercial washrooms in order to attain the greatest standards of cleanliness/hygiene by means of a comprehensive variety of market-leading services and products (Berendsen, 2013c). Clean room: The Company delivers and provides service to their customers with the top expertise on a broad variety of clean room products (Berendsen, 2013c). Manage for Value The division of manage for value include offering services of flat linen outside United Kingdom, as well as clinical solution and sanitization. Flat Linen The company provide laundering services and rental linen to the healthcare and hospitality sectors outside the United Kingdom. Clinical Solution and Sanitization Berendsen offer a full variety of specialist services to the operating theatres (Berendsen, 2013c). Berendsen grow their contract base through focusing on marketing and sales, undeveloped markets as well as acquisitions. The division of manage for value deliver stable margins and huge cash generation to Berendsen. Through this division, Berendsen maintain broad level of agreements and a high volume. The business model of the company represents focused business lines. It includes identifying growth prospects by further penetration of non-outsourced and outsourced sectors of their prevailing markets as well as growing their contract base by enhanced support and sales efficiency. Berendsen maximize the contract value by leveraging their buying power as well as operating sustainably and efficiently. Service quality is a solution towards contract retention and the company focus on providing best service solution to their customers (Berendsen, 2014). Berendsen Plc makes money through their wide range of product market. The company makes money by selling their services and products to a wide range of customers which includes individuals as well as public and private organizations. It seems that no change is required in the current business model as it is giving more emphasis on the value creation. Current Organizational Structure The current organizational structure of Berendsen seems correct for the business as it focuses on the ‘core development’ and ‘manage for value’ divisions through their business lines. The focus on their core growth division is mainly organic growth, high value, and returns of high margin, while the focus on manage for value division is huge cash generation and stable margins. The division of manage for value are managed in several ways in order to maximize the value across the company. The current organizational structure enable the company to identify as well as concentrate on development opportunities and to drive excellent practice in main areas of operations, pricing, logistic, and sales (Berendsen, 2013b). Business Strategy of Berendsen Plc The business strategy of Berendsen Plc is discussed here: Delivering continued organic growth The Company has great offerings in workwear, facility, and in United Kingdom flat linen. Berendsen consider the opportunities for winning novel contract and volume growth remain in long and medium term, and also there are important virgin market prospects within the European markets in longer term. Improving capital effectiveness Berendsen believe that there is possibility for improved returns and margins. Their cash conversion range of five years was 80% - 120%, and the company is aiming at least 100% and double digit return on capital employed. Improving financial returns The business teams of Berendsen drive for effectiveness and to become the lowest cost supplier in the markets. By leveraging the operational efficiency, they will attain high earnings per share. Maintaining an enthused workforce The responsibility for recruitment and training of staff lies with the business unit administration and the company is also widening group-wide plans to support this. Maintaining health and safety as a priority The board prioritise the significance of maintaining a healthy and safe working atmosphere for all their employees and also for those who work with the company. Reducing the impact on environment The company understand the opportunities and risks related with the ecological impact of their operations. Areas of importance to Berendsen Plc include transport, water use, discarding of detergents, and energy utilization including their carbon dioxide emissions (Berendsen, 2013d). The business strategies of Berendsen Plc have a positive influence on its organizational structure. Through following their continued organic growth, improving capital effectiveness and improving financial returns strategies they were able to attain organic growth, high value, and returns of high margin. The revenue of Berendsen Plc has shown a continuous increase since 2009. In 2009, the revenue was £970.90 million which has increased to £1054.20 million in 2013. The operating profit has grown up from £85.30 million to £135 million in the same period. The net profit of Berendsen Plc rises from £45.80 million in 2009 to £85.20 million in the year 2013. The earnings per share have also increased from 26.60p to 49.60p in the same period (Londonstockexchange, 2015). Technological Changes Berendsen Plc can design waterless urinals which is odour-free and sanitary because of liquid seal design. Upgrading to this technique will reduce the maintenance requirements, as they do not make use of flush valves. The company can also fix new kinds of plastic stalls to walls in place of floors because these are strong than metal, and therefore it will help in reducing cleaning time as well as maintenance as they resist vandalism and graffiti (Jcr, 2008). The managers of Berendsen can lessen maintenance needs of restroom and washroom by doing improvements on the floor with flawless epoxy flooring. The upgraded floor of washroom and restroom will need less labour effort as well as maintain a brighter and more pleasant look (Acton, 2013). Such improved technology will help in attracting more customers and will therefore result in more profit margins for the company. It will also lead to increased productivity and better customer experience. Method of Improving Quality Berendsen Plc could include some hygiene practices in their current business operations to provide their customers with best services and also to attain great standards of cleanliness. They can incorporate automatic cleaner of toilet-seat and automatic sanitizers in order to augment as well as reduce the custodial requirements. Automatic sanitizers will discharge disinfectants in order to control the odours and also sanitize with every flush. The cleansing act between every user ascertains the fixture is scale-free and clean and requires less manual cleaning. Other labour saver technique is automatic cleaning of toilet-seat, which is a hands-free method that will provide users better toilet-seat hygiene. The user will just need to trigger a motion sensor, which will automatically clean, dry, and disinfect the seat in fifteen seconds. The entire process will be completed without hand contact i.e. labour intensive, thereby ensuring hygienic conditions. By providing enhanced products and superior service Berendsen can gain the competitive advantage. Product Life Cycle Approach The stages of product life cycle include the development phase, introduction stage, growth stage, maturity phase, and lastly the decline phase. Development phase: If the company will introduce the new service of automatic sanitizers and new product such as the waterless urinals, then in the development phase it will be known to everyone (Stark, 2011). Introduction phase: In this phase, Berendsen can obtain a good position in the market through their improved services and products. There will be fewer sales as the product will be unknown to buyers (Jain, 2010). Growth phase: In this phase, Berendsen can maintain their position in the market. The sales increases rapidly as the company can retain the old buyers and new buyers also come in the scene. In this stage, cost reduction takes place as the product is well established in the market (Ferrell and Hartline, 2007). Maturity phase: Here, Berendsen will need to defend their market position from the competitors and will also require making improvements in their products which means differentiating their product from the rivals to maintain their position (Krause and Jansen, 1995). Decline phase: In the decline phase of the product sales drop because buyers shift to other products. So, Berendsen Plc should extract the remaining earnings from product (Iastate, 2007). Capital Market Conditions and Strategy The share price of Berendsen Plc is 1,152 and is traded on London Stock Exchange (Berendsen, 2015). The share price of the company has gone up by 20.38% as compared to previous year. The increase in the share price is may be due to the reason that more people or institutions are willing to buy the stock of the company. When demand is more than the supply then share price goes up. However, the performance of the company is not judged by its share price, instead it is judged by its market capitalization. The market capitalization of Berendsen Plc is £1.99 billion, which is more than its competitors. The competitors of Berendsen Plc are Carillion Plc and Homeserve Plc, whose market capitalization is £1.55 billion and £1.09 billion (Financial Times, 2015). The strategy adopted by Berendsen Plc for increasing its market capitalization is to increase its stock value. There is a direct relationship between stock value and market capitalization. The stock value or share price is affected by the financial performance of the organization. As, Berendsen Plc has shown a good growth since 2009, so its financial performance is improved in terms of revenues, operating profit, net profit, earnings per share, etc. This led to the increase in the share price, which further led to the increase in market capitalization. Internal Organizational Structure The internal organizational structure of Berendsen Plc needs improvement in terms of gender diversity. It has been analysed that there is no female member in the role of board of directors. There are only 9% of female senior executives and 24% of female middle managers in the company (Berendsen, 2013e). It needs to change and Berendsen Plc should adopt diversity in their workplace. The working culture of the company needs to be changed. They should encourage diversity in their workplace. When Berendsen Plc will implement and develop the diversity plans, then several benefits will be experienced by the company. A diverse set of experiences and skills will allow the company to offer service to their customers in a better way (Daly, 1998). The new product and service development as well as adopting diversity in the place of work will facilitate Berendsen Plc to stay ahead of competition (Jackson, 1992). Adopting diversity will assist the company in meeting business strategy requirements and also the customer’s requirements more effectively. By supporting diversity, they can implement company-wide approaches, which will further result in profit and higher productivity (Shakhray, 2009) Conclusion The main purpose of the report is to analyse whether the existing business model of Berendsen Plc is correct or there is a need of further change. It has been analysed that that no change is required in the current business model as it is giving more emphasis on the value creation. The company generates value for their shareholders through offering added-value services and solutions for their customers. Berendsen Plc makes money through their wide range of product market as well as capital market. They sell their services and products to wide range of public and private organizations including the healthcare and hospitality sector. Their superior service quality helps them to add revenue in their business operation which further led to the increase in share price and market capitalization. Reference List Acton, Q.A., 2013. Advances in Hygiene Research and Application. Georgia: Scholarly Editions. Berendsen., 2013a. Berendsen: About Us. [online] Available at: http://www.berendsen.com/about-us. > [Accessed 14 February 2015]. Berendsen., 2013b. Berendsen: Our Structure. [online] Available at: < http://www.berendsen.com/our-structure> [Accessed 14 February 2015]. Berendsen., 2013c. Berendsen Plc Report and Account 2013. [pdf] Available at: < http://www.berendsen.com/documents/10180/946660/Berendsen_AR13.pdf/c5bd1597-d05b-40f1-9447-c91669b0ae52> [Accessed 14 February 2015]. Berendsen., 2013d. Berendsen: Our Strategy. [online] Available at: < http://www.berendsen.com/our-strategy> [Accessed 14 February 2015]. Berendsen., 2013e. Berendsen: Our People. [online] Available at: < http://www.berendsen.com/our-people> [Accessed 14 February 2015]. Berendsen., 2014. Berendsen: Investor fact sheet 2014. [pdf] Available at: http://www.berendsen.com/documents/10180/967634/Factsheet_2014/5fb23fa6-41f2-4268-8b59-e781dbdf8d64. > [Accessed 14 February 2015]. Berendsen., 2015. Berendsen: Share Price. [online] Available at: < http://www.berendsen.com/share-price> [Accessed 14 February 2015]. Daly, A., 1998. Workplace diversity: Issues and perspectives. Washington D.C: NASW Press. Ferrell, O.C. and Hartline, M., 2007. Marketing Strategy. United States of America: Cengage Learning. Financial Times., 2015. Equities: Berendsen Plc. [online] Available at: < http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=BRSN:LSE> [Accessed 14 February 2015]. Iastate., 2007. Product Life Cycle. [pdf] Available at: < http://www.extension.iastate.edu/agdm/wholefarm/pdf/c5-211.pdf> [Accessed 14 February 2015]. Jackson, S.E., 1992. Diversity in the workplace: Human resources initiatives. New York: Guilford Press. Jain, A., 2010. Principles of marketing. New Delhi: FK Publication. Jcr., 2008. Hand Hygiene: Toolkit for Implementing the National Patient Safety goal. United States of America: Joint Commission Resources. Krause, F.L. and Jansen, H., 1995. Life cycle modelling for innovative products and processes. New York: Springer Science and Business Media. Londonstockexchange., 2015. BRSN Berendsen Plc ORD 30p. [online] Available at: [Accessed 14 February 2015]. Shakhray, I., 2009. Managing diversity in the workplace. Germany: GRIN Verlag Publication. Stark, J., 2011. Product lifecycle management: 21st century paradigm for product realization. New York: Springer Science and Business Media. Read More