Diagnosis of Lexion Home Appliances - Case Study Example

Glasgow School for Business and Society Department of Management Diagnosis of Lexion Home Appliances (Individual Report) By Altuwayjiri, Haitham A ID Number (S1032661) Module Code: MMN620363 Change & Leadership Module Leader: Dr. Siva Sockalingam Submmision date: 19th October 2011 Declaration “This is my own original work and has not been submitted elsewhere in fulfillment of the requirements of this or any other award.” Signature ____________________ Date __________________ Executive Summary This is a report on an analysis of the Lexion Home Appliances Company, founded in the US in 1971. The company has done remarkably well in the past and has earned itself a reputation for being caring and innovative. It has enjoyed a positive image among the general public for many years as a result of caring for the communities in which it operates by way of offering scholarships and hiring from local universities. However, in the recent past, the company has not been performing and has lost its market leadership to competitors. The company has had a mix of business priorities and goals; it has made losses and is no longer able to sustain the scholarship programmes. The aim of this work is to assess the Lexion Appliance Company and diagnose what went wrong with the strategies and operations undertaken. This report analyses the macro-environmental and micro-environmental factors that may have led the company to the current position. It seeks to establish the company’s strength and weaknesses as its opportunities and threats. Michael Porter’s five competitive forces will be analysed to establish what led to the current situation. New entrants in the market, supplier power, buyer power, and product and technology development, are the basic factors which impact on any business and thus on the company’s performance. Finally, this report offers possible solutions that could see the company regain its former performance. It will also provide recommendations regarding the strengths and opportunities of which the company should take advantage. The report will also recommend how the company could handle the internal weaknesses and external threats to its advantage. The most important role of the report is to help the Lexion Appliance Company overcome the risk of a wind-up and guard against future business threats. Introduction This report aims at providing a critical analysis of Lexion Home Appliances. It will examine the current situation and what has led the company to this position, all the internal and external factors and forces and, most importantly, it will assess the future of the company; that is, what needs to be done if the company is to survive into the future and overcome the current challenges. Success in the future and the survival of the company are at risk (Sockalingam, 2011).After being in the domestic market for over 40 years, the company should be growing and entering new global markets. However, this is not the case. Instead, the company is making large losses and the current situation is unstable, as there are a number of outdated products in the stores, the employees have lost faith in the company, new legislation requirements for environmentally-friendly manufacturing have caught the company by surprise, competitors are far ahead in terms of technology advancement, and, worse, the company’s reputation for being innovative and caring has been lost (Sockalingam, 2011). All this happened because the company failed to keep track of technological changes in the manufacturing market, new government requirements on environment preservation and changes in trends in consumer needs. The report will first provide a case analysis and diagnosis of the company in terms of its strengths, opportunities, weaknesses and threats. Michael Porter’s five competitive forces in terms of how they have influenced the company will be evaluated and, most importantly, recommendations given so that the company can withstand the situation and survive into the future. Case analysis and diagnosis All businesses exist to achieve organizational goals and objectives, and growth and profitability are among the different goals that most business ventures possess. To achieve growth and profitability a number of issues have to be considered (Hitt et al, 2008). These are factors in the wider macro- and internal micro-environment which affect the operations of a business venture; they present situations that may enhance or hinder the business of achieving objectives of growth and profitability (Porter, 2008). Figure 1: A SWOT analysis of the Lexion Home Appliances Company Lexion Home Appliances Key Strengths The company was founded in the US in 1971 and thus has been in operation for over 40 years. It has created a reputation for being innovative and caring for the well- being of its internal and external stakeholders (Sockalingam, 2011). This was a major strength of the company, which placed it in a position with some competitive advantage. The many years of operation are another strength that should have given the company a competitive edge. However, the company has lost all this due to a number of factors and the current position is not desirable. Success in the future and the survival of the company are at a risk (Sockalingam, 2011). Another strength on which the company should have capitalized is the fact that the owners of the company have strong engineering backgrounds and are, therefore, experts in designing the company products. They could have concentrated fully on product design and had other duties such as market surveys and product promotions allocated to relevant individuals with regard to areas of specialization. The company also enjoyed a good relationship with the universities and thus tapped young innovative brains which could have been used to generate new efficient production technologies (Sockalingam, 2011). Lexion Home Appliances Key Opportunities Changing trends in the world of business have presented an opportunity for the growth of the company. However, the company’s management did not take advantage; for instance, online business growth offered an opportunity for the company to expand its target customer base, as it is possible to advertise, market, and sell products online through the use of modern e-commerce technology. Instead of simply targeting local consumers, Lexion could have marketed its products to the global markets and in the process established further business relationships. Another business opportunity that the company missed was outsourcing raw materials from other countries where labor is cheaper and fewer regulations exist (Sockalingam, 2011). Changes in technology and demand patterns are opportunities that the company could have grasped if it had been strategically positioned and keeping track of market developments. Lexion Home Appliances Key Weaknesses The company’s troubles have resulted from a mix of business objectives and goals. One of the most apparent internal weaknesses was a lack of proper strategic planning. A company needs to have a plan of action through which it seeks to achieve its business goals. Such a plan would guide what is required, when it needs to be achieved, how it should be achieved and by whom. Strategic planning and the prioritising of business objectives would have ensured that the set goals were achieved and at the same time check deviation to other activities. The company’s core business was to manufacture and sell home appliances and ensure that the desired profits were attained. However, the company succeeded in having mixed core business priorities which competed for resources with the core business activity. For instance, so many resources were invested in offering scholarships that the company could no longer sustain the scholarship programme. Giving scholarships to deserving students in the community showed good social responsibility but it appears that the company’s management could not strike a balance between social responsibility activities and the company’s core activities. While it is ethical for organisations to give something back to the communities in which they operate, shareholders’ or owners’ interests in profits and growth should not be compromised (Kennedy, 2011). The resources allocated to social responsibility activities should be commensurate with the annual business profits. Lexion, however, seems to have continued the scholarship programme even after its profits started to fall (Sockalingam, 2011). The company’s management was headed by individuals who had no background in the business environment (Sockalingam, 2011). This was a major weakness, which could have been effectively handled by having the CEO trained in basic business issues and requirements. Although the company developed the level of management, the power still resided with the CEO, who lacked knowledge of business environment issues. The company failed to take advantage of business opportunities in the market as it gave more focus to designing new products. Lexion Home Appliances Key Threats The changing business environment posed a threat to Lexion Home Appliances. Neglecting new developments in the market, that is, both local and global markets, caused the company to miss opportunities and lose track of trends, for instance, on new requirements for environmentally-friendly products (Sockalingam, 2011). The company could have used the Internet to monitor market changes in needs, consumer lifestyles and new attitudes. Consumers now prefer to have appliances that save power consumption and emit less carbon. However, Lexion was unaware of the changes in demand patterns and continued to manufacture products which were not meeting the needs of the target consumers (Sockalingam, 2011). Moving the company’s premises to the nearby town was not a success (Sockalingam, 2011), as this meant moving to a place where new relationships had to be developed and cultivated from scratch. The new business environment was a major threat to company operations (Hill & Jones, 2009). The company could have opened new branches instead of relocating its entire operations. Another threat faced by the company was the poor global economic performance. The prevailing economic conditions are other external factors that also contributed to the fall in demand for the company’s products. Consumers were only purchasing what was really needed. There were fewer replacements and the number of first-time purchasers was reduced, with a decrease in home acquisitions (Sockalingam, 2011). Competitor actions and reactions have an impact on business actions (Porter, 2008) and Lexion’s competitors’ actions were a threat to the company. Lexion failed to notice the competitors’ activity in going global, concentrating instead on the local domestic market, and, what was worse, continued to use traditional sales and distributional channels (Sockalingam, 2011). It is easy to be forced out of a market by competitors when a company fails to keep pace with trends and competitors’ competition strategies (Porter, 2008). When competitors opted to outsource from other countries such as China, Lexion continued to use resources on internal manufacturing, which was expensive and out of line with environment preservation requirements (Sockalingam, 2011). Modern manufacturers care about using lean systems to minimize waste from all their processes and in the end maximize profits by enhancing productivity (Study Marketing, 2011). The way forward The employees presently at Lexion are no longer motivated to work. Organizational goals cannot be effectively achieved without the contribution of each worker in a unified manner. Lexion’s employees are insecure about their jobs and are thus unable to offer their best and forgo personal goals for the betterment of the company’s common goal (Sockalingam, 2011). The management should generate some new strategies to motivate the employees (Hill & Jones, 2011). Employees should be encouraged to stay and to give their best towards the recovery of the company. Communication is important in this strategy, since the employees need to be shown what is expected of them on an individual level. This will make them feel valued and thus motivated to work towards the recovery of the company (Cook, 2011). Anticipating regulatory changes in normal business operations helps an organisation to be well prepared when the time for change comes (Harvard Business Review, 2010). Lexion was taken by surprise by the new legislation on the production of ecologically-efficient goods and the requirement for an energy label on all white domestic products (Sockalingam, 2011). Building a brand and product development should always be ensured because in a free competitive market the consumers are free to acquire products that meet their real and perceived needs (Kotler et al, 2006). This should not be difficult, as the company has been operation for over 40 years. If it improves its products to measure up to its competitors’ goods and meets the new needs of modern consumers, brand-loyal customers will be reached and maintained. A mechanism that solicits customer feedback should be put in place to monitor the level of customer satisfaction and gain clues as to which areas can be improved (Hartley, 2009). Businesses thrive in trusting long-term relationships with outsiders. The company can engage in social responsibility activities which it can financially afford in the current financial situation (Luther, 2011). Corporate social responsibility involves understanding your business impact on the wider world and considering how you can use this impact in a positive way (Business Link, 2011). This may include low-cost activities, such as offering internship opportunities to local students, donating old and unused materials to charity homes and schools and various other activities. The outdated products in the stores can be sold at discounted prices to recover at least half of the production costs. The management should also establish whether any of these outdated goods could be redesigned. Last but not least, the company should embrace training as a form of staff development. Employees should be trained in areas of interest to the company and any development in the industry embraced through policy and decision making. Conclusion Businesses which offer unsatisfactory services to their customers do not survive in the long run. To survive in the world of business every institution must be conscious of its competitors (Ankli, 2011). Lexion needs to carry out a competitor analysis. Competitor analysis is the process of identifying key competitors, assessing their objectives, strategies, strengths, weaknesses and reaction patterns and selecting which competitors to attack or avoid (Chapman, 2011). The business world is rapidly evolving through ever-changing technology (Glen, 2011). Businesses have to adopt change easily and this can only be achieved through setting out strategic plans that cater for any future changes (Grant, 2005). Rigid business strategies slow business growth and development (Sargeant, 2009). Flexibility is a desirable business attribute in the current market environment (Dixon, 2010). Globalization has been one of the macro-environment factors driving change in the business environment in terms of operations, performances and expectations (KnowThis, 2011). Any business that plans to continue into the future and remain relevant must always move with technological change and health sensitization campaigns (DeHaven, 2010). All is not lost for Lexion; it is still possible for the company to revive itself and recover its lost glory. The company has realized its past mistakes and weaknesses. 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Available from: http://www.studymarketing.org/ Titus Varkey, Covin Jeffrey, &Slevin Dennis 2011. Aligning strategic processes in pursuit of firm growth. Journal of Business Research. Available from: http://www.mendeley.com/research/aligning-strategic-processes-pursuit-firm-growth/ Appendices: Appendix 2 SWOT Analysis Template Strengths Weaknesses Weaknesses Opportunities Threats Read More