Factors behind the Success of Invercargill Licensing Trust - Case Study Example

Running Head: ILT CASE STUDY ILT case study Name Course Instructor Date Executive summary Historically, drinking has been a culture in New Zealand for a span of over 70 years. For several years the habit adversely affected the social, cultural and wellbeing of the country a factor that forced the government to impose prohibition of brewing for a number of years. This period saw the conception of the Invercargill Licensing Trust (ILT). The trust which was established through an act of parliament operates under the Sale of Liquor Act 1989. The mission of the trust was to enhance the wellbeing of the people of Invercargill through careful and responsible sale of liquor. Among over 30 licensing trusts in New Zealand, ILT is considered as the most successful. ILT attributes its success to its knowledgeable, devoted and competent management team. Additionally, ILT has extra privileges relative to other trusts such as exclusive preferential trade rights which also contribute to its success. This paper takes an in-depth analysis of ILT. The introductory part gives a brief overview of the history of ILT. The second part gives an analytical account of the reasons behind the constant success of the trust. The third part discusses ILTs mission statement and attempts to contrast it with mission statements of profit-oriented organizations. The fourth part brings out the argument why ILT is considered as anti-competitive. The sixth and seventh part is a reflective portion discussing why an ILT model would be preferred instead of private profit-oriented organization and why a replicate of the model would be necessary in my locality. The paper concludes by highlighting key findings from the case study. Table of Contents Executive summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Factors behind the success of ILT 5 2.1 Location of ILT facilities 5 2.2 Employment 6 2.3 Management 6 3.0 Comparison of ILT mission with other profit oriented organization 6 4.0 Is ILT anti-competitive? 7 5.0 Is the ILT model more sustainable than profit-oriented organizations? 9 6.0 Are ILT models better than private profit-oriented organizations? 10 7.0 Could the ILT model be replicated in my locality? 11 8.0 Conclusion 11 9.0 References 12 ILT CASE STUDY ANALYSIS 1.0 Introduction New Zealand has a long standing culture of liquor consumption dating back to 1770’s. Stevan eldred-Grigg novel Pleasure of the Flesh provides a detailed account of the role played by alcohol in New Zealand’s entertainment industry. Jock Phillips in his article A man’s Country, reinforces a readable history of the role played by alcohol in lives of New Zealand men. These two illustrations give a clear preview of the events that dominated in New Zealand cities. In line with this, prohibition movements have a long history since 1936 when the Bay of Islands was declared as an Island of wild drinking which subsequently prompted formation of the New Zealand Temperance society. Invercargill was not left out in the movement to regulate alcohol consumption among the people of New Zealand; prohibitions in the city began in 1906. During this period, many beverage and entertainment facilities including hotels and restaurants were closed down, demolished or changed for other use. Noting a sudden dullness in the city, the people of Invercargill voted out the prohibitions in 1944. The Invercargill Licensing Trust (ILT) was proposed by the prime minister of the time and was established by the Invercargill Licensing Trust Act 1944. The trust was established with the intention of facilitating reselling of liquor. The trust however, operates under the Sale of Liquor Act 1989. A constant consideration of the trust is that all its activities are geared towards the ‘interests of the public well-being’. Its fundamental principle is to ensure that profits accrued for the sale of liquor is distributed to the community for philanthropic, recreational, cultural and charitable purposes. ILT has been appraised as the most successful Licensing Trusts in New Zealand ranking first in employment, total donations, total assets and returns on equity, profits and revenue (Anheier and Leat, 2002). This report basically gives an analysis of ILT case study. 2.0 Factors behind the success of ILT Since its inception, ILT has experienced upstream success. In actual fact over 30 other licensing trusts have been successfully established throughout New Zealand as prompted by the success of ILT. Even with the increasing number of licensing trusts, ILT has demonstrated outstanding competitive strength and has emerged victorious in major economic downturns relative to its rivals. This has been contributed by a number of factors as discussed below. 2.1 Location of ILT facilities The core mandate of ILT is to provide high quality food, beverage and entertainment facilities as well as accommodation for its customers. As such, the trust operates about 25 facilities in the hospitality industry in Invercargill including retail liquor outlets, bars, restaurants, motels and hotels. In addition, the trust owns one motel in Christchurch and another in Dunedin. Being the largest towns in the Southern Island, Dunedin and Christchurch attract a significant portion of the population and thus establishment of motels in these towns would tremendously increase customer turnover. Unlike other local licensing trusts, ILT has obtained exclusive preferential trading rights over the historical boundaries of Invercargill, Dunedin and Christchurch cities. This therefore, implies that it can enjoy reduced tariffs on the products and services it offers which consequently lead to increased revenues. The trust’s district towns are also tourism destination sites and thus the trusts accommodation and entertainment facilities play host to the vast number of tourists. 2.2 Employment ILT has employed over 700 staff across all its facilities. The move to employ this large number of employees in aligned to its mission to ensure ongoing benefits of the people of Invercargill through its profitability and success. The strategic move to employ sufficient number of employees is to ensure that employees are not overworked hence remain satisfied and highly motivated (Anheier, 2005). Brown and Ruhl (2003) maintain that overly exploiting the efforts of employees would undermine the ability of an organization to achieve its goals. In this regard therefore, ILT attributes its ongoing success to not only sufficient number of employees but also on its strategic recruitment procedures which target highly qualified personnel (Anheier, 2000). 2.3 Management ILT is led by a highly educated, dynamic and experienced managerial team. The president, Alan Dennis, is also the city councilor which is an extra incentive for the organization in terms of government support through funding. It’s governing board cuts across all professional including lawyers, real estate agents, business administrators and educators. This adequate representation of professionals has led to a wealth of expertise and experience into the operations of the trust (Brinckerhoff, 2009). In addition, members of the general community are represented in the management which ensures accountability of all funds distributed in community projects. 3.0 Comparison of ILT mission with other profit oriented organization ILT mission which is to ‘provide an effective and efficient corporate structure to ensure high standard of its products, services and facilities and to maintain profitability in order to provide ongoing benefits to the community’ shows great contrast to the missions of profit-oriented commercial organizations. The first difference is with regard to pursuit of money. The mission of profit making organizations is to ensure growth and development of the organization through increased profits (Brown and Ruhl, 2003). On the other hand, the mission of not-for-profit making organizations such as ILT is directed towards contribution to the community or the society in its immediate surroundings. As such, profits or returns obtains from the business of such organizations is directed towards charitable ventures in the society. For instance, in order to accomplish its mission, ILT has put in place several principal strategies including donations and sponsorships, promotions of conferences and special events as well as supporting sport and recreation activities. Srivastava (2008) states that for profit oriented organizations, ‘being good’ is the means to the end while for not-for-profit making organizations, ‘being good’ is the end itself. This is to mean that profit making organizations will strategize methods of attracting customers for the sole reason of increasing profits. On the contrary, not-for-profit organizations exemplified by ILT exist for the single reason of fulfilling its mission. Supporting this argument is the original idea of establishing ILT which was to ensure that sale of liquor benefits the society rather than degrading its morals. Nevertheless, the social mission possessed by ILT makes it difficult for the organization to make quantifiable assessment of its effectiveness or to gauge its results relative to profit oriented organizations. 4.0 Is ILT anti-competitive? According to David and Kleit (2001), anti-competitive practice refers to a wide range of business practices whereby an organization restricts inter-firm competition in order to maintain a relative market position without necessarily providing high quality products or at lower prices. The criticism that ILT is engaging in anti-competitive practices is quite justifiable. In actual fact, its competitors have aired complaints that ILT has developed a monopolistic approach and that it has occupied a significant portion in liquor retail. The case of ILT is that of vertical restraints on competition. Vertical anti-competitive refers to restraints that entail supplier-distributor relationships. It involves practices such as tied selling, resale price maintenance, refusal to deal/sell, geographic market restrictions and exclusive dealings (Glaeser, 2002). The first illustration of ILT’s anti-competitive practice is with regard to its special and exclusive treatments. It has exclusive preferential trade rights which mean that it enjoys special tariff benefits relative to its competitors thus providing it with a competitive advantage. In addition, it has the right to operate in major towns which is a right that has been denied to other local licensing trusts. Another special benefits afforded to ILT is the sale of liquor in areas that are off-sale. This privilege gives it pre-eminence over other liquor retailers in such regions. The second factor that justifies ILT as an anti-competitive organization is its strong support from the government through its leadership by the city councilor. This implies that its petitions are adequately represented in respective government departments as compared to other licensing trusts without such kind of back-up. Besides that, proposals for funding or donations to government agencies become easier. Arguably, ILT was established though an act of parliament which additionally reinforces its competitive advantage. Another factor that gives ILT a competitive advantage is its affiliation with the community. Community support offered by ILT goes without saying that it one of its own kinds in New Zealand. It has extensively supported other organizations as well as individual persons through sponsoring university student, promoting products and services of other organizations, initiating community projects and supporting sporting and recreational activities. This factors in addition to its core mandate which to sell alcohol with care, moderately and responsibly is perceived to members of the public as good corporate social responsibility practice. As a result, many people and organizations are proud to be associated with ILT thus giving it a competitive advantage. 5.0 Is the ILT model more sustainable than profit-oriented organizations? Pidgeon (2004) argues that sustainability is yet another factor that distinguishes not-for-profit making organizations with profit-oriented organizations. However, it would be difficult to draw the distinction as these two types of organizations have completely different missions. Even so, the ILT model is quite sustainable in several ways. In production, ILT ensures care in its operations and processes and in other activities. In addition, like any other not-for-profit organization, ILT management applies extra care while making decisions about the control they have over both choices of activities and processes. This is because the organization is directly concerned with the interest of the community and as such is held accountable by the community which comprises of the largest group of stakeholders. The combination of concern about managerial control and processes and community-purpose would indeed ensure sustainable survival of the organization. Glaeser (2006) states that continuity and trust of relationships is imperative in ensuring sustainability. Continuity and development of staff and services within an organization lead to establishment of trust which in turn builds a basis for change. As such, it is arguably correct to state that ILT has gained trust of its stakeholders through constant contact through projects that aim at enhancing the wellness of these stakeholders at different levels. It is the element of trust that makes ILT model to override profit-oriented organizations in terms of sustainability. Additionally, ILT similar to other not-for-profit organizations has easy access to vast resources from multiple stakeholders including in-kind resources and financial funding as well as volunteer workers (Hopkins, 2009). Consequently, ILT is expected to provide more value to those it makes contribution to such as employees and customers. Its continued support to the community will attract national and international donors which will facilitate its capacity to expand present and future activities (Watt, 2009). 6.0 Are ILT models better than private profit-oriented organizations? As the mayor or CEO of a city similar to Invercargill, I would encourage the establishment of organizations similar to ILT other than private profit-oriented organizations in order to drive the local economy. The case of ILT has clearly demonstrated that not-for-profit organizations are in many aspects superior to profit oriented organizations. Unlike the profit-oriented organizations which are only responsible to stakeholders, these organizations are primarily responsible to a wide range of constituents. In that case, therefore, they act in the best interest of the larger community and are conscious over events that would potentially harm them such as environmental pollution. Employment also plays a major role in driving the economy of any particular region. Drawing from the example of ILT, which is the largest employer in Invercargill, not-for-profit organizations have the ability to employ more people than other organizations. I would also encourage establishment of ILT model organizations as they do have promising growth through diverse sponsorships and knowledge growth which are attracted by their community-purpose missions. 7.0 Could the ILT model be replicated in my locality? I would highly recommend replication of the ILT model in my locality. In a region where drinking has been declared a menace, an ILT replicate would be quite essential in ensuring that people engage in careful and responsible drinking. Although containing incorporating the principle components of ILT I would propose that the project includes community education initiatives where members of the public are educated on the dangers of excessive drinking. Additionally, the project should have improved volunteering opportunities so as to engage a large group of young unemployed people who are vastly affected by the problem of drinking. 8.0 Conclusion Exemplifying a not-for-profit organization, ILT is undoubtedly a success story of a New Zealand’s community project. Being established through an act of parliament, ILT enjoys the benefits of exclusive preferential rights as well as rights to operate in restricted areas. In addition, it has maximum support from the government through its leadership by the city councilor. Unlike profit oriented organizations, whose mission is self-centered, ILT mission is to ensure the well being of the community through philanthropic and charitable activities. ILT is clearly an anti-competitive organization based on the fact that it bears special rights relative to its competitors and in addition has outstanding support from the community. An organization that applies the ILT model is more sustainable than a profit-oriented. This is because not-for-profit organizations are run with extra caution and they earn the trust of their shareholders. In that case therefore, ILT models are more recommendable than profit-oriented organizations as they have a large contribution to the economy in addition to contributing to the moral and social growth of the community. 9.0 References Anheier, H (2000). Managing non-profit organizations: towards a new approach. Civil society working paper 1. Anheier, H. (2005). Nonprofit organizations: Theory, management and policy. London: Routledge. Anheier, H. and Leat, D. (2002). From Charity to Creativity: Philanthropic Foundations in the 21st Century. London: COMEDIA. Brinckerhoff, P. (2009). Mission-based management: Leading your not-for-profit in the 21st century. New Jersey: John Wiley. Brown, H. and Ruhl, D. (2003). Breakthrough management for not-for-profit organizations: beyond survival in the 21st century. Westport: Praeger. David, A. and Kleit, A. (2001). Are vertical restraints pro-or anti-competitive? Lessons from interstate circuit. Journal of law and economics, Volume 44, issue 1, p.131-159. Glaeser, E. (2002). The governance of not-for-profit firms. National Bureau of economic Research. Working paper 8921. Glaeser, E. (2006). The government of not-for-profit organizations. Chicago: University of Chicago Press. Hopkins, B. (2009). Starting and managing a nonprofit organization: a legal guide. Hoboken: Wiley. Pidgeon, W. (2004). The not-for-profit CEO: how to attain and retain the corner office. New York: John Wiley. Srivastava, A. (2008). Effect of perceived work environment on employee’s job behavior and organizational effectiveness. Journal of Indian academy of applied psychology, Volume 34, no. 1, p.47-55. Watt, W. (2009). Enabling communities to provide for their economic wellbeing: The Awarua industrial estate (A case study from Southern New Zealand). Victoria: Deakin University. Read More