Lululemon Management - Case Study Example

Lululemon Case Study Name of Student Name of University Date Executive summary Three of the problems facing Lululemon managers are decreased revenue, misaligned growth initiatives and employee –manager mistrust. The management of change has therefore to abide to certain rules and guidelines in order to succeed. Most importantly, as the existing literature demonstrates, the process of implementing change is founded on effective communication. The ineffective communication of the company's intentions to employees by the management can lead to the loss of trust, growth of anxiety and insecurity among the workers, and a drop in the productivity levels and hence the profits of the company. It is therefore imperative that the management avoids making grand announcements about intended organizational changes without taking the effects of this on employees' emotional and cognitive reactions. This is however often neglected by executives as the idea remains that change which can generate dramatic performance improvements will be welcomed without hesitation by the workers. However, the analysis of a specific case study, Lululemon, reveals that this is not always the case and that things can go horribly wrong if the process of communication and planning are not executed with care and sensitivity, taking the particular issue of communication especially into account. Introduction The company problems fall into three broad categories- planning control system, cybernetic control system and reward and compensation control system. The case study it can be noted that the company requires to manage it is administrative control systems reward and compensation systems planning systems and cybernetic control systems. The problems faced by the company relate to planning control system, cybernetic control system and reward and compensation control system. The problems facing Lululemon managers are due to demands from board of directors for expansion without proper planning. The problems range from resistance to change declined profitability, entry of low cost competitors and mistrust from employees Problems and consequences Decreased revenue and consequences The company is facing a problem of a fall in the profits, it suffered decreased profits in it stores where the average sales per square foot, decreased from a high point of $1,710 in 2007 to $1,451 in 2008, as well as a decrease in company store sales from 24% to 3% (Tushman, 2010). Causes – the decrease in profits was due to rising costs. This is cybernetic control system problem; in this case the management faced diminishing revenue which led to reduced profits even though it was expanding. According to Tushman (2010), earnings before Interest and Tax and net earnings were moving downwards mainly due to high expenditure. The system displays the minimal cost requires to utilize information and derive maximum revenue from it. However, it does not solely rely on increasing the revenue; rather it depends on the need to increase capacity building which will further enhance savings and investments of the stakeholders. This can be passed on to the customers at low costs (Drury, 2006). The reduction in costs would also enable the organization to generate lower disposable incomes. The reduction in costs would also help the organization in providing for a greater number of supplementary services to the customers which would enhance the overall customer experience and result in delighting the customers. It was not wise to expand geographically in the face of increasing costs. In this way they did not reduce costs but access new markets which failed to get them back on the growth line in profitability(Tushman, 2010). Another cause of reduced profits was due to bad sales. According to Tushman (2010) sales were poor in some stores while other real estate business had poor sales. The company huge growth potential but the board pressurised the managers to expand leading to expansion even to areas where there was no demand(Tushman, 2010). Consequences - Fluctuations in the profits made per year have affected the relations with the investors in the business. Potential investors feel shy to invest in the company. The diminishing revenue leads the management to increase a mark-up. This tendency of the company increasing prices than its competitors implies many customers to shift to other brands because of company’s high price tags(Tushman, 2010). It is obvious that whenever any organization’s finances are poorly managed, the end results are awful as they lead to a drastic fall in the firm’s returns, loss of feasibility or inability to fund projects which can consequently lead to collapse. At the Lululemon, the entire financing system is entrusted to people who cannot make sound decisions over proper utilization of the firm’s finances. Some of company’s new ventures have not been suitable in the markets because of lack of demand, which means that production costs increase (Williamson, 2005). It is impossible for any system of planning to be successful and resourceful without a proper system of control in place. The firm is faced by numerous issues that deter its growth and retards its development(Tushman, 2010). Employee –manager mistrust The company faced deteriorating relationships between its management and employees. The situation was growing chronic and this problem relates to reward and compensation control system. Causes: The main cause of this problem was lack of proper communication between the management and employees about the changes that were being undertaken in the company(Tushman, 2010). There are various reasons why people are unwilling to accept organizational change—fear of change, uncertainty, insecurity, and the disturbance of the status quo. People resist organizational change because they do not understand what the change is for, why there is a change, and how this change can benefit them (Gill, 2003). Due to lack of communication and information, some people tend to perceive the organizational change being introduced to them in a unidirectional view that it will only benefit the organization while they suffer. Senior managers are in this context often complained about by employees who feel excluded from the change process, which can give way to the rise of doubt and insecurity and affect productivity and the general working sphere (Roberto and Levesque, 2005). This is possible in a large organisation like Lululemon with close to 100 stores, including 56 in the United States, and nearly 3000 employees (Tushman, 2010). The inability of employees to coordinate effectively is an important sign of lack of productivity and distraction that is connected to the atmosphere of insecurity within the company. This sense of insecurity and consequent distraction is namely the result of fear among employees. Another cause was due lack of coordination. The cross-functional teams of Lululemon slowed down because of the lack of coordination within the team(Tushman, 2010). The company had not clearly defined roles and responsibilities of team leaders , not integrating the efforts of individual contributors thus the operations of the groups were not well planned and not anticipating team problems and developing contingency plans (Salas, Bowers and Edens, 2001). In an organisation, employees play a key role since their behaviour and actions directly affect the organisation’s ability to reach goals (Simon, Davila & Kaplan, 2000). Members within Lululemon tend to look upon themselves as representatives of their department instead of as team members. When problems are discussed, their focus is, “How will this affect my department?” rather than, “What’s the best solution?” Consequences: The consequences of this were de-motivation and reduced productivity. This means valuable employees with immense skills habitually spend most of their valuable time on unnecessary activities(Tushman, 2010). Since employees weren’t adapted to such change. They also developed reservation regarding working with colleagues across functions or cultures as well the newly appointed. Most of the employees developed suspicions about his motives. The most pressing issue was the indifference of employees towards the crisis that the company was going through. The organization had a mechanistic set-up where employees waited to be told what to do. There was centralized decision making. This made it almost impossible for him to hide back the problems that the company was facing. His technique was to make everything clear and simple without any complications. He transferred this idea to his employees who were at first shocked and outraged but later on adapted it as their own. The single idea proved to be the basis of the change at Lululemon. Misaligned growth initiatives and Consequences One of the problems that were faced by managers of Lululemon was pressure to please stakeholders which lead to rapid expansion(Tushman, 2010). Causes: The stockholders wanted to see growth of business and increase in revenue. This lead manager to implemented rapid expansion programs and diversifications aimed at increasing its market share and competitive edge. According to Tushman, (2010), management wanted to turn Lululemon into a $1 billion business without maintaining existing culture and this led to misaligned growth initiatives. Many leaders, when trying to implement new strategies or a strategic plan leading to a new vision, will discover that their strategies will fail if they are inconsistent with the organization's culture. Thus, culture represents the personality of an organization, having a major influence on both employee satisfaction and organisational success. It “expresses shared assumptions, value, and beliefs and is the social glue that holds an organisation together” (Trevino & Nelson 1999, p.207). While every organization has a culture, it is sometimes elusive and open to different interpretations. According to Deal and Kennedy (2000), a strong culture is a system of informal rules that spells out how people are to behave most of the time. In a weak culture, employees waste a good deal of time just trying to figure out what they should do and how they should do it (p.15). While most managers do not deny the importance of organizational culture in employee satisfaction, few fail to realize the direct impact they have in shaping it. Some of the consequences of trying to please the stakeholders were expanding to areas where there was no demand for their services like in the case of real estate. There is also another reason as to why they are finding it difficult to operate in the current environment: mismanagement of expansion plans (Tushman, 2010). Among other things, it has been discovered that Lululemon has been using questionable business practices while expanding. The most pressing concern confronting the company right now is rebuilding the customers’ trust. The old management has all been replaced and all top management replacements are backed with years of experience in the industry. Because of this, it is imperative that the new executives act on behalf of the customers’ interests because the future of the company is in the continued patronage of these customers. It is safe to assume that these new managers are aware of their beneficiaries’ expectations, because these are the reasons why they have been hired for their new positions. Aside from these, the new management team at company is a mix of internal and external hires. Given this idea, it is evident how company focused upon growth without proper strategies something that led to reduced profitability (Merchant and Van der Stede, 2012). Another cause was that the expansion was not in the marketing department’s 5-year target, hence had not been planned for in advance. The expansion was however influenced by the fact that there was provision money for expansion and demand from board(Tushman, 2010). Therefore the manager hurriedly planned so that the company expand, this illustrates poor planning. When money managers were provided money for expansion they looked at a narrow picture, their own areas of responsibility. Decision made by managers benefited their own segments as well as the boards’ demands, which was not at best interest of the company. Based on that, goal-incongruent behaviour might prevail. Goal incongruence exists when the actions taken by individual managers that are in their own best interests, as far as subunit profit maximization is concerned, are not in the best interests of the overall firm. Consequences: the management opened branches in areas where there was no demand leading failed business growth. Self-interested decisions lead to errors in judgement (Botta and Bahill, 2007). According to Williams (2008), integration of a strategic plan and a budget enhances the coordination of activities in an organization. On its part, a strategic plan incorporates information from all areas of an organization’s internal environment to come up with strengths, weaknesses, capabilities, and strategic value chain, thus presenting the actual position of the organization in the industry (Abraham, 2012). Conclusion Among the most important mistakes made by company was its inability to recognize the warning signs within the company. The inability of employees to coordinate effectively is for example an important sign of lack of productivity and distraction that can be in its turn connected to the atmosphere of insecurity within the company. This sense of insecurity and consequent distraction is namely the result of the de-motivation within the company about employment policy adopted. Not knowing whether they will lose their work made many in the company feel disheartened and stressed, which negatively affected their work performance. The company could have helped divert the catastrophe and the financial losses by closing those areas that are making lose. There should be proper supervision over the different teams and any inefficient cooperation between the different project groups rendered any achieved progress often useless. References Abraham, S 2012, Strategic Planning: A Practical Guide for Competitive Success. Bingley: Emerald Group Publishing. Botta, R & Bahill, T 2007, A Prioritization Process. Engineering Management Journal, 19 (4), 20-27. Deal, TE & Kennedy, AA 2000, Corporate Cultures: The Rites and Rituals of Corporate Life. Cambridge: Perseus Publishing. Drury, C 2006, Cost And Management Accounting: An Introduction. London: Cengage Learning EMEA. Gill, R 2003, Change management or change leadership?, Journal of Change Management. Vol. 3, No. 4. p. 307-18. Merchant, A & Van der Stede, W 2012, Management control systems: Performance measurement evaluation and incentives. 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