The Invercargill Licensing Trust - Case Study Example

Case Study Table of Contents Introduction 2 ILT’s Success 3 Differences between ILT’s mission and that of any profit-oriented commercial organisation 4 Validity of the anticompetitive criticism against ILT 5 Social Responsibility 6 Sustainability of ILT-modelled organisation and profit-centred organisations 7 Growing the local economy 8 Replicating the ILT experience in my locality 8 Conclusion 9 Executive Summary The Invercargill Licensing Trust (ILT)’s success as a venture is closely linked to the overwhelming support and goodwill that it receives from the community. As a community owned initiative, the trust is uniquely and strategically positioned in the market, something that is further complemented by its monopolistic position as the sole licensed alcohol selling facility. In addition to its inherent advantages, ILT successes are also brought about by its prudent management, its social responsibility towards community, and its ability to remain relevant amidst changing consumer preferences. Its focus on the community as indicated in its mission is one of the main factors that make ILT distinct from profit-making organisations. As opposed to for-profit enterprises that have a sales and profit responsibility towards their shareholders, ILT motivation goes beyond financial success into benefiting the community. Overall, this report identifies ILT as a unique case that does not have a chance of being replicated in the modern capitalistic society where monopolies are thought to be inherently bad, and where communities are rarely able to coalesce collectively around an economic activity without individual self-seeking economic thoughts creeping in. Introduction ILT is a profitable trust based in Invercargill New Zealand. The trust was formed as a means of responsibly licensing the sale of alcohol without giving selected individuals the privileges of raking profits inequitably from a business that is loosely guarded by the liquor laws. The trust was therefore formed as an equitable and responsible business model that would sell alcohol to locals without breaching liquor laws for profit reasons. Decades later, ILT is a profitable business initiative which has not only diversified into accommodation and other forms of entertainment such as casinos, but has continually and strategically placed the community at the core of its business operations. ILT’s Success As an initiative by the larger community in Invercargill, ILT is perhaps the single biggest organisation that enjoys overwhelming support from the same community it strategically serves. As its president Ray Harper has indicated in the case study, the trust also has other aspects that have contributed to its success. Such include good management, its socially caring approach which has seen it return substantial benefits to the community, and its ability to ‘move with the times’. The latter point is especially important because markets are dynamic and a winning strategy in the short-term may not necessarily win in the long-term (McLoughlin & Aaker, 2010, p. 1). Notably, even with increased competition from licensed restaurants, sports centres, cafes and bars all which follow the commercial model, ILT has endeared itself to the consumers by strategically positioning itself as the service provider of choice. Following Walker, Gountas, Mavondo and Mullins’ (2009) thoughts regarding successful marketing, ILT has arguably adopted market-oriented perspectives, which have in turn contributed to the trust’s success in marketing its corporate and business strategies. As indicated by Walker et al. (2009), a strategy entails planned objectives that an organisation follows in its resource deployment, and during its interactions with consumers, competitors and a myriad of other environmental factors. Before formulating its marketing strategies, and considering its dependence on the Invercargill community, ILT as indicated in the case study consults with the wider community in order to understand their priorities and hence determine which projects are worthwhile and better positioned to benefit the community. As indicated in McLoughlin and Aacker (2010, p. 2) “the need for information about customers, competitors and trends affecting the market is now higher than ever”. Such information enables an organisation to detect opportunities, threats, emerging weaknesses, and strategic problems and is hence able to develop the appropriate responses. Differences between ILT’s mission and that of any profit-oriented commercial organisation As a trust intent on providing superior value to community members, ILT is evidently different from profit-oriented commercial organisations in that it has to balance its profit-making motives with the needs and interests of the community members. Additionally, instead of the profits generated by the trust ending up in the pockets of one entity, it is held by the trust where the trustees can decide how best to use the same. As indicated by McLoughlin and Aacker (2010, p. 3), a business, or a commercial profit-making organisation has a ‘sales and profit responsibility’, which is central to its mission. In ILT however, much as there is some focus on the need to ensure that the trust has high quality facilities, products and services; and maintains profitability, its motivation goes beyond financial success into benefiting the community. Again, this unique position of ILT is closely tied to its community ownership hence meaning that its effectiveness and efficiency at the corporate level are all geared towards benefiting the community and making Invercargill a better place. ILT’s mission is also a reflection of its ownership by the community in that it is not as market-oriented as profit-seeking commercial organisations would be. Notably, as a monopoly, ILT has the luxury of non-competition in Invercargill, hence meaning that to some extent, its profits are guaranteed. The case study’s failure to mention ILT’s marketing concept could be interpreted to suggest that the trust does not need to engage in vibrant marketing initiatives given that its market is already guaranteed. ILT’s mission also indicates its resource allocation preferences and priorities, which fit well into the value-based planning as identified by Walker et al. (2009). Arguably, evidence of portfolio-resource allocation often prevalent in for-profit organisations can be seen in ILT’s mission especially in the non-monetary benefits that the trust gives to the community. As noted by Phillips and Bana e Costa (2005, p. 3), mission statements in commercial profit-seeking organisations have specific measures for determining the organisation’s worth. Such measures are expressed in monetary terms where the benefits attained by an organisation should outweigh its costs, hence guaranteeing it profitability. Overall, and as has been indicated by Bower and Gilbert (2006, p. 3) organisations that succeed are those that “manage resource allocation to craft strategy”. ILT has indeed accomplished this by strategically managing its resource allocation to serve the community. Validity of the anticompetitive criticism against ILT As indicated in the case study, monopolies are believed to be inherently bad. Following this thought, and based on the criticism that ILT has high prices that would otherwise have been lower if an open-competition policy was in place, it is clear that the anti-competitive criticism levelled against the trust could be valid. However, the indication that the trust is up-to-date in terms of service provision, continues serving consumer needs efficiently, and has not received consumer complaints against its pricing regime, could be interpreted to mean that contrary to popular belief, the trust is not anticompetitive. The case study has also revealed the emergence of small-scale competitors, hence indicating that ILT is not an absolute monopoly and is hence cognizant of the competitive pressures placed on it by new market entrants. Borrowing from a ruling from the United States where it was established that monopolies have an anticompetitive effect on consumers and markets when they decrease output, raise prices and reduce innovation deliberately (Brooke Group Ltd v Brown & Williamson Tobacco Corp., 1993), it is thus arguable that the anticompetitive criticism levelled against ILT are not valid because the case study has not indicated an instance where the trust has reduced innovation, raised prices, or decreased output deliberately for purposes of fleecing the consumers. Social Responsibility As is evident through the widespread adoption of corporate social responsibility (CSR) initiatives by commercial organisations throughout the world, there is little doubt that such profit-seeking enterprises have a moral and ethical responsibility towards their customers and their communities. As indicated by Gunn (1998, p. 343), the social responsibility that corporate organisations have towards communities is mainly pegged on the need to give back to the societies where they derive their resources and sell their products or services for purposes of ensuring sustainability and guaranteeing future business. By looking at ILT’s social responsibility approach which is intent on providing funding and support for projects and causes in sports, youth-related activities, and tourism, it is apparent that the same projects funded by the trust would attract potential customers from the core business practices, namely, gambling, selling liqueur and clubbing. While this is a contradiction, it is a good indication in that the Trust is advancing the notion that its core activities should be balanced with physically active activities such as sports. Sustainability of ILT-modelled organisation and profit-centred organisations As is evident in the ILT case, even non-profit organisations, which are seemingly monopolistic in nature, can still be sustainable in the long-term. This does not however mean that profit-centred organisations have a reduced probability of being sustainable in the long-term; rather, it means that both types of organisations can survive in the long-term depending on the strategies used to support them in both the short- and long-terms. Because ILT-modelled organisations have less competitive pressure and enjoy a great deal of community goodwill, they might have an improved chance of survival. However, the non-competitive environment may act as a disincentive. hence making such an organisation slow at innovation, product development and other aspects that may make its products and services less appealing to the market. If such a situation ever becomes true, the ILT-like organisation would not have a chance of sustainability in the long-term and would hence have to give way to a profit-centred organisation operating in an open market. Growing the local economy Growing the local economy requires a combination of economic activities; as such, being a mayor or CEO in a town like Invercargill requires one to be knowledgeable about how different sectors of the economy contribute to economic growth and development. As it stands, it is clear that ILT, operating in the alcohol sector has performed impressively to promote responsible alcohol consumption and gambling. However, the fact that the trust-based initiative has worked in the alcohol industry does not mean that the example should be replicated in other sectors of the economy. As the CEO, I would recommend that the ILT model be used in sectors that require strict oversight by the government and communities. However, other sectors would greatly benefit from an open market system where different organisations can compete, hence giving the consumers optimal benefits. If economic growth (measured through GDP) and economic development (i.e. the qualitative development of the city through such factors as improved living conditions, health and enhanced literacy levels) as indicated by Carruthers & Babb (2000, p. 146) are to be realised, then it would be advisable for a city like Invercargill to open its economy for competition in other sectors other than the alcohol sector. Replicating the ILT experience in my locality The circumstances (i.e. prohibition) surrounding the formation of ILT were unique, and would be hard to replicate in my locality, which is predominantly capitalistic in nature. Notably, many modern-day societies have no opportunity for monopolies as indicated by Klotz (2008, p.2) and this would make it hard for an ILT-like business to be established, let alone prosper. Additionally, whereas communities in my locality coalesce around issues of mutual importance to them, business-related issues are often pursued by individual entities, hence making it highly unlikely that the community would support the formation of a trust that would have a monopolistic outlook. Conclusion ILT is a unique case that does not have a chance of being replicated in the modern capitalistic society where monopolies are thought to be inherently bad, and where communities are rarely able to coalesce collectively around an economic activity without individual self-seeking economic thoughts creeping in. As established in this essay, an ILT-based business model, depending on the strategy used, is sustainable in the long-term just as the profit-seeking enterprises. Additionally, this essay has established that ILT is not non-competitive as its critics would have people believe. To grow local economies however, the people in charge even where ILT-based business models are in place would need to diversify the types of businesses in their jurisdictions in order to enhance competition and hence afford customers greater product/service choices and better prices. References Bower, J. L., & Gilbert, C.G. (2006). Manage resource allocation to craft strategy. Working Paper 07-018, 2-9. Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. [1993] 509 U.S. 209, 225. Carruthers, B.G. & Babb, S. L. (2000). Economy/society: markets, meanings, and social structure. California: Pine Forge Press. Gunn, A.S. (1998). Rethinking communities: Environmental ethics in an urbanised world. Environmental Ethics, 20, 341-360. Klotz, T. (2008). Monopoly power: Use, proof and relationship to anticompetitive effects in section 2 cases. Working Paper, 1-42. McLoughlin, D., & Aaker, D. A. (2010). Strategic market management: Global perspectives. London: John Wiley & Sons. Phillips, L. D. & Bana e Costa, C.A. (2005). Transparent prioritisation, budgeting and resource allocation with multi-criteria decision analysis and decision conferencing. Working Paper, LSEOR 05.75. 1-23. Walker, O.C., Gountas, J.I., Mavondo. F.T. & Mullins. J. W., (2009). Marketing strategy: A decision-focused approach. North Ryde: McGraw-Hill. Read More