Strategic Management for Hornby - Case Study Example

Name Class Unit Introduction Hornby is an iconic brand for children’s toys and models popular with the collectors. The company is highly associated with the electric trains, tracks, speed controllers, buildings and scenery among other items (Thompson, 2003). The company has its main focus on development, production and supply of different toy models. The company has been able to survive the market despite the stiff competition in the toy market. Before the company attained the current status, the company has in several occasions come close to being absorbed completely or exiting the market in some cases. Current revival for the company involves a strategy where it moved from being a solely producer of children toys to become a serious enthusiast and collector (Thompson, 2002). This report is based on Hornby hobbies strategic analysis. This is through carrying out environmental analysis, organisation culture, strategy development, strategic choices and change management. Environmental analysis There have been several factors that have affected the macro environment in which Hornby is working on. There are different factors in the market which includes tax changes, trade barriers, government policy and new laws. To analyse Hornby environment, it is vital to carry out PESTEL analysis for the macro environment (Thompson, 2002). Political factors Hornby operations are affected by the government policies which have an impact in its operations. This includes the level of government in the economy. Most of the sales made by the company are from UK market. Despite the efforts to expand into the global market, the company is highly affected by the UK political issues. The company has been affected by the UK laws on the market. The industry has both national and international regulatory entities. The European council and parliament has role in the legislation of the toy industry in UK. During the early years of operations, the company was affected by the world wars which determined the company production (Thompson, 2003). In UK, the country has moderate level of inflation estimated at 2.2% and with a population of 65.3 million. The country has a positive political risk with a government which has focused on deficit reduction economy development. The country business regulations are efficient based on the level of competition and anti-monopoly policies. This has affected the company operations. The company has benefited from the fact that there are no restrictions to business establishment in UK and the government provides protection. The company has been operating in a country with a transparent financial system. The UK is a constitutional monarchy with a parliamentary system which is based on democracy. This has ensured that the company operations in UK are in a stable environment. Based on the transparency international corruption index, the country has minimal level of corruption. The country is also a member of several trades, political and economic unions which affects the operations of the business (Thompson, 2003). Economic Economic factors have a great impact on the toy industry. The country level of economic growth, GDP and inflation rate is the main factors that affect the operations of the toy industry. The UK market has a low inflation rate. The country has been working hard to minimise inflation as well as ensuring that there are no monopolies. The anti-monopoly polices has led to an efficient and perfect competition in the toys market. The country labour force is highly qualified labour force which is also highly efficient. The economic conditions for the country have made it possible for the company to expand. With the favourable economic conditions, Hornby has been able to survive the market conditions (Thompson, 2003). Social Social factors have an impact on the market. UK official language is English and has a population of about 65.35 millions. With a steady population growth of 0.5%, UK market is expanding. The major age group which are clients for Hornby toys are children and young adults as well as collectors (Thompson, 2003). Technological The toy market is highly affected by the level of innovation and creativity in the country. UK has an innovation driven economy where it occupies a position among the leading countries in innovation. There have been an increase in the level of technology and innovation in the country. With the ease of availability of new technologies and internet users, UK market is highly appropriate for the toy market. Hornby toy industry has been highly reliant on innovation success. This has helped the company in their research and development segment. Based on Hornby industry history, the success has been based on their ability to innovate and come up with new products. For example, the company was able to master production of small electric train through use of technology. The founder Frank Hornby was highly innovative which made the company to succeed during his term. The company change of strategy has been based on innovation. Through taking advantage of the new technology, the company has been able to benefit from arising opportunities (Thompson, 2003). Environmental Businesses are expected to observe the environmental issues in their operations. The UK government has been using relevant authorities in raising awareness on the environmental matters. There has been strict regulation on environmental issues with trends on recycling and reducing waste being emphasized. Hornby has been very committed to ensuring that they operate with care being given to the environment. The company has been using materials that do not harm the environment in their operations. Through high commitment to the environment, the business has been able to ensure they uphold the government initiative to prevent environmental deterioration (Thompson, 2003). Legal The legal factors have a great impact on the operation of the business. The toy industry is highly affected by the legal environment. The four main sources of law in UK are common law, European law, legislation and the European convention on human rights. The VAT has been a major factor that has affected the industry. Despite this, there are no restrictions to business establishments. This implies that there are no establishments that need special conditions. Through use of companies act, there have been reforms which have simplified the business operations and creation of society (Thompson, 2003). Organisation culture Hornby is based on a culture of ethics which is backed by the senior management. This is seen in the company audits, controls and compliance (Thompson, 2003). The company has been doing the right thing since it was formed. The company can be considered to be one of the most ethical toy companies. The company has also been very innovative which is based on their innovative culture (McLaughlin, Bessant & Smart, 2008). The company has not been implicated in any violation of standards in their toy manufacture. The company has stringent measures on testing their toys to ensure that they are within the set standards. The company has also been very ethical in their environmental outlook. This is seen on the company environmental initiatives. The company culture has been aimed at using environmental friendly packaging. The company does not use PVC in their toy manufacture as well as packaging. The packaging also uses less material (McLaughlin, Bessant & Smart, 2008). Hornby has a highly formalised culture. The high level of formalisation in the organisation has led to predictability, consistency and orderliness. The strong culture at the organisation has acted as a substitute for formalisation. Through accepting the organisation culture, it has become possible for the members in the organisation to regulate their behaviours without the need for written documentation. The strong organisation culture in the organisation is thus reflected through the high formalisation of rules (McLaughlin, Bessant & Smart, 2008). The power culture dimensional of organisation culture is also evident at Hornby. This is where the organisation uses power to have influence in members’ behaviours. The level of power control in the organisation is low where the leaders are maintains controls of the followers. The size of the organisation makes it hard for the leaders to have absolute powers among the followers. Despite this, the top down approach in communication is exercised at Hornby (McLaughlin, Bessant & Smart, 2008). Hornby culture is based on bringing the right people towards attaining the organisation goals. Work in the company is organised around teams rather than the individuals. Through use of specialists in the toy manufacture, the organisation has been able to meet the market demands. The organisation brings together teams which are focused on specific tasks. Through use of teams, the culture is able to generate positive synergy through use of coordinated efforts (McLaughlin, Bessant & Smart, 2008). Through the organisation culture, it has become possible for Hornby to define the way of doing things in the organisation. The organisation members are able to gain lessons from the previous members. The organisation culture has been able to determine the organisation behaviour. This is through defining the work methods, interactions and ways in which personal relationship is developed in the company. This has helped in reducing conflict, enhancing coordination, reducing anxiety, increasing motivation and competitive advantage (McLaughlin, Bessant & Smart, 2008). The organisation culture at Hornby can be defined as strong. This is due to fact that the core values are shared widely and held strongly (Thompson, 2003). The organisation members are committed to the shared values. Through a strong organisational culture, the organisation has been able to attain high performance through goal alignment, high level of employee motivation and a culture that is able to learn from the past. Hornby has been able to learn from the past and make improvements which have made it possible to survive the market for over a century (McLaughlin, Bessant & Smart, 2008). The source of organisation culture at Hornby can be attributed to leadership. Hornby has a great influence on the company early culture where he maintained innovation. He was able to impose his beliefs and values to the participants. As the founder, he chose employees who thought and felt the way he did. He was also able to indoctrinate and socialise the employees into his way of thinking. The culture has been transmitted to organisation members with an aim of sustaining it. Hornby members have learned the organisation culture at the firm through artefacts, language, behaviour patterns, heroes, believes history, values and attitudes (McLaughlin, Bessant & Smart, 2008). Strategy development Up to 1995, the firm was struggling in the market and competing poorly with players such as Hasbro and Mattel. The company was not winning the critical mass and the Hornby and scalextric which were core business were neglected. A strategic change in the 1995 brought the company back to the market. The company came up with a strategy between 1995 -1998 where they ditched all non-core trading and focused on developing scalextric and Hornby (Rumstay, 2004). This also included moving their manufacturing to China. When making this strategic move, there was a lot of disapproval from the toy model trade press. The company also made quality improvement rather than focus on cost advantages. For example, to develop one scalextric car, the company spent about £120K while £200K was spent on single Hornby train. Moving the production to China ensured that the corresponding tool costs were reduced by 60% while the customers benefited from 100% in model improvements (Thompson, 2002). The previous strategy prior to 1995 involved diversification. This had resulted to lack of focus for the company core brands. The decision to outsource by Hornby was an irreversible change of strategic direction. This led to the closure of their manufacturing facility and shipping their production tools to China. This led to a long term loss of skills and knowledge for the firm. The success of any strategy is based on the robustness used in implementation (Thompson, 2002). To make the Hornby strategy a success, the company invested heavily on the operational phases of their programme. This involved releasing a management team that was specifically meant to oversee the outsourcing programme. The company was also required to ensure that there was a continuity of supply. After making the arrangements to outsource to China, the company liaised with the Far East partners through frequent visits to China. The company had to ensure that there was a permanent presence in China for coordination of product at the local level. The supplier management was carried out in an efficient manner throughout the strategy implementation. This is through acknowledging the Chinese way of doing business being different to west. The cultural difference meant that the company had to work in a way that did not enforce the western ideas to China. This developed a two way relationship between the firm and suppliers in China. Hornby was able to create a lasting relationship with the supplier which has existed (Thompson, 2002). Newey who became a chief executive in 1995 was a well-known strategist. He had a background in merchant banking. He was concerned that the diversification strategy had led to the loss of focus on the core business. He was able to recognise that the traditional toys were gaining their earlier popularity. He saw that Hornby future lied on exploitation of its valuable brands. He believed that there was a market if buyers would have the capability to develop and personalise the track layouts for the toy locomotive (Thompson, 2002). Newey also had an idea that the company should also focus on the adult market as well as that of children. This led to a strategy that would focus on both kids and adults market. Based on the evidence available, Newey found out that the interest in toys could be maintained up to adulthood. It was also evident that parents buy the toys for their children and were also involved in designing the layout. He also saw an opportunity in persuading the parents to engage in collectorship. This is through making toys which were scaled down in an authentic manner and with high quality. This led to new strategic decisions in making toys which could be appealing to both children and adults. The collectors theme was reinforced through appropriate and authentic scaling up. Adult collectors started buying more toys (Thompson, 2002). In 2001, when a new opportunity presented itself, the company made a strategic decision. This involved a replica model of the Hogwarts Express steam train based on the Harry Porter movie. The strategy involved re-launching of new packaging to coincide with Harry Porter second movie in 2002. The company has been very active in making strategic moves that has enabled success in the industry (Thompson, 2002). Strategic choices/options There are four main types of strategic choices; defensive, prospective, analyser and reactive. A defensive strategy involves defending the business activities. Prospective strategy involves gaining prospects, analyser survives to sustain while the reactive keeps the business afloat. The main aim of the defenders is to reduce costs and attain efficiency through low cost operations. A market defender has poor innovation and works best in a stable environment. A prospector organisation operates using different range of products where the market is fast moving. This strategy involves being able to innovate and take advantage of new market opportunities. This involves being flexible, decentralised while remaining efficient. As a prospector, the firm has to emphasize on research and development while maintaining marketing. Analysers follow others in the market through analysing their behaviours. They mostly emphasize on market differentiation and cost reduction. Analyses do well in stable market environments. Lastly, a reactor organisation has a mismatch between environment and strategy (Nutt, 2002). The organisation may lack any strategy at all. The organisation finds it hard to respond to changes in their environment and in some cases use inappropriate strategies (Thompson, 2002). Hornby can act as a prospector in the market. This is through focusing on their range of products in the market. The firm can focus on innovation and new market opportunities to remain competitive. To remain efficient, Hornby has been a creative organisation. This is through their emphasis on research and development. Based on the company finances, human resources and core competencies, there are several strategic choices that can be made. The company can continue focusing on models which appeals to both children and collectors, focus on differentiation or come up with new toys. Based on the company history, diversification has failed in the past. This is prior to 1995 where the company engaged in a diversification strategy that made it lose their focus on core products. It is therefore prudent that Hornby should only engage in diversification if they can continue focusing on their core products. The diversification strategy may not work since it cannot tackle the core problems or improve the business competitive standing. The strategy may also not be accepted by the various parties interested which include the management and shareholders. Shareholders may not accept the strategy since it had failed to work in the past. The strategy is not sustainable since the firm may not hold to it (Nutt, 2002). Coming up with new toys is a strategy that is almost similar to diversification. This involves coming up with new toy ideas and adding to the existing portfolio. This may lead to capturing new market as well as expanding the existing segment. The main weakness of this strategic choice is the fact that it may distract the firm from its core product offering. The firm should continue focusing on their strategy which involves creating toys which appeals to both children and adult collectors. This is a strategy that has proved to be effective and profitable for the firm. Since the new strategy was adopted, the firm has been able to make profits in the market. At the moment, the firm should not introduce another product. This is a risky venture and unnecessary. The firm has been able to prove that diversification is unprofitable in the toy industry. If the firm invests in a new product, there are chances that they will lose focus on their core products hence losing the market share. The firm should concentrate in their core products through engaging in continuous improvements (Thompson, 2002). Strategic benefits The success of Hornby can be attributed to having an effective combination of supplier an in house development activity. The suppliers are experienced in manufacture of the toys and effective management. The Chinese management is well experienced since they have been staffed through use of professionals with management skills. The company has designers who have extensive knowledge and understanding of their customer base. Before outsourcing, most of the products were produced at high costs based on the UK manufacturing facility. Outsourcing has enabled the firm to save costs and came up with products are highly detailed and innovative. The savings that are attributed to the outsourcing programme are considerable. The savings are reinvested into research and development (Thompson, 2002). Change management The goal of change is to improve the organisation through changing the way work is done. When a change is introduced to an organisation, the organisation operations are impacted in four ways; processes, systems, organisation structure and job roles. Change management involves a systematic way of helping those who have been impacted by change. This is through creating support, addressing resistance and using the required knowledge to implement change (Todnem, 2005). Since invention by frank Hornby, the firm has seen a lot of changes. After the death of Hornby in 1936, the company underwent change with new management. Hornby has been the prime motivator and source of ideas for the company. The company faced competition from the new plastic toys in the market. The new versions developed did not do well in market. The company started seeing its fortune dwindle where they had to consider a takeover in 1964 (Todnem, 2005). After takeover by Triang, the company faced several changes. There was modernisation of the meccano image through use of new colour schemes which were more appealing to kids. The company also started using professional marketing consultants and graphic designers. The company has changed hands several times with new changes being incorporated (Thompson, 2002). When the company started outsourcing in`1995, there were problems with the Chinese suppliers. This was a major change undertaken by the company in its operations. Through use of effective change management, the company was able to cope with outsourcing in China. The toy industry has been facing a lot of changes with unpredictable buying behaviours among the public. The industry has also been suffering from supply chain problems and short lifecycles for their products. There are both demand and supply variability which requires appropriate change management techniques. To deal with these, Hornby has been engaging in coordinated outsourcing and hedging against industry risks (Thompson, 2002). First changes involved changing thee train gauge from 0 to double 0 which is very popular in the market today. The company was later merged with Triang under new management. During the 1990s, the company underwent a lot of diversification in its product range. The industry introduced new products while at the same time maintaining their old products (Todnem, 2005). After a change of leadership, the company faced a change in strategy. This involved coming up with a strategy that focused on the core model products. The company refocused on old models and exploited the value held in these brands. The company changed its focus and started targeting both children and adult collectors. These changes have been met with resistance and addressing the resistance has been a major driver for change (Todnem, 2005). The process of change management involves unfreezing, moving and refreezing the practices within the organisation. The first step is unfreezing where there is creation of discrepancy between the existing and ideal state of the firm. This creates a desire to change and reduced the level of resistance to change. The second step is moving which involves training educating and restructuring. This has led to new behaviours and attitudes in the firm. Lastly, there is refreezing which includes establishing a new state of equilibrium. In the case of changes carried out at Hornby, it is evident that they followed the lewin change model described (Thompson, 2002). When implementing changes, resistance is inevitable. This is seen at Hornby as the company tried to change their strategy and focus on core products. Through appropriate change management initiatives, the new leadership was able to deal with resistance. Communication serves a vital part during the change initiative. This is through information sharing, participation, motivation and social support. This is through problem cantered models where a gap between the existing and ideal state of affairs was identified. This led to beginning of change processes that were aimed at reducing the gap. The company was making loss and did not have adequate resources to maintain the diversification strategy. There were also a lot of opportunities in their core products which had been abandoned. Once the management and employees identified the existing problem, they started coming up with structured steps aimed at facilitating the change process. The outcome was a successful new strategy that has been able to ensure that the firm is profitable in its activities (Thompson, 2002). Conclusion To sum up, Hornby is swimming with the tide and there is no need to introduce new products. The company should focus on their core products which include Meccano sets, Dinky toys and Hornby Dublo trains. Another product range would be unnecessary and would lead to high risks and costs. Besides, the firm has suffered a lot through diversification in early 1990s. Hornby hobbies have a great future in the toy market with promising returns. The firm must focus in expanding their market in countries where they have no presence. The firm has shown excellence in change management over the years where changes in strategies has been successful. The firm has a strong organisation culture which has held it together. Since inception, the founder was very innovative which led to instilling an innovative culture. Hornby operates in a stable environment which makes it possible for the firm to gain maximum returns. This is due to fact that the core business is in UK. Based on the analysis, it is important for Hornby to retain their prospector based strategy in the toy industry. References McLaughlin, P., Bessant, J., & Smart, P. 2008. “Developing an organisation culture to facilitate radical innovation.” International Journal of Technology Management, Vol.44, no.3-4, 298-323. Nutt, P. C. 2002. Making strategic choices. Journal of Management Studies, Vol.39, no.1, p.67- 96. Rumstay, K. S. 2004. “Metal Construction Toys of the Early Twentieth Century: Their Astronomical Applications.” In Bulletin of the American Astronomical Society, Vol. 36, p. 1403. Thompson, J. L. 2002, Hornby Hobbies, A Management Case Study, Copyright John L Thompson. Thompson, J. L. 2003. Hornby Hobbies: swimming against the tide. Copyright John L Thompson. Todnem By, R. 2005. “Organisational change management: A critical review.” Journal of Change Management, Vol.5, no.4, p.369-380. Read More