Managing Organizations and People - Essay Example

Managing organisations and people Managing Organisations and People Introduction: Strategy and business In the eyes of law, a corporate entityis a living thing, with its rights, responsibilities and obligations. Since corporate bodies are created by human beings, it is appropriate to compare them with human beings and note the stark differences. For example, a new-born baby is the cynosure of all those who behold it, showering it with love and affection, and watch it with happiness and pleasure as it grows up. On the contrary, a corporate body is born into the market place where there is no room for such loving sentiments. A new entrant is treated as a direct threat – whether it is a brand new company or an existing company entering into newer pastures. The external environment is hostile and it is a matter of survival from day one. Strategy plays the most important part in the game of self-preservation and growth of any business organisation.This strategy is devised by its human resource pool. 1 a. Corporate strategy employed by Mr. Chase to develop Tyrrells Crisp business Forces nearest to a company, which affect its capability of serving its customers are micro environmental factors. For example, customers, competitors, suppliers, marketing teams are some such factors (Kotler, et al, 2004, p.164). In perfect competition, there is no limit to the number of these different players and equilibrium is maintained in the form of reasonable profits and market share for each supplier. In this competitive condition, “Price changes act as the mechanism whereby demand and supply are balanced (Sloman et al., 2006, Ch.4)”, and a win-win situation is created for the seller and the buyer. However, such an equilibrium can be disturbed by any number of factors, Managing organisations and people 2 one of them being the purchasing power of the buyer(s) and the result is an imperfect market. When he started out his career, Mr. Will Chase, the promoter of Tyrrells Crisps was producing potatoes which, as a commodity with no added value and no differentiation from other suppliers, was giving him wafer thin margins. Terms could be dictated by the buyers, who play one supplier against the other to beat down the prices or set unjustified conditions. Chase decided to counter this situation by diversifying his business, converting the potatoes into a branded product namely Tyrrells Crisps and thus adding value to his produce. It was a right step, with the margins on chips being better than those on potatoes since he was producing the raw materials himself. His innovative modifications of the hand-fryer resulted in a dramatically successful product – hand fried crisps, made from potatoes from own farms. He continued with his innovative efforts adding new flavours and newer vegetables to his line of products. Branching out from local farm shops and delicatessens, he tapped the big stores like Harrods, Selfridges and Villandry (Hirchkorn, Telegraph, 2004) with their marketing strength and successfully built a growing business. Thus far, Chase’s strategic initiatives have been value addition, product innovation and marketing through high visibility big stores. Chase faced the buying power of TESCO, which resorted to off-hand rejections or demanded unreasonably high discounts and failing to realise the same, started to under-cut Tyrrells Crisps prices through grey-market operations. His options were either to give Managing organisations and people 3 in to the demands of TESCO or to adopt a strategy to bypass TESCO. Both options were fraught with risks viz., either being swamped by the negotiating power of TESCO and survive on a hand-to-mouth existence, or inablility to find enough customers for his growing business. Potato chips being a product of mass consumption, a number of national and international brands were already in the market, thus making it all the more difficult for Tyrrells to secure a share. Having rejected the demands of TESCO, Chase had to fall back upon one of the strategic options for sustaining long term competitive advantage viz., cost leadership, differentiation, cost focus and differentiation focus (Porter, 2004, p.11). According to Claire Capon, ‘cost leadership’ is appropriate to sell standard products in a broad market and efforts are for achieving the position of a low cost producer in the industry; ‘differentiation’ aims to add extra value (real or perceived) to a standard product; while ‘cost focus’ results in lower costs/prices/margins, ‘differentiation focus’ results in higher costs/prices/margins (Capon, 2004, ch.10). Chase had to choose one of the four classic options discussed here and he chose the option of ‘differentiation focus’ for reasons explained below. The unique selling proposition (USP) of Tyrrells Crisps has been that they are made from home grown potatoes, with the manufacturing facility being integral to the farms. In addition, Chase continuously looked to ways to innovate with new flavours and introduce new vegetable products. Combining these initiatives, he chose to market his products as up-market products through premium outlets – products with a difference which can command premium prices. His strategy of ‘differentiation focus’ and Managing organisations and people 4 distribution through up-market retailers meant higher costs but ensured that the discerning consumers paid more for the products. He thus avoided direct competition from the makers of standard broad market crisps, who enjoy significant economies of scale of operations. At the same time, he did not avoid local retailers who ‘respect sellers’ and at the same time help in spot sales to consumers. 1 b. Strategy to take the business forward Igor Ansoff’s product/market matrix identifies the business expansion route as: growth through market penetration, growth through new customers / markets, growth through product development, and through new products to new markets i.e., through unrelated diversification (Unknown, Ch. 9, Diversification and synergy, Virginia.edu). According to Ansoff, most companies progress through all the four stages of strategies in sequence. In the foregoing paragraphs the history of development of Tyrrells Crisps has been seen, in the background of the potato chip industry. The broad market for the standard products is being serviced by a number of established players who get average or below average profits and survive on economies of scale of operations. Retailing is in the hands of nationwide distributors with power to influence prices payable to producers. Consumers of standard products are price conscious, there being virtually no differences among the competing brands. In this scenario, a medium size player like Tyrrells Crisps faces the twin threats of the large suppliers and large distributors: one can undercut the prices and the other can control the market as well as prices. With comparatively limited access to resources, Managing organisations and people 5 Tyrrells can only survive, grow and sustain long term competitive advantage if it differentiates itself from the broad market and develops niche products for consumers willing to pay a premium price. However, niche product market is narrow and hence sustained growth implies other difficult options as well, such as new markets and taste preferences. Mr. Chase has already made a successful choice by exporting his products to a number of European countries like France, Denmark, Italy and Norway. Taking this strategy forward, Tyrrells should aim for the other markets in the European zone, even while continuing its relationship with premium brand outlets for penetrating the new markets. Being an innovative company from the beginning, Tyrrells would find opportunities to develop varied products for these new markets and remain ahead of competition. At the same time, marketing the differentiated products that have been developed for the home market is more attractive than products of local taste preferences since the latter command a lower price (as they are closer to generic products). Expanding its ‘farming and manufacturing operations’ base into the new territories either through acquisitions or through grassroots plants, is not considered appropriate for Tyrrells as it would mean diluting its unique brand value of ‘premium processed food products from UK, produced and manufactured on the farm itself’. Thus, for Tyrrells Crisps, ‘internal growth strategy’ in related lines is more appropriate, at this stage of its development. 2 a. Human resource planning “Human resource planning is the term used to describe how companies ensure that their staff are the right staff to do the jobs. Sub topics include planning for staff Managing organisations and people 6 retention, planning for candidate search, training and skills analysis and much more.” (Strategic and business planning free resource center, 2008). Jackson et al quote Burack & Odiorne who state, “Four phases of human resource planning: (a) gathering and analyzing data to forecast expected human resource demand, given business plans for the future, and to forecast future human resource supply; (b) establishing human resource objectives; (c) designing and implementing programs that will enable the organization to achieve its human resource objectives; and (d) monitoring and evaluating these programs (Jackson, 1990, p.224)”. From the above definitions and elaboration, a human resource plan is to be considered as an on-going activity to ensure that a company is always ready with the manpower of the required quality and numbers to handle its on-going business, take care of expansion plans and contingencies. John O’Brian of Digital Equipment Corporation states that integrated linkages between the HR department and line managers ensure that the business plans and human resource needs are adequately balanced (O’Brian, 1984, p.7). Planning starts with forecasting the demand for manpower and their skills, taking into account fact that any employee may leave the organisation at short notice. Analysis of the existing pool of human resources, experience levels, shortfalls in skills and arranging for training on the one hand, and looking for external sources on the other are integral to human resource planning process. While strategic plans for business expansion with short, medium and long term perspectives are drawn up, the obvious question of matching the human resources with such business plans crops up. Given their experience, Managing organisations and people 7 corporations are more than convinced that organisational strategies and human resource planning should go hand-in-hand. Business strategy for sustaining competitive advantage keeps changing through the various stages of growth of a firm. While some functions remain largely unchanged, new strategy at any time would demand a closer look at the existing organisational set up for making necessary changes. For example, a new strategy could be to expand into related but different products; or, it could be to enter into export business for existing products; or, it could be to acquire a business in a new geographical area etc. In each of these situations and in fact, in all strategic moves an imbalance between the existing pool of human resources and the new needs is bound to happen and human resource plan takes care of such situations. In the case of Tyrrells Potato Chips Ltd., the past few years have witnessed remarkable growth in business volumes and complexity of operations. Further, the company has an on-going project for diversification. As such, it is imperative that it pays sufficient attention to manpower planning, especially keeping in mind it corporate vision and strategy to achieve that. Important aspects of this planning are succession and contingency planning. Succession planning becomes more critical when businesses are started and built up by individuals with controlling interests. If succession plans are not drawn up at the early stages itself, the business might be under serious threat of failure since the natural inheritors may not have the same qualities or interests as the original promoter. To a lesser extent, succession or contingency planning is also important for individual employees identified as key resources of an organisation since their departure for any reason would severely hamper operations. Managing organisations and people 8 2 b. HR planning and Tyrrells Mr. Will Chase started off his business as a potato grower but metamorphosed in quick time into a regular manufacturer in the processed food sector, serving both the domestic and export markets. His company, Tyrrells Potato Chips, was set up in 2002 and has been growing rapidly in revenues ever since. Commencing with a turnover of ₤1.5 million in 2002, the company’s business has been growing rapidly with the revenues touching ₤6 million in 2007. In tune with the growing business volumes, Tyrrells’ staff strength has also increased to the current level of around 40. In view of the expanding operations and plans for sustaining / growing the business in future not only in chips production but also in the new venture for vodka production, it is essential that the company formulates and executes a proper human resource plan. The idea for such a plan, its various aspects and the need for it as a complementary activity for the company’s strategic growth plan are discussed below. The human resource planning needs of Tyrrells Potato Chips Ltd. are to be in tune with its business strategy. Its business volumes are growing, as are its product range and markets. Its products which were earlier being sold only in the UK market, are now being sold in many other European countries. Thus the profile of the business has been changing all the time. All the while, Tyrrells followed the strategy of differentiation focus. In this strategy, the skills for bringing out constant product innovations, and the marketing efforts are more demanding than those under say, a strategy of cost focus. Selling a standard product in a broad market at low price is much easier than selling Managing organisations and people 9 premium products in niche markets. Difficult tasks would require more experienced and skillful human resources. Since the strategy is to stick to premium products and niche markets, exports form an important part of the volumes and export markets and logistics of delivery would need specialised knowledge and experience quite different from the home market. In addition, if exports are planned for countries with widely varying cultural background, the demands on the export team would be still more complex and should be factored in. As a part of its strategic initiative, Tyrrells is implementing plans to set up vodka distillation unit to utilise the smaller size potato pods, which can not be used for making chips. This is a completely new line of activity, requiring a whole range of skills to handle production, quality control, packing, marketing etc. Proper human resource planning would ensure that the best use is made of the existing staff even while ‘search, select, appoint and train’ activities are carried out to fill the skills and staff gaps. Conclusion Mr. Will Chase developed his business by adding value to his produce, implementing innovative products and marketing the same through a USP. He followed the strategy of ‘differentiation focus’. Going forward, he should sustain his uniquely branded products and association with high profile stores even as he enters newer territories in the European zone, using the internal growth strategy. His foray into a variety of chips using vegetables other than potatoes and his current plans for setting up a distillery unit for production of vodka from potatoes – all reflect Mr. Will Chase’s philosophy of depending upon related diversification. Managing organisations and people 10 In line with the changing profile of the business in terms of volumes, revenues and products, it is necessary that Tyrrells Potato Chips Ltd. consciously implements human resource plans so that the business continues to show healthy growth in the medium and long term. Managing organisations and people 11 References Capon C (2004), Understanding organisational context, FT/Prentice Hall. Hirchkorn J (2004), Starting out, The Telegraph, 31 October 2004. Available: http://www.telegraph.co.uk/core/content/displayprintable.jhtml?xml=/money/2004/11/01. [accessed: 22 January 2008]. Jackson S.E, Randall S.S, (1990), “Human resource planning:Challenges for industrial and organisational psychologists”, American Psychologist, Vol.45, No.2, 223-239. Available: http://www.work911.com/planningmaster/Human_Resource_Planning/ [accessed: 31-3-08]. Kotler P, Brown L, Adam S, Armstrong G (2004), Marketing, Prentice Hall (6th Ed.). O’Brian J (1984), Planning with people, Bulletin to Management, (Digital Equipment Corporation). Porter M.E (2004), Competitive advantage, Free Press, New York. Sloman J, Sutcliffe M (2006), Economics for Business (3rd Ed.) Strategic and business planning free resource centre (2008). Available: http://www.work911.com/planningmaster/ [accessed 31 March 2008]. Unknown, ‘Ch. 9 - Diversification and synergy’, Available: http://faculty.darden.virginia.edu/bourgeoisj/files/Chapter%209.html [accessed 30 March 2008]. Read More