ABC was founded in 1998 as a childcare business by
Eddie Groves and his wife Le Neve. The business benefited from Eddie’s
entrepreneurial skills and was further enhanced by the contribution of Le Neve
in designing a quality education programs that would later be their source of
competitive advantage. By 2001, ABC had been publicly listed with a market capitalization
of $ 25 million with a portfolio of 43 childcare centers within Australia.
Buoyed by rising demand, government support, and availability of finances
through the thriving stock exchange, ABC’s strategic management approach emphasized
on generic growth through a rapid expansion program that saw its branch network
double yearly to reach 2238 childcare centers around the world by 2007 with
1084 centers in Australia alone. ABC had targeted to run 1500 childcare centers
in Australia by 2010 and by 2007, it would appear they were well on their way
to surpassing that target. ABC’s rise was not without challenges. Structural
problems had forced running costs up and by 2008 they had accumulated debt
leading to plummeting of the stock prices to unimaginable levels. ABC was
suspended from the trading its stocks in August 2008 while awaiting its final
statements for 2007/2008. They however opted to go under administration with
the government stepping in keep it running.
Environmental factors in the market present
businesses with opportunities and threats. For survival, a business must be
able to make timely decisions in response to environmental factors that impact
their businesses. Opportunities are those factors that present a business with
chances for growth upon taking steps that positions them appropriately while threats
are the factors in the business environment which, if not guarded against,
could lead to the demise of a business (Kotler, et al, 1999). According to
Brooks and Weatherson (1997), these factors may include government policies,
demographic changes, entry of competitors, and changing technology among
others. As Kotler (1999) states, strategic management is a factor of both
internal and external environments where an organization needs to exploit its
strengths to maximize on the opportunities available in the external environment.
The rise and fall of ABC was influenced to a significant proportion by various
environmental factors. To begin with,
the population factors favored the demand for childcare services. The gender
awareness in Australia and in the developed world had reached its threshold and
more women were pursuing professional careers rather successfully. More women
were establishing their career paths before embarking on starting their
families. The impact of this is that they would not be able to stay at home to
take care of their children. This factor enhanced the rising demand for
childcare services. In addition, the rising cost of living in the targeted
economies was forcing couples to seek active employment in order to contribute
in meeting family bills. This consequently meant that no adults in most
families would be around to take care of the young children.
The most convenient and affordable option for such
families would be to enlist the services of childcare centers. Governments in
Australia and international markets targeted by ABC were very supportive of
childcare businesses. The Australian government had structured its tax rebate
scheme to cover 30% of childcare expenses in 2004 and by 2008 the figure had
risen to 50%. This allowed childcare centers to charge lower fees hence
encouraging rising demand and higher revenues. The Australian government had
also introduced a child bonus in 2004 to encourage parents to raise larger
families. This could only mean one thing for ABC: higher demand for their
services, and would act as an incentive for them to expand even more. Another
factor that worked in favor of ABC was the booming economy. The improved
performance made it easier for ABC to acquire funds to finance their expansion
program. Encouraged by the rising demand coupled with positive government
policies, ABC utilized this availability of finances to roll out its expansion
program. The environmental factors also posed some challenges for ABC. The
government regulation related to licensing of childcare centers required that
businesses to maintain certain minimum staff-to-child ratios and avail certain
facilities hence driving up the running costs of the business. This could
threaten a business’s profitability should there be a decline in the demand
levels.
On the question as to whether ABC’s performance was
driven by environmental factors or by strategy, it is the submission of this
analysis that the two are inseparable. The success of the organization is
dependent on its ability to embrace good strategic management approaches that
are designed to overcome threats in the external environment while also
exploiting the opportunities presented. Having observed the changing market
trends, they were able to identify in good time that the expected rise in
demand was an opportunity they could use to expand their business. Chisnall
(1997) underscores this assertion by stating Environmental Factors cannot, by
themselves, drive a business to success or demise. It must be complemented by
action or inaction by a business for them to impact on the business. Moreover,
through the contribution of Le Neve, ABC had distinguished itself as a provider
of quality education and had gained strategic advantage over their competitors.
It is this positioning that enabled them to expand more rapidly since they were
able to gain customers more easily than their competitors.
ABC made various acquisitions across the world and was
able to tap into the market share of the acquired businesses as well as being
strategically placed to tap into rising demand. Further to this, its elaborate
network in Australia left some areas clustered which (although they denied the
intention), acted as a market barrier from entry by competitors. The
acquisition approach to strategic management can produce high returns if
properly managed. In ABC’s case, this helped stabilize their local business and
enabled them to focus on international expansion. In addition, ABC took an
offensive approach to marketing by going out to enter into partnership
arrangements with various large corporations to provide childcare services for
their children. The company would benefit from the arrangement by enhancing
higher levels of staff motivation powered by perception of their employer’s
care for their welfare while ABC would benefit from assured revenues which
would be submitted directly to them by the companies. Further to this, the
extensive branch network helped ABC secure such arrangements since they would
be able to cover the staff members of companies with wide networks hence
lessening the inconvenience that these corporations would face accommodating
more arrangements of a similar nature. ABC’s decline was also enhanced by
inaction. At the onset of cracks in their governance structure and practices,
they failed to take actions to prevent the creation of negative perceptions in
the minds of their clients, especially corporate clients. They had also failed
to conduct timely reviews of their accounting system that had blinded them from
realizing their poor financial performance and take corrective measures. ABC
had also failed to foresee its falling stock prices and make corrective
measures to cushion waning investor confidence. These factors contributed to
their decline due to their inaction.
In the event that ABC had continued to acquire funds
to continue its expansion strategy through expansion, adverse effects would be
faced depending on the source of financing. The poor financial performance of
ABC had evidently waned and must have been shaping the perception of potential
customers. It is therefore likely that this expansion wouldn’t have a great
impact on its profitability. Moreover, structural issues that had led them to
their knees would still persist and lead to their demise. The low prices of
stock would present a new investor with a chance to cheaply acquire the company
and try to revive it. Alternatively, if the money was acquired through debt,
the company would face the risk of being bankrupt due to its inability to
service the debt.
This analysis agrees with ABC’s decision to use its
education program as a source of competitive advantage. Effective strategic
management entails identification of potential sources of competitive
advantage. In this case, ABC can design its education program in a manner that
is unique and difficult to replicate; hence be a source of competitive advantage.
The decision to expand was also good save for the
rapid expansion that seemingly didn’t pay attention to soaring costs. The
company needed to have undertaken cautious expansion with every care taken to
ensure economies of scale are realized from its wide network. Sharing of
certain facilities such as transport and procurement, as well as expertise
would be able to reduce their costs significantly (Booms and Bitner, 1981). The
company would also have needed to streamline its procurement structures to
ensure they got value for their money and to help them save on unwarranted
costs. In addition, the company needed to pay attention to stakeholder sentiments
and counter any negative incidents with meaningful changes or where perceptions
were unfounded, make swift and clear clarifications (Gonroos, 1990). The
decision to cluster centers was a poor decision since the ability of each
center sustaining meaningful profits was low.
ABC needed to conduct meaningful research into
market characteristics and only establish centers in areas of high potential.
Their decision to go into administration left them at the mercy of the
administrators. This laid back style of approach could cost them dearly. ABC
would have done better to seek the restructuring of their debt to ease pressure
to pay and embark on structural changes that would include sale of redundant
centers as well as cutting operational costs to the lowest possible amounts.
Investor confidence would be bound to return upon them taking steps in the
right direction.
Booms,
B.H. and Bitner, M.J. (1981), Marketing strategies and organisation structures
for service firms, in Marketing of Services, J. Donnelly and W.R. George (eds),
American Marketing Association
Brooks,
I and Weatherston, J. (1997) The Business
Environment. Challenges and Changes, New Jesrsey: Prentice Hall
Chisnall,
P.M. (1997) Marketing Research, Fifth
Edition, London: McGraw-Hill
Gonroos,
C. (1990). Service Management and
Marketing: Managing the moments of Truth in service competition, Lexington,
Mass: Lexington Books
Kotler,
P., Armstrong, G., Saunders, J. & Wong, V. (1999) Principles of Marketing, 2nd Edition, New Jersey: Prentice Hal
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