The following report analyses the factors involved which has forced 'Williams Garden Furniture Ltd' [WGF] into problems for future development.

University Degree Business and Administrative studies

The following report analyses the factors involved which has forced ‘Williams Garden Furniture Ltd’ [WGF] into problems for future development. Initially, the small business consisting of 40 employees, was well known in the garden furniture sector but through poor management and external factors the expansion and very future of WGF is questionable. The small firm needs to review its position by adopting the following analytical procedure:

Where are the current problems and issues
Where does the business see itself in the future
What will have to be done to get there

By analysing WGF using the ‘SWOT Analysis’ technique, this should identify their strengths, weaknesses, opportunities and threats. This can then be used in the development of a number of strategic options, which should attempt to tackle opportunities and threats, build on corporate strengths and avoid weaknesses.

This then provides management with the relevant information upon which to determine future strategy.

Strengths

Expansion from micro to small business
Early success was due to recruitment of some highly skilled middle aged craft workers
Produced quality garden furniture products (up market) sold in department stores and garden centres throughout the UK

Weaknesses

Outdated equipment
Sub-standard products being produced
Bad utilisation of raw materials
Communication problems with workers and management
Poor employee relations and de-motivated workforce
Lack of communication with customers – current legal action pending, over claims in marketing literature relating to product quality
Autocratic management structure – Martin Williams controlling all aspects without the experience and/or necessary skills

Opportunities

Possibility to expand into new market segment – Kitchen furniture
To regain a reputation for providing ‘Quality’ goods

Threats

Inadequate management skills to address and accommodate fast growth
Autocratic management style
Loss of reputation as a provider of ‘quality’ goods
Poor employee relations has led to high levels of sub-standard products being returned by customers
Competition from other firms in the UK and Europe has led to a reduction in sales of 15% in the last year
Lack of investment in new technology to reduce costs of production
Increase in interest rates which will affect loans & overdrafts
Highly dependant on manual resources and skills

A major threat, which could adversely affect the future viability and success of WGF, is that they rely solely on selling products into a specific market sector. This is dangerous in that there could be:

A change in fashion/customer preferences
Sharp seasonal variations in demand
Reduced consumer incomes in the single market services
VAT increase
Unexpected rises in raw materials and other input prices
Another supplier enters the market at a lower price

Therefore, by focusing on a specific market sector, this leaves WGF vulnerable to changing market factors and conditions and creates rigidities in production, organisation and distribution systems. In order to overcome this threat WGF should think about the possibilities for diversification.

Future Growth – Pursue the ‘Kitchen Furniture’ Proposal

When evaluating the viability of this proposal, there are ...

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A change in fashion/customer preferences
Sharp seasonal variations in demand
Reduced consumer incomes in the single market services
VAT increase
Unexpected rises in raw materials and other input prices
Another supplier enters the market at a lower price

Future Growth – Pursue the ‘Kitchen Furniture’ Proposal

When evaluating the viability of this proposal, there are a number of both positive and negative factors that should be considered. The following attempts to summarise the main strengths and weaknesses of incorporating this new scheme:

Strengths

Less dependant on a single market sector i.e.: If there is a depression in the garden furniture business they can then divert their resources and energies to the new business
Taking on a new product may help to motivate staff and demonstrate that the company has a future
Depending on how much WGF dominates the market segment it will increase their market share

Weaknesses

Requirement to invest in new machinery
Rapid growth of the new product might disturb a highly efficient existing administrative system
Producing the extra goods needed to satisfy the increasing volumes of sales means extra money will be required to spend on such things as additional suppliers, more staff pay, higher electricity bills to run even more machines
Return on investment may take some considerable time to achieve, from initial start up to payment for the first batch of delivered products, thus increased strain on financial borrowings
Suppliers might not be prepared to grant credit on initial materials needed as the risk to them of default is too great
WGF already has staff management problems, therefore, starting up a new line of business may only increase these problems, given new processes, techniques and operations are involved
New skills may be required or retraining of existing staff may be necessary
There may already be other suppliers (competitors) in this market better able to provide the same products are a more attractive price. Thus whilst an initial order with the Supermarket in question looks reasonable, future business may not be so easy to sustain
No experience in this market

Before taking on the kitchen furniture project, a few key statistics need to be considered. The most fundamental being the financial viability of the undertaking, i.e.: the profitability.

Before spending additional capital on the new venture, every pound put into the project should be analysed to determine if it will yield at the same rate of return, proportionally, as that which was already achieved. Therefore, a financial analysis needs to be produced.

Financial suggestions for WGF

In order for WGF to finance its operations, they must borrow money from a third party in order to raise loan capital. There are many forms of loan capital, which WGF can incorporate, available as follows:

Loans from banks
Other financial institutions
Debentures
Overdrafts
Factoring
Venture capital
Loan guarantee schemes

It is important to note that loan capital carries more risks than other forms of financing, in that interest must be paid back over a stated period of time. As WGF is a small business the types of financial options available to them are limited. The following briefly describes each of the certain forms of loans.

Banks

Given the present situation of WGF, bank borrowing is more common or likely than raising finance through (say) share issues. It is also very difficult for a small firm like WGF to obtain large amounts of funds from banks because of the level of collateral needed as security on the loan.

Loan Guarantee

Another approach would be to offer WGF a conventional loan from a bank, under a loan guarantee scheme. WGF would have to produce a viable business proposal, which is then based upon the security and track record of the firm. However, given their current financial situation, their chances are quite slim.

Debenture

This approach involves bonds, which are given in exchange for a loan to the company. The firm would need to agree to repay the borrowed amount at a specific date in the future and to make annual payments of interest in the meantime.

Venture Capital

Venture financing means that an outside body (such as a merchant bank) buy shares in WGF in order to inject capital, who then take a big share of profits in return, who then sells the shares back to the company for an agreed price at predetermined future date.

Factoring

This approach is a means of raising capital. Where a factoring company will buy WGF’s debts at some 70-80 per cent of their real invoice value. Although money will be lost on the value of the invoice, this can be a useful way of improving cash flow quickly.

Taking into account of all the various financing schemes, WGF will have to lay down its assets putting the security of the company at risk. The current financial position of WGF is much to be desired, were they to diversify it will add to their financial problems. In order to overcome this major factor, WGF needs to employ a financial adviser who will be able to analyse the company’s’ position and available options and suggestions.

Improving employee relations and motivating staff

Good employee relations are vital to the success of any company, but more so in the case of WGF, where revenue is solely dependant on the skills and the abilities of the staff in a manually intense manufacturing process.

Employees are motivated in part by the need to earn a living and in part by the following:

Psychological and social needs for job satisfaction
Occupational dignity
Job security and loyalty

Since WGF is a small business, promotion of employees is very limited. Also, there is always the concern that a small company is less likely to survive difficult times than a larger company, therefore, job security is always a concern to individuals However, it is possible to improve motivation, morale and loyalty by incorporating the following:

Devise performance related incentives schemes that gives employees a decent salary without bankrupting the company ie: The higher the production (and sales) the more the employee shares in the success of the company
Design jobs to generate the maximum amount of variety and interest. Also consider ‘job rotation’ – in essence, a person does not end up doing the same particular job for the rest of their life but moves around the different departments/tasks

When referring to ‘job design’, it is important not to give employees single, repetitive and boring tasks that they have to complete for excessively long periods and spending all their time away from the company of other people.

In order to make jobs more interesting it is important to establish which aspects of the firms work are both least and most interesting, which from this it is clear to see what to do to make jobs more varied and absorbing from the employees point of view.

This then brings into account introducing incentive schemes, which offers the employees to work more efficient and at the same time gain extra benefits like the following:

Award higher rates to anyone who exceeds a predetermined target for output
Output related bonuses given in addition to basic pay

All these factors mentioned should hopefully contribute to motivate the employees, in the long run increasing productivity and quality of products and the working environment.

Legal issues & requirements

When initially setting up the firm WGF, Martin Williams did not consider the legal aspects that needed to be taken into consideration. Since, Martin did not incorporate any Acts of law he is liable for damages caused by defective products. The customer bringing a civil action against him for misrepresentation of goods, stated that the products were not capable of ‘All Weathers’, thus violating this Act.

The Misrepresentation Act of 1967 was intended to prevent retailers from making false statements about merchandise prior to its sale. The customer can apply under the Act for compensation equal to the value of the loss as a result of relying on false information.

The product could have a contravened ‘safety laws’ and could be deemed e.g. garden chairs fold away such that you could do yourself serious injury. Another aspect is that they do not meet British Standards approvals. The following list is a few examples of working Acts involved with WGF:

Trade Descriptions Act 1968
The Sale and Supply of Goods Act 1994
The Misrepresentation Act 1967
Unfair Contract Terms Act 1977
Consumer Credit Act 1974
In order to prevent the re-occurrence of customers taking legal action against WGF, they should bring in safety measures and documents and check these accordingly. On the following page are some of the factors, which Martin Williams needs to consider:

Have you checked to ensure that your product liability insurance is adequate?
Do you ask major suppliers whether or not they are properly insured in respect of liability for defective products?
Have you examined your catalogues and/or price lists to establish that none of the prices quoted could be regarded as ‘misleading’?
Does your storeroom hold any unsafe products?
Have you registered under the Data Protection Act

As owner of WGF, Martin Williams needs to be aware of the major provisions of the sale and supply of goods Act and the misrepresentation Act, which seeks to prevent his business making false statements about his products.

Concerning the Consumer Credit Act, if WGF decides to offer credit terms to their customers, they need to be licensed. This involves specific restrictions on how they offer credit to customers who are asked to sign credit contracts.