Harvey Norman Summary
Chapter 1: Management and Change.
Changes faced by Harvey Norman since 2007:
1. There are now 195 franchised stores in total, in 2008 10 new stores were opened and 9 (3 HVN) were closed.
* The company looked at every location and given the economic conditions closed the underperforming stores. New locations such as Gympie were selected.
2. The company continued to open some new stores in NZ (3) and in Ireland (2).
* International expansion has certainly been slowed given the economic conditions.
3. In February 2009 less than 12 months after opening, the 5 new OFIS stores were closed.
* The economic conditions made it extremely difficult to sell stationary and office supplies. This business model could not be sustained.
4. In late 2006 Harvey Norman sold its stake in retailer Rebel Sport to Archer Capital in a deal worth $143 million.
* Rebel Sports was a valued acquisition during the Olympics and Soccer/Rugby World Cups. It was a good time to boost liquidity given the increase in interest rates at the time.
5. JB Hi- Fi Ltd emerged as the major competitor in the Australian market, their shares rose to $20.75 in October 2009.
* JB Hi- Fi is a well run organization that is lean and focuses on products consumed by generation Y and Z. Harvey Norman needs to boost liquidity to exert market pressure on supply companies.
6. Global Economic Crisis and resulting increase in unemployment which was predicted to rise to 10% in 2010.
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* The company examined all its assets and non performing stores. Some of these were sold. The Government Stimulus package proved an excellent marketing pitch as many items were packaged at around $1000.
7. The Australian currency in 2009 appreciated from 65 cents to 93 cents an increase of 23%.
* The appreciation had a boost to the company given this reduces the cost of imported products.
Harvey Norman’s change and there effects.
1. Harvey Norman was created in 1982 by Gerry Harvey and Ian Norman.
* Harvey Norman focused on service, value and innovation. It dominated the market. Resulting in the demise of companies like Waltons and Norman Ross.
2. Developed franchise systems in 1984. Each store was franchised into Electrical, Household and computer divisions.
* This streamlines the company, provided incentives for sales staffs to become business owners and ensured staff had ownership of each department.
3. Diversification into new markets through Rebel Sports, Domayne and Home improvement stores.
* This allowed the company the flexibility to grow in a small domestic market. This was a very successful strategy.
4. Overseas expansion into Singapore, New Zealand, Slovenia and Ireland.
* This was a slow and careful expansion program. Nevertheless while profits from these ventures have remained fairly low they allow for future growth in an increasingly global market.
5. Underperforming stores are sold, new locations are opened. Rebel Sports is sold and OFIS is closed down.
* The company can make major changes quite rapidly to adjust liquidity. This is very important when there are new competitors and economic factors deviate.
The Nature of Management
Skills of Management Style/Structure:
1. Gerry Harvey is the CEO and driving force of the company even though he is 70 years old he isn’t showing any signs of slowing down ;).
2. Gerry Harvey decides and shapes the direction of the company.
-Advantage: The strong position of the CEO means that the company can adapt to change almost immediately.
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-Disadvantage: The lack of independence means that the whole company tends to depend and rely purely on Gerry Harvey and his actions/ decisions made for the company. This is an extreme risk, due to the fact that the company will suffer if Gerry Harvey dies or becomes ill.
3. The relationship between Gerry Harvey and the board is described as a dictatorship.
4. Harvey Norman appears to employ strategies more often found in small business structures rather than that of similar large corporations.
Gerry Harvey’s management skills:
1. People skills, Gerry is able to mix with customers, media, shareholders and political leaders with ease.
* The reputation of both Gerry and his company continue to be enhanced as great manager and leader.
2. Communication skills, Gerry is able to articulate his goals very easily to staff and the Directors. The flat structure certainly enhances this aspect.
* The advantage of an effective communicator is they can implement change quickly and in the intended manner. A huge positive with a company operating in the retail industry.
3. Visionary skills, there is no doubt the success of Harvey Norman has been a result of the ability of Gerry to implement change to face the challenges of the future.
* From the introductions of the franchise system to plasma televisions the company has been able to dominate the household market and not allow other companies the opportunity to gain market share.
4. Ethical and Personal standards, Gerry is often quoted as an example for all Australian business managers. His salary is far less than other Australian executives and Gerry is now at the forefront of new and environment friendly business ventures.
* Consumers will continue to support such a company who is led by such an ethical leader. In marketing terms, the value the brand name of Harvey Norman is almost PRICELESS.
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Responsibility to stakeholders:
The Stakeholders in Harvey Norman are:
-Consumers: Offered a wide range of products, kept up to date, offered up to date products, offered before and after sales services/assistance.
-Shareholders: They have experienced both share capital gain and capital loss. Prices of shares are $4.23. Shareholders want to see GH in the media describing/showing growth potential of the HN brand. Shareholders need to be provided with full timely information either through ASX or at AGM’s.
-Employees: Expect strong financial rewards, they want recognition for performance; they want career opportunities and also want to enjoy the working environment.
-GOVT’S: Expect HN to abide by the Trade Practices ACT and the Company Law Review ACT. HN expected to not abuse cooperate powers.
– want to protect, protection rights of consumers/employees/shareholders.
– GOVT is represented by the ACCC (Australian competition and consumer commission) & ASIC (Australian security and investment commission)
Reconciling conflicts of interest:
The role of senior management is to attempt to reconcile many of the conflicts of interest that regularly arise. This is not an easy job and it takes all the skill of a manager to be able to bring this to end and solve it.
* Overall the company stakeholders are committed to its founder Gerry Harvey and maintain their trust given his track record, legitimate and referent power.
Managing change has been one of the company’s strengths since its inception. In the retail industry change occurs in products, the market, social influences and the economy.
Harvey Norman target new product launches, train its staff accordingly and ensure it remains relevant to the technological driven consumers.
A look back at history:
Gerry Harvey in 1995 said “In five or ten years there is going to be a computer in every home; some may have four or five computers.”
Harvey Norman changed the whole Australian computer market. They introduced computers into the store and made it their major ticket items. It was at the time a major gamble but now a major success.
Harvey Norman started to introduce other electrical items in stores, such as home entertainment systems and etc.
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Technology has been, and continues to be, the driving force behind Harvey Norman’s success. Computer and electrical divisions now account for about 75% of the totl sales and doesn’t look like slowing down in anyway.
The strategy of being at the forefront of new consumer products has meant the company continues to dominate the market. This in turn allows the company to use their market power to demand from overseas suppliers the major contracts.
Technology changes that failed to eventuate (occurs as a result):
the Company hasn’t got a monopoly of taking advantage of technology changes, nor is it always able to predict the changes. In addition some technology changes fail to materialize. One technological source of change that at least at this stage has failed to materialize is internet selling (e-commerce):
Harvey Norman went against the trend. Even though Harvey Norman did launch an online site, consumer purchases still required contact by a sales person. The online shopping was never fully endorsed by Harvey Norman and the site was simply an insurance policy in case this type of shopping did capture the market.
Failed Business Ventures:
Gerry Harvey in 2004 became a major partner in the car market. What appeared promising just failed to eventuate. The business planned to attract large numbers of both buyers and sellers to markets at flemington. Neither sellers nor consumers arrived so the company quickly shut its doors and lost research and establishing funds.
OFIS in 2008 was launched and then 12 months later shutdown due to Gerry Harvey had failed to acknowledge the domination of Officeworks and or the economic downturn.
Influences on Harvey Norman:
1. Changing markets and new shopping styles. JB Hi-Fi emerged as a tough competitor. Management introduced internet shopping. They boosted liquidity to ensure they remain market the market leader.
2. Geographic influence: company has its main operations based in Eastern Australia. Management directed resources and expertise into overseas expansion. Increased marketing in other states (state of origin, racing etc) and in New Zealand.
3. Legal influences: Company must abide by corporate governance regulations. Management have appointed an independent director and taken steps to increase their reporting of data.
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4. Social influences: Consumers are increasingly becoming more discerning and segmented. Management has deliberately opened stores to target specific markets (Domayne).
It is always first to be technologically updated.
5. Economically influences: 2008/2009-collapse of banking/finance sector and households. Profits decreased by 40% in June 2009. Management focused on reducing costs and greater efficiency. Closed down stores, adjusted property portfolio, increased rents/franchise fees and reduced advertising budgets.
Reasons for resisting to change:
1. Many of the main changes implemented could have been resisted by Harvey Norman.
2. Franchise system had a very risky feature because it was offered without upfront fees which is a financial risk.
3. Main resistance to change was shareholders who would have suffered from potential loss. It was not yet a public company.
4. Management resited change, however, they didn’t resist when informed of the benefits from such change. Benefitsoperate new franchises as franchise owners + no fees.
5. In 2003 (HV already a public company) shareholders resisted change. Change proposed was remuneration package increase income and share options for executive team. Proposal was criticised fearing it to biased, therefore it was withdrawn.
6. Expansion into overseas markets could turn into a major waste of funds and collapse the company. resistance due to finance.
7. Management supported overseas expansion proposals as it would give the benefits of increased company growth + could offer employment opportunities.
8. Share price in 2009 was very good at $3.43 which means less pressure on the board to deliver high growth rates.
9. Staff resistance is not an issue in HV. Staff expertise + skills are continuously reskilled given the continuous introduction of new & advanced products. Staff accepts change. More change = more opportunities.
10. Staff who resist change either leave or their position is shifted.
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Managing change effectively
Gerry Harvey is a great leader who is the change agent that takes risks. He is able to sell the changes because of a combination of things such as power, experience and previous success.
1. Strong support of the Board to articulate benefits of change.
2. Plans to dominate the Chinese, Dubai, the United Kingdom and even American markets.
3. Plans to deliver the company future growth.
4. Setting goals
5. Identifying the need for organisational change
6. Great communicator
7. He is an expert in using the media, through his meetings with staff, achieves both of these objectives.