A family enterprise established in 1984 by Don Bienvenido Ducot * Engaged in manufacturing and marketing of high-fashion ladies footwear. * In 1990, Mrs. Eulah Beulah de Espadana took over when Mr. Ducot died. * Mrs. Espadana wasn’t much interested in managing the business * Mr. Ducot’s vision was to become the leading Filipino exporter of high quality footwear to Europe. * Have an exclusive merchandising agreement with Rustom’s * Created downmarket private labels for Rustom’s Saddled with low sales, debt burden, marketing and operational problem * Planned Php 12-million cash settlement Time Context:December 1992 Viewpoint: Business consultant Statement of the Problem A turnaround strategy that the business consultant can suggest to the owner, Mrs. Espadana, in order to recuperate from the crisis the business is experiencing and enhance the business performance. Statement of the objective This study aims to present the ideal turnaround strategy to enhance Les Miz Shoes’ business performanc and recover from the crisis the business is experiencing.
Areas of Consideration Internal Situation * Company Vision as seen by Mr. Ducot * Un-experienced leadership of Mrs. Espadana * Efficiency of production and operations * High product quality * Workers craftsmanship * Negative financial status * Pricing dictated by Rustom’s * No marketing effort except from the place of distribution * Acquired high-tech production machineries and equipments * Local market sales is up Task External * (Customer) Local affluent female market * (Supplier) Imported raw materials * (Channel of Distribution) Rustom’s has a lot of subcontractors. Rustom’s imposed its own SRP. * (Competitor) Imported Italian, French for the Les Miz designer shoes * Good quality imported dress shoes, other Rustom’s franchise prestige brand, local brands, mass market shoes, and low budget shoes for the low priced shoes General Situation * (Technological) Available mass production machineries and equipment * (Economic) Dollar fluctuations, leading to unstable importation costs * (Socio-cultural) The Filipinos mentality that anything that is imported is better than locally produced (Colonial mentality).
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(Political-legal) Higher interest rate brought about by the political environment * (International) Strong barriers to enter the European market Alternative Courses of Action Basically, this will focus on the different generic turnaround strategies that the management consultant suggests to Mrs. Espadana. The strategies are arranged according to the degree of changes it brings to the company (from least to most changes).
Course of Action Financial turnaround * This refers to financial restructuring with a view to strengthen the balance sheet and/or provide funding.
Applying this strategy to the case, the company will only resort to cash settlement to spin the financial status to back to normal. This will also lead the company to sell other assets to increase liquidity. Advantages * This releases Les Miz from long-term debt and place the assets back as equity. * This does not entail additional cost other that the cash settlement. Disadvantages * This could lead to selling the company in the long run. * This does not improve the business per se rather it only makes the business afloat for a short period of time. Operational turnaround This means increasing its demand generation capability and its demand fulfilment capability. * It is often a choice between revenue enhancement, cost reduction, and asset reduction. In this specific case, Les Miz will opt to focus on producing the lower-priced footwear which are generating income for the company, thus forgoing the designer shoes production.
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This will also entail terminating the agreement with Rustom’s to reach a larger market. Advantages * It addresses the short-term survivability allowing the company to get out of negative cash flow. * The company will be able to market and sell the product to a wider horizon. The firm can focus on a single product. Disadvantages * This does not answer the question of long-term sustainability. * It can give rise to legal battle with Rustom’s. * This will eventually lead to downsizing. Turnaround through Reorganization * It deals with the people issues in the business. * It entails organizational revitalization to yield improved leadership, management, organizational structure, and organizational alignment. * It can, however, be limited to leadership alignment, and better management systems for planning and control of the company.
To use this in the case would mean letting someone more knowledgeable and experienced manage the business operation. This would also mean a restructuring in the organization itself. That is, establishing separately the different functions in the organization (i. e Marketing, Finance, Production).
Advantages * Change in leadership can mean a fresh perspective. * Creating a clear structure will enable the company to simultaneously and harmoniously utilize all its functions. It improves efficiency. * Can be very beneficial to long-term objective and sustainability. Disadvantages The sense of family legacy will somehow be jeopardized. * This will entail additional cost given that the company is facing financial troubles as well. * This will not however address directly the problem of short-term survival. Strategic Repositioning turnaround * Strategic repositioning changes the mission and customer value proposition by changing what products are offered to what markets and in which fashion. * It may do so by either growing, shrinking or refocusing the business. * It entails a complete rethink of why it is in business and how it is to achieve a sustainable competitive advantage.
In relevance to the present case, this strategy will entail a complete review of the Les Miz as an entity. Simply stated, the company will practically start from the top. There will be revisions in the mission and vision statement up to organizational structuring. Advantages * It offers the greatest potential for growth. * Major changes can bring new perspective to the company. * It can be very beneficial to long term sustainability. * Organizational resources can be put to better and efficient use. * Highly organized and carefully planned businesses are most likely to succeed.
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Disadvantages * It entails a lot more money. * It can mean more years of negative cash flow. (short term) * It is offers the greatest risk. Recommendation After careful analysis of the four (4) alternative courses of action, the team recommends an integration of the strategies. At large, this recommendation will give much emphasis on the turnaround through strategic repositioning. It will be done in a series of activities. This will start with an alteration in leadership as Mrs. Espadana is evidently inexperienced and unknowledgeable in business management.
This can be turned over to an interim leadership such as management consultancy. She will be advised to undergo training in management. The next milestone is to achieve a positive cash flow and stabilize the financial status of the company as soon as possible. Once achieved, the strategic repositioning plan is implemented. In this part the original owner can regain control. . A constant control and evaluation mechanism will be implemented throughout to ensure that the plan is on track. For strategic repositioning, the team recommends to undergo the stages of globalization.
