Rockware - Macro and Micro Analysis with Strategy Development
When Peter Parker returned in September 1983, Rockware were facing both macro- and micro-environmental problems.
1.1 Macro-environmental problems
The macro-environmental problems were uncontrollable by Rockware. By 1983, the economy of UK after a period of recession was in high levels of inflation. This had serious affected the company as the cost of input such as material and labor costs rose significantly. The glass container industry was in its decline stage and the company was hardly to transfer the costs to the customers, and the prices had even started to fall slightly. The profits were therefore deteriorated as the real money was diminished from inflation.
The inflation hindered economic growth and there were significant increases in imports of empty glass containers and ready-bottled products. This had reduced the level of demand for home produced glass products, and in turn affected all companies in the industry.
Technological development was also a major factor. The introduction and improvement of plastic in particularly polyethylene terephthalate (PET) bottles continued and accelerated to eat away the glass bottle market for their low prices, lighter and convenient handling.
1.2 Micro-environmental problems
The micro-environmental problems included external (industry) and internal problems.
External (industry) problems
The glass container industry reached the decline stage of its life cycle because the demand for the products dropped, the substitute products like PET increased and customer needs shifted for low price with easy-handled products. Prices were static and declining, which made the industry very difficult to earn every dollar profit and cash flow declined rapidly. There were capacity cuts across the industry to restore the balance between supply and demand in a hope of a stabilization of real prices. The prospects for glass containers were not encouraging.
Rockware was facing serious shrinkage in its core business, the glass container, for the decline of its life cycle. The company turned into financial difficulty and they were forced to close furnaces and make workers redundant. The redundancy and rationalization made huge losses in 1980-1983, and its ordinary share price collapsed. With the redundancy and closures threatening, the employees¡¦ motivation was low and there was unhealthy fierce competition within factories under the limited degree of centralization. Its side business in plastic was in a bad position also due to managerial and technical problems. The company was in an urgency to review its corporate strategy in order to survive in such a downturn.
2. The measures
Parker and Davies had taken the following measures:
Prices were raised twice to stop the losses immediately. This measure was appropriate for the short-term efficiency. It was because price elasticity was generally higher in the long run as customers needed time to adjust to a new price, to find acceptable substitutes and to alter spending patterns (McAleese, 2001). The company had recognized this so it was able to find ways to strengthen its group financial controls to improve cost structures for longer-term competitive advantage.
Redundancy and wage freeze
A further 1000 staff redundant and six-month wage freeze with the remaining employees were unavoidable to save the business and improve the profit for the short-term. However, there were negative impacts on survivors, which might translate into a number of problems to the company in longer-term such as lack of trust, and destructive internal competition, etc.
Hence, the recruitment of a new marketing director to build up a central marketing organization and co-ordinate between all the business units could relieve the problem for the long-term. For example, this could link up proper communication channel and re-align organizational goals between the factories and the corporate. The most important was the achievement of synergistic benefits through the integration from the corporate such as collaboration (the forming of strategic group) and overcoming resistance to sharing, etc (Johnson & Scholes, 2002).
Before development of the directional strategies, Rockware needed to decide their broad competition strategy: cost leadership, differentiator or focus strategy. It was because the competition strategy would affect the directional strategies in terms of the resources allocation and focus.
After the selection of competition strategy, Rockware had the following alternative strategies using the strategy development directions matrix (Johnson & Scholes, 2002):
Alternative 1: Do nothing
Rockware was able to turn into profit in 1984 and could afford a temporary respite with doing nothing for the short run. However, this was not a feasible option for the long-term due to the competitive environment and the business nature. The company needed a strategy to sustain and survive.
Alternative 2: Protect and build on current position
Rockware had serious management and technical problems in running the plastic business and experienced losses more or less cancelled out the others¡¦ profits. The company might consider consolidating its business by withdrawal from the plastic industry as this was not its core competence and expertise. By doing so, the company could focus its resources on building competitive advantages and market penetration for its core business: glass containers and its related business engineering. Taking this strategy would need to consider whether there was opportunities in glass containers with its current stage of its life cycle and the fact that plastic (especially PET) would be the main trend for the future.
Alternative 3: Product development
This alternative required the company to invest heavily on R&D for product development either on existing competences or with new competences. For existing competences, the company needed to find ways to improve product attributes with customers¡¦ needs and expectation. For new competences, this might include something that was new such as glass that would not be broken easily, or further development on plastic. The competences from either ways should be robust and difficult for duplication. The downside of this strategy was that it would take long time for developing a sustainable competence before the company could survive from the downturn.
Alternative 4: Market development
Market development would be a good strategy when the business was static in the local market. Rockware might consider globalisation by extending its business to new territories. Geographic expansion would allow economies of scales to achieve cost advantages for the long-term. On the other hand, this was a risky and uncertain strategy and required to consume large resources and competences for success.
Alternative 5: Diversification
Rockware might consider related (glass ornamentation) or unrelated diversification (cardboard or PET). This strategy would be the most uncertain and risky of all the alternatives but would be potential to generate huge profits if it was successful. Hence, the company was required to investigate in deep for the threats and opportunities of this approach and whether its resources and competences could allow for such adventure.
4. Conclusion and recommendations
As a conclusion, the macro- and micro-environment had posed challenges to the survival of Rockware. Parker had temporary relieved the problems but the company needed a strategy for the long-term.
Based on the strategies proposed, alternatives 1 and 2 were not feasible. Doing nothing could not help the company for the long-term survival with the changing environment. Withdrawal from plastic industry was not a proper decision for the fact that plastic would be the future trends. Hence, the company should consider alternatives 3-5 but it needed to analyse the suitability, acceptability and feasibility of each alternative.
Finally, the company needed to consider the method of development for the strategy it chose: internal development, mergers and acquisitions or joint development. For their core business in glass container and engineering, it was suggested that the company should use internal development to sustain and protect its own competence. While for plastic or other unrelated business and market development, the company should consider acquisition or joint development to get faster development and learn from their partners.
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