Harrison Company
Executive Summary/Background- The Harrison Company, a mid-sized regional retailer with 80 stores in 7 states, is headquartered in State College, PA. At present, despite each store generating approximately $600,000 in revenue per annum, the company faces a time of crisis. Sales and profits have been declining over the past few years, the company’s president has retired and broken all contacts with the company, and there is no real strategic or competitive plan. There are expansions planned for the next year, but several immediate concerns that require a more strategic approach to several cogent issues the company faces. For instance, there is a public relations issue from a former manager regarding the quality of the clothing, union issues, and the fiscal responsibility of proactive philanthropy vs. cost containment/control. Up to now, the company has been operating using a push strategy with heavy local advertising creating customer demand (1/2 in local television advertising, 1/4 in local sponsorships, and 1/4 in coupons). The company makes 1/2 of its revenue during 5 months of the year (June-August and November-December). Because of the demographics of the customers, production identifiers (Made in China, Made in Mexico) are removed. Half of each store consists of country/new age with premium pricing, the other 1/2 of consumer non-durables (convenience items) with moderate prices. All products are marketed as high quality products. The Board members are quite conservative, and more concerned with company performance than in long-term growth. Finally, management is in crisis; there is significant infighting between groups, no consistent message or plan, insecurity, and a conservable lack of loyalty and belief in the company itself.
Part 1 — Integrated Business Strategy — In general, the organization needs to make several very basic decisions. Stakeholders for the organization include the Board of Directors, employees, consumers, and vendors. Each of these specific stakeholders has a divergent interest and view of how the company should work, and what the goal is for the marketing mix. For instance:
Stakeholder
Goal
Implication
Board of Directors
Maximize profits so that ROI and stock price will increase.
Short-term growth, pushing merchandise, no long-term planning, implies golden goose approach.
Employees
Insecurity about company’s solvency; lack of faith in leadership and management — wants to believe in company while managing growth.
Lacksidasical performance, minimal customer service and actual sales; indifference as to store maintenance and rudeness to homeless and others
Consumers
Best value for the dollar. Most convenient shopping for areas without adequate alternative penetration; most merchandize in location.
Multiple choices in the market; will go elsewhere if business is not valued. Needs to believe in top quality products.
Vendors
Increased sales and purchases, on time receivables.
If sales drop, so will service levels.
What is the major message/mission statement for the organization? Harrison Company will provide a dual service to the communities which it serves: 1) to supply basic and needed items at a cost-effective basis year round, and 2) to open up its specialty stores between Memorial Day and Labor Day, and from November 1 to December 31st each year to serve the tourism and seasonal industries. The specialty stores will be known as Harrison Plus and will occupy approximately 60% of the store physical store locations.
What direction should the company take? Harrison should not continue to try to be all things to all people. Using the abovementioned mission statement, it will provide a series of unique and beneficial products and services to the local community during the school year month, and expand to aggressive marketing practices during the summer and Holiday months.
Strategic direction? Harrison will be split into two entities as noted above with a 60/40 physical space. Inventory and some managerial employees for Harrison Plus will begin work 15-25 days prior to June 1 and November 1 to stock and prepare the stores; and work approximately 7-10 days after Labor Day and New Year’s Day to pack up and store merchandise. Harrison Plus managers will be taken, whenever possible, from Harrison employees, and Seasonal staff will round out the holes in personnel. In addition, a profitability analysis will be run on all stores over 100 miles from the home warehouse to determine suitability for retention, closure, or lease/rental agreements.
Implications with functional departments:
Personnel — Year round staff will consist of dedicated workers who have managerial potential for the Plus stores seasonally. Some reduction in force will occur; some seasonal staff will be needed.
Warehousing — More automating the warehouse function will be necessary and may result in reduction of force or, more appropriately, transferring of personnel to other functional areas.
Delivery — Delivery staff may be cut depending on ROI analysis of distant stores; as will vehicle leases, maintenance, etc.
Administration — Administrative functions will be streamlined and additional investments in technology made to align with a more balanced and appropriate need for margin.
Part 3- Synthesizing/Analyzing Information – Clearly, if the company continues to spiral downward, sales will continue to decrease. The company must focus on what it does best, and when it does this. It cannot function with major sales being staffed during down times, and must concentrate on a presence year-long with specialty openings for seasonal merchandise. Change management, streamlining, and increased technology will be the key to adapt and prosper.
a. Marketing — Sales forecast based on RIF, closing off of 60% of stores for 5 months of the year; realignment of staff and increased investment in technology.
3 YA
2 YA
1 YA
This Year
Next Year
Revenue in Millions
52.1
48.9
48.1
47.5
49.6
Oper. %
14.7
16.6
16.4
15
14
Operating $$
millions
7.66
8.12
7.89
7.13
6.94
Additionally, due to the trends, RIF, investment in technology, smarter purchasing and economies of scale, we estimate that sales will increase over the next five years in increments of 5% per annum to get Harrison and Harrison Plus to the industry average.
Marketing will need to change as well to revise the look, feel, and mission of the company:
Issue
Strategic Management
Implication
Product
Split into two sections; meet with suppliers to provide economies of scale; view trends for Plus offerings, purchase in advance from foreign buyers to lock in price, inspect for quality of goods.
Improvement in selection and appropriateness for market. Push economies of scale to bring prices down for regular merchandise to remain competitive in market.
Price
Two strategies; low and fair pricing for regular store; premium for Plus.
Use seasonal merchandise to offset lower pricing during regular course of year; increases loyalty of year round users which will word-of-mouth to seasonal visitors.
Place
Split stores into 60/40; revisit decoration, modernize.
Different look and feel for seasonal times; stay current and innovative.
Promotion
Reduce television during most of the year; find more effective use of advertising dollars for local-local, then use buying power to influence seasonal business.
Decreases overhead costs for at least 5 months of the year, may reduce outlay of expenses by as much as a percent; however, beefing up marketing expense for Plus may have a larger impact on the bottom line.
b. Finance — The Company has a large portion of its assets tied up in equipment, land and stores. It went from almost 8% of its assets in cash to 1%, significantly reducing its ability to handle a crisis. Inventory has remained stable in the 27 percentile range, which can be reduced, as can expenses, based on reduction of staff, hours of operation, and 5 months of Plus closures. Long-Term Debt is now at almost $5 million, or 17%, which is too high for a retail store. Instead, reduction and focusing might increase initial debt to modernization, but likely sales of some of the outlying stores, equipment, and additional reduction should net at least $2 million, further reduce debt.
Ratio
Last Year
2 Years Ago
Liquidity Ratio
Current Ratio
.69
.60
Quick Ratio
.067
.060
Leverage Ratios
Debt Ratio
.60
.60
Debt-To-Net-Worth
1.49
1.47
Ratios indicate the company could likely not pay off all its obligations if they came due; expenses must be reduced but new financing, purchasing decisions, and logistics are necessary. Leverage ratios show that there is more assets (long-term) than debt that may be leveraged to improve company performance.
c. Logistics — Logistics will radically change since it is likely that the outlying stores will be closed, cut back to just seasonal (PLUS) operations, or leased. Supply chain managerial issues are critical, as is buying trending. Appropriate staff who can predict trends for Plus operations will be critical, as will logistical agreements with Chinese and Central American manufacturers.
Part 4- Global Trends – The company is desirous of continued growth, and believes with the new propensity towards globalism that it must manage its brand portfolio and expand its business organization while, at the same time, preserving the strong brand image and distinctive identity of the flagship brand, which has become the Plus side of the organization. Globalism will increase the availability of certain goods that can set the organization apart from others, if buyers are able to make the appropriate connections with those suppliers. This will also require aggressive and focused marketing leadership, as well as some additional sophisticated strategic planning.
Part 5- Leadership and Group Dynamics- It is clear from the information presented that the company is in trouble. It has rested on its laurels and older way of managing for decades, and must now either reinvent itself or die. The trends downward are indicative of a need for drastic measures, and while change management is difficult, it is clear that the following steps need to be taken immediately:
1. Analysis of profitability by store factoring in increased costs of gas, shipping, wages, etc. This may mean closure of outlying stores, reducing in hours, or simply opening up some of the medium and long-range stores during the Plus season (Mid-May-Labor Day, November and December).
2. Improvement of technology to work with inventory and supply chain management. This may increase debt for a time, but will balance out.
3. Disposing of outmoded and underperforming assets; including stores, stock, trucks and shelving/supplies.
4. Rethinking of company culture and employee training; use loyal regular employees to manage Plus times; use their expertise to develop new markets.
5. Increase ties to the seasonal community since 1/2 of the revenue is made during seasonal times; reduce staff and expenses for rest of year to bare minimum.
From a leadership perspective, the new President must first exchange information with the senior management team, finding out who will be open to change and who will not. Once a group of change minded individuals who will embrace a future view, a steering committee should be formed to help manage the change and diversity necessary to both impress seasonal customers and the community as well as trim costs. There are three basic leadership paradigms that are needed:
1. Redefine the entire corporate vision and strategic process based on the Brand Stewardship Model.
2. Realign and modify the organizational structure to robustly “encourage” collaboration among the company’s various regional and local offices.
3. Remove the Central-Field-Central model by giving more authority to management at the local level; encourage this with appropriate compensation.
It is through certain leadership traits that the new CEO will succeed — coercive, authoritative, and then moving into democratic. One can easily see the necessity to start with tight reins, lesson up during as the change paradigm takes hold, and then move to a more democratic regime once the needed changes occur. Despite not wanting to be perceived as an ogre, the new CEO must be coercive with staff due to the urgency of cash flow and revenue growth. Once immediate compliance with requests is ensured, the CEO can relax a bit and move towards a more egalitarian mobilization of resources and ideas. Finally, democratic leadership asks that a team approach — a consensus to automatically generate team building and open communication be applied to all levels of the company. It is this gradual relaxing of rules and regulations that can often change the culture after it has remained so myopically ingrained for decades.
Conclusions
Based on the change management and leadership paradigms instituted, the key during this very critical period would be dual: change management and brand stewardship:
Change must continue to be institutionalized through formal policies, structures, systems, and regulations within the group. This remains consistent with the role of leadership being one that primarily clarifies measurable behaviors, helps define vision, and works in a manner that engenders human resource management that actualizes employees. For Harrison, this translates to a continual alignment of evaluation that is based on the things that the customer most need and appreciate.
Brand stewardship — One of the primary reasons Harrison began a spiral downward was the lack of attention to the customer’s actual, versus perceived need. Change management cannot be pushed, but it is the job of a good leader to help redefine the message and meaning so that senior management can adapt to a needed philosophical change, which then flows downward to promote a companywide commitment to Brand Stewardship.
REFERENCES CONSULTED
The Harrison Company Case
Brian, T., et.al. (2010). The Truth About Best Branding Practices. New York: Pearson.
Horibe, F. (2001). Creating the Innovation Culture. New York: John Wiley & Sons.
Paton, R. And McCalman, J. (2000). Change Management: A Guide to Effective Implementaion.
Thousand Oaks, CA: Sage.
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