Problem Statement
Clear view Windows Limited was a manufacturer and assembler of Windows patio doors and steel entry doors. The company was a relatively young one and was incorporated in the year 1976 by James Rhodes with the name of maritime home improvements Limited. The company was however much older as because roads had previously owned a small business named Precision wood works. The company saw good turnover of profit in the beginning 4 years starting from 1976 and ending in 1980 (Angwin & Meadows, 2015). The company being a medium scale enterprise focused on products that where custom sized and offer to the customers at much lower prices. The strategy of the company to attract customers by offering lower price and also the product of much better quality became quite successful. After the passage of the initial four years Roach decided to sell the share of the company. This created the path for Adam Firth to buy the shares and rename the company as Clear View Windows Limited. The new management decided to expand the company and challenge the local competitors.
After the acquisition of ClearView Windows Limited, Firth faced a number of operational, financial as well as management related problems. The presence of poured economic conditions in the year 1981 resulted in slump in the construction industry. The sudden downfall of the construction industry led to the downfall of many other related industries. Therefore such a downfall clearly affected the window making industry. The interest rates of the bank debt rose to around 22% from the initial 16% when it was bought by firth. This resulted in an increase in the debt servicing charge of the bank (linkedin.com, 2018). The downfall of economic condition led to the accounts receivable growth of the company’s investment (Angwin & Meadows, 2015). The following outcome led to severe economic conditions and largely affected the customers as well as the economy of the company. The organization often faced problems to pay off their loans and in many cases very when unable to pay the loans. The outside Computer service to generate the monthly customer statements also lagged behind due to the absence of all the current information and thus was of no use to the company (Batsakis et al. 2018). The absence of a proper audit at the time of acquisition was also responsible for such a financial crisis.
The company also faced a severe management crisis. According to the study of Batsakis et al. (2018) the new owner had little experience in the construction and window industry. The lack of experience forces the new owner to hire steps to perform different functions like deliveries measurements estimates and production accordingly. This in turn increases the overhead cost and often lead to huge losses. In sharp contrast to roach, firth had no idea about the cost of the product and what should be charged what the different products produced by the company. Such an inexperience from the side of a manager led to any natural estimate of the costing and pricing of the different products. The new manager also had no idea on how to advertise and promote the company and also faced problems to get a clear idea on how to attract more and more customers to try the products of Clear View. The product line of the company mainly consisted of self manufactured Kolaris Steel entry door systems, semi sash less windows systems, picture windows and many more as such (Cho & Arthurs, 2018). The variety of the products manufactured and sold by the company thus outclassed UN number of different products of the competitors as it lacked the depth required to manufacturers a proper window kit. However the tremendous financial crisis along with the operational crisis forced the firm to limit their inventory. The farm started producing few Windows for inventory due to the absence of proper storage facilities. As the stocks got crowded the company started receiving calls and most of them were enquiries about late shipments.
Literature Review: Market and Competition
The market of the company was divided into two of the different units namely retail sales and contractor sales. The retail sales of the company were usually based on the doors or the products that were individually purchased by the different types of the customer. On the other hand the contractor sales consisted of large number of products that were sold to a single or a large retailer. This included stock or custom sized units of the organization. The notable difference between the retail sales and that of the contractor sales were that the retail sales were generally made for cash whereas the contractor clients generally had their accounts with the company through which the amount was paid gradually. The main target market of the company was Nova-Scotia mainly because of two reasons. First of all the company was managed by just 15 to 20 employees and apart from that it was also recognized as a small scale enterprise that was never comparable to the other companies of the same time. The annual reports of the company in the year 1981 highlighted an annual sale of close to $2.2 million which was quite good for a small scale organization (Batsakis et al. 2018). The primary focus of the management of the company was in the Halifax-Dartmouth area of Nova Scotia. Apart from this a number of different sales were regularly carried out by the organization in the South Shore Area and the Annapolis Valley which was more than 200 kilometers away from Halifax.
The area where the company served was generally called as the maritime region. In the following region windows and the doors manufactured by different types of the companies were sold in three different ways. This included the likes of the direct sales to the customers (retail sales), direct sales to the contractors (generally by the use of the salespersons) and lastly by sales to dealers by building different types of supply companies (linkedin.com, 2018). The major competitors of the company in Nova-Scotia and in and around the organization were namely Heritage Cedar Homes, Quebec, Mason in Quebec, Schurmans in Prince Edward Island, Westmount Windows Limited, Lockwoods in New Brunswick. The company was much smaller in terms of sales and productive capacity than all of the competitors. The companies including Schurmans, Westmount and Heritage had retail outlets (Cho & Arthurs, 2018). The following retail outlet was a major threat to the success of the company in the market as they were not able to afford such an outlet to display their products. The management of the company advertised their products through the yellow pages and the phone directories of that time. The main business of the company was mainly hold by that of the contractors.
The acquisition of the company by Firth happened at a time when the company was placed at a quite good position in the construction market. However lack of proper expertise and the inability to handle such a new sector by a new and inexperienced person was the main reason behind the creation of a vast number of different problems. This included operational, financial as well as management problems in the business. According to, Choi, Chan & Yue (2017) the major uniqueness of the products of the customer was the low price and the customized products of the organization. Most of the products of the organization were different from that of the other traditional customers and thu8s had a niche market for them. However the ownership change brought in a number of other changes. The main problem that occurred after the change in the ownership was the absence of a proper expertise. This led to a crisis in the basic area of the company. The company started having problems with the suppliers which severely affected the production process. The company started having problems with the availability of the main supply materials like lumber and also space to dry them to become manufacture worthy. In addition to this the absence of proper storage facilities led to major problems as the company was unable to manage the following elements in a proper way (Hilmola et al. 2015). The following problems led to huge delay in delivery and a time came when most of the calls coming to the company were complains regarding delay in shipments. The presence of uncoordinated product runs, poor quality inputs along with the presence of crowded storage facilities can lead to a large number of problems. The company also faced a number of different financial issues which was as a result in the decline of sales and an increase in the bad debt of the company with the bank. The loan interest which was just 16% during the transfer of the ownership rights to First, jumped up to a whopping 22% in just a few months of time (Choi, Chan & Yue, 2017). The absence of proper management expertise in this particular case thus turned out to be a major problem for the organization.
The problems in the organization were threatening to displace the identity of the company and also threatened the existence of the company. The severe cash flow problem in the company led the suppliers to put the organization on the COD list and in the year 1981 it was seen that operating the company on a smooth way was totally impossible for the new management of the organization. The management in a last ditch effort tried to arrange adequate loans and funds for recovery from the traditional financial institutions like Federal Business Development Bank, Small Business Development Corporation and many other new potential investors. However, the management was unsuccessful in convincing the financial institutions for any other additional funds as they feared that the company would become bankrupt. However, only one medium scale investor in the name of Scotia Sales Limited showed some intentions to invest around $75,000 through a joint venture capital company (Howson, 2017). The company decided in this investment in return of a 49% equity position in Clerview as part of the informal proposal package. The owner of Scotia sales Limited, John Marsh was a successful local businessman who had a great round of experience in that of the management of small business. He was capable of such a management just because of his involvement with a number of different joint venture projects. He decided to work as a financial consultant for the company in the late 1981. Lin (2014) suggested that the main focus of Marsh was to improve the information and the cash flows of Clearview to bring it on to the right path. The main reason for his strange decision to bail out the struggling company was that he knew that Clearview could be turned into a profitable business unit with the implementation of proper strategies and a inflow of proper managerial expertise. The company was thus ready to bail out Clearview in the time of crisis.
As mentioned earlier John Marsh, the owner of Scotia Sales Limited had the belief that the company can script a great turnover in the future and with the proper implementation of skills and expertise can turn into one of the very best companies of Nova-Scotia. The first and foremost task carried out by marsh was to ensure a smooth flow of cash and also a smooth and efficient flow of information in the organization. The sudden increase in the prices of the materials forced the new management to change some of the policies as well as the strategies to ensure the sustainability and the successful turnover of the company in the market. A number of significant changes were taken in the marketing and the production policies of the organization but before these changes could have been implemented, the organization again saw a severe cash crunch. However, the proposal if agreed by the major unsecured creditors 25% of the money owed to them by the company would be returned. The following suggestion will help the company the necessary space to operate freely and easily turn the company into a much more profitable and viable business unit. The absence of a proper auditing by the management of the company and the lack of a proper investigation by the bank on the future state of the company led the organization to a severe financial crisis (Lin, 2014). Apart from this the main decisions of the organization were done mainly without the idea of the proper financial data. This led to much more damage to the company. The management crisis of the company was present mainly due to the lack of the required expertise in the company. The lack of required experience with the new owner turned out to be devastating as the owner started hiring different people for performing a lot many functions to avoid problems. However, the appointment of so many persons to different positions itself created a major problem as it led to the increase of the overhead costs which often led to loss for the company.
Case Elements
The handover of the company to firth without a proper market study and also the absence of a proper audit by the bank involved in the financial transaction over the sales of the company was the major fault (Plataniotis, Proper & de Kinderen, 2014). The following faults led to the actual problem within the company. The problems of the organization have been divided into three major issues namely financial issues, operational issues and management issues. The lack of proper knowledge of Firth can be identified as the major problem in the whole regards. The owner had no idea to deal with such small businesses. He was advised by the previous owner for the initial few months after which he was left in a void to identify, analyze and select the suppliers, dealers and other related people of the business. The appointment of different people in different expertise in a small scale company like Clearview naturally increased the overhead costs and threatened the smooth operations of the business organization. The increase in the costs of the raw materials and the absence of proper suppliers also increased the cost of the products. There were also problems with the storage facilities as absence of prompt delivery to the clients led to a space crumble and thus delayed the deliveries by large time (Plataniotis, Proper & de Kinderen, 2014). The financial crisis was further summed up when inspire of regular efforts by the new management of the company, the banks were not convinced enough to provide a sum of loan for recovering the organization. The unconvincing attitude of the banks was mainly due to the different types of problematic transactions of the company in the past and any further loan or financial help could have led Clearview to bankruptcy (Batsakis et al. 2018). The absence of proper managerial skills, financial issues and the lack in knowledge to lead a small scale organization on a right note led to the failure of the organization in the market.
The major cause of the following problem in the particular case is more than one in number. The irregular delivery of the products also led to a severe loss of reputation of the company among the customers in the market. As mentioned in the above part the company faced huge losses due to the irregular delivery of the products. The losses stood at a staggering amount of $30,000 in the financial year of 1980 and 1981. Apart from this the company under Firth’s management also failed to maintain a clear transparency of the accounting and financial records. The reluctant nature of the new management to pay much less attention to the accounting and financial calculations and proper management led to the failure of the company.
Case Solution
The following case can be cited as the best example that highlights the problems of most of the small scale organizations. There are many cases like the one highlighted which shows the organizational failure to control the market. The analysis of the following case will help to provide some exclusive recommendations to the organization. The recommendations are as follows;
Case Conclusions
The following study has provided the complications of an acquisition process in the market. The lack of a proper monitoring and absence of financial and marketing audits can be destructive for the growth of the business organization. The problems therefore have to be tackled from an early stage to ensure satisfaction and success. The proposal to save the company from destruction is quite encouraging. Firth and Marsh’s proposal, if accepted, would see the company’s major unsecured creditors agree to accept 25% of the monies owed them by Clearview. This would give the company the breathing room to try to deal with their problems and attempt to restructure the company into a viable, profitable business. Marsh, the financial consultant and a potential investor of Clearview has predicted great opportunities for the business if the proposal succeeds. The case of Clearview can be highlighted as one of the best examples where improper management decisions can spell doom for any organization. The new proposal thus contains an efficient plan that can help the company to bail out from the sudden crisis. The importance of auditing and a thorough market research is thus utmost important to avoid any similar cases of impending business failures.
References
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Batsakis, G., Wood, G., Azar, G., & Singh, S. (2018). International diversification and firm performance in the post-acquisition period: A resource dependence perspective. Journal of Business Research.
Cho, S. Y., & Arthurs, J. D. (2018). The influence of alliance experience on acquisition premiums and post-acquisition performance. Journal of Business Research, 88, 1-10.
Choi, T. M., Chan, H. K., & Yue, X. (2017). Recent development in big data analytics for business operations and risk management. IEEE transactions on cybernetics, 47(1), 81-92.
Hilmola, O. P., Lorentz, H., Hilletofth, P., & Malmsten, J. (2015). Manufacturing strategy in SMEs and its performance implications. Industrial Management & Data Systems, 115(6), 1004-1021.
Howson, P. (2017). Due diligence: The critical stage in mergers and acquisitions. Routledge.
Lin, L. H. (2014). Organizational structure and acculturation in acquisitions: Perspectives of congruence theory and task interdependence. Journal of Management, 40(7), 1831-1856.
Plataniotis, G., Proper, H. A., & de Kinderen, S. (2014, May). A computational approach for design rationalization in enterprise architecture. In Research Challenges in Information Science (RCIS), 2014 IEEE Eighth International Conference on (pp. 1-2). IEEE.
QuickBooks. (2018). 4 Ways to Avoid Small-Business Bankruptcy. Retrieved from https://www.linkedin.com/pulse/importance-control-function-
Siddiqui, F. (2018). The Importance of Control Function in a Business Organization.
Tká?, M., & Verner, R. (2016). Artificial neural networks in business: Two decades of research. Applied Soft Computing, 38, 788-804.
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