1.1 Company Overview
Desert River is a young and dynamic Dubai based company specialised in the distribution of European lifestyle brands.
Desert River was set up in 2004, by Dutch owners with a background in the hospitality industry. The company has since been successful in bringing European quality lifestyle products to the market through retail, wholesale and rental. As exclusive distributor Desert River represent some of Europe’s top quality hospitality brands such as:
Fatboy (The Netherlands), Fermob (France), ImagiLights (Belgium) and Slide (Italy) within the Gulf Coperation Council (GCC).
Desert River acts as a wholesaler for the brands but also has a project sales division and a rental division which offers the products on a rental basis.
Desert River currently has currently employs 17 full time employees. With a unique product offering, a strong DNA and excellent service Desert River has built up a firm market position. The main clients for Desert River are:
position. But competition is moving in same the direction
1.2 company diagnostics
An organizational goal is a desired state of affairs that the organization attempts to reach. A goal represents a result or end point toward which organizational efforts are directed. The choice of goals and strategy influences how the organization should be designed (Daft, 2009).
Since the start Desert River has developed a strong DNA. Employees are committed and describe the company as a great place to work for. Products have for long been unique and the customer service is of top quality, being a real differentiator in the market. Consequently growth and financial success arose and the company build up a firm market position.
For the last 2 years Desert River did not manage to grow any further with a small percentage of revenue drop in 2015 (2,4%) and 2016 (1,7%). This is due to changes in the market condition such as the current economic situation in the region, technology development and increasing competition. For that reason Desert River needs to adapt to the current market situation as the gross operating profit dropped with a higher percentage in 2015 (12,7%) and 2016 (8,2%). The company needs to adjust its strategy and organizational structure to the current market situation in order to keep the cost low and to generate more revenue.
|
Year: |
Revenue |
Gross Operating Profit |
|
2014 |
AED 9,672584 |
AED 1,994,918 |
|
2015 |
AED 9,445,883 |
AED 1,770,114 |
|
2016 |
AED 9,287,987 |
AED 1,635,965 |
1.3 External forces
External forces are environmental uncertainty coming from the sectors that organization deals with regularly on a daily basis (Daft, 2013).
The external forces for Desert River are:
1.4 Internal forces
The internal forces who drive a change need to be recognized by the organizations stakeholders.
Internal forces that need to be developed within Desert River are:
1.5 The current organization structure
Desert River is currently structured in three main departments;
The organization chart is the visual representation of a full set of underlying activities and processes in an organization. Within the organization you can have vertical information sharing from level to level and horizontal information sharing. Vertical information is communication between different levels within the organization and horizontal is between departments itself. The organization should provide both vertical and horizontal information flow as necessary to accomplish the organization’s overall goals (Daft 2009).
The current organization structure is focused on vertical communication sharing and lacks of horizontal inflation sharing. This leads to lack of interaction between departments, lack of interest in the other departments, lack of effectiveness between departments and not striving all to the main objective of the company; a profitable business.
1.6 Current Organization Chart
As per the current organizational chart it has been noticed that Desert River is constituted with only 17 members within the organization. The entire business is divided into three primary parts including sales department, rental department and operation department. Every single department of Desert River is constituted with one individual manager. The crews have to work under the direction of those managers. The department of sales primarily aims to meet the sales target with the help of effective budget plan. The responsibility of an efficient sales manager is to keep a constant record over the entire performance of sales executives. Desert River is possessed with four sales crews who are primarily responsible to meet the sales target of Desert River.
Rental managers are the responsible persons for establishing the rental rates, calculating overhead costs, depreciation, taxes and profit goals. Desert River has appointed only two rental executives within the business process. The employees have to face immense difficulties in maintaining a constant control over profit goals. The primary responsibility of an efficient operation manager is to control the entire process of production. The operation manager primarily controls logistics and supply chain process for providing the services within time to the customers. Only 7 employees of Desert River are associated within the business process. After evaluating the entire organizational chart it can be stated that Desert River should increase their number of employees for maintaining entire business process effectively.
1.6 SWOT analyses
The attempt to improve the corporate strategy development process has fostered a range of approaches which have enjoyed various levels of support and popularity over time. One of the most popular is the SWOT analysis. A swot analyses identifies a organizations strengths, weaknesses, opportunities and threats.
|
Strengths |
Weaknesses |
|
• Incentives systems for employees on all levels. • Internal staff training. • Clear company DNA. • Low staff turn over. • Trend setter in the market. • Generally know for good quality and service. |
• Only revenue based KPI’s. • Limited marketing activities. • Limited communication between departments. • Limited client feedback documented. • No performance reviews below management level. • Limited network or resellers outside of the UAE. • Limited supporting software for the trading sales departments. |
|
Opportunities |
Threats |
|
• Create more efficiency between rental and sales teams as most clients are the same. • Engage employee productivity. • Expend to other GCC countries. • Expend the current range of offerings. • Expo 2020. |
• Improved technologies, cheaper copies available in the market. • Increasing competition, more companies with similar offerings in the market. • Market trends are changing. • VAT implementation in the UAE for 2018. • Payment terms, many companies are not willing to pay upfront due to the current market situation. |
2.1 Why restructuring
Desert River needs to implement a restructuring of the organization to adapt to continuous and rapid changes in the world such as; globalization, stiff competition, modern technologies and trends in the market (Daft 2013).
(Jensen and Warner, 1998) describe top executive decisions and leadership as a key variable in understanding forces disciplining managers. To be successful Desert River needs to be effective in adopting to the current changes in the market. Effectiveness is a way of measuring the degree in which an organization reaches its goals (Daft, 2009). To achieve the companies targets the focus should be on working towards one goal all together as a team and not to focus on individual targets. The company’s management needs to create appropriate strategies to achieve their overall goals.
The restructuring literature in the companies found in the west provides a hint on the failure or success of actions of restructuring undertaken by the management in determining and creating business value. (Ruigrok, 1999) argues that the experiences of the companies found in the West, can be of benefit to other businesses found in the developing countries.The main aim of enterprise restructuring is to transform businesses into capitalist firms which creates value. Western Europe and North American managers, scholars, and politicians have long regarded restructuring as mainly a temporary phenomenon (Ruigrok, 1999). In this view, restructuring was considered as a company stage during which it had to adapt to the changes of the environment such as Asian competition, slower groth rate, and higher prices of input. The late 1980s to 1990s’ events hhave made this pesrspective unsustainable (Ruigrok, 1999). It seems unsafe to continue assuming that many firms will continue in the coming years to restructuree. This is because of the ongoing monetary and economic integration in the EU (European Union), further discussions on economic integration in North Atlantic Area and the Americas, and the economic crisis in the Asia (Onundo Riany, 2012). As a result, this brings up questions of the direction and nature of the efforts of corporate restructuring, and possible differences of cross-nationals among the West corporates.
2.2 Performance and organizational restructuring
For the organizations that want to remain relevant in the world of business, organizational restructuring is a vital strategy. (Shermon, 2012) defines the restructuring as the changing of the structure of a firm’s operations, governance, financing, and investment structures. (Three Sigma Inc, 2002) defines restructuring as the process of introducing structural changes in the daily business management for onetime transaction activities such as acquisitions, debt swaps, spin-offs, and repurchasing stock. It is viewed that the main concern of restructuring is to change structures for the quest of long-term and short-term benefits.
(Sherman, 2012) describes the undertakings of restructuring can be categorized into three main classifications;
This paper is found on the restructuring of the organization which comes with the changes in policies of human resources. There is need to change the current human resource policies in line with the changing situation. The department of the human resource needs to initiate change management. As Desert River is a small company the CEO is in charge of the Human Resources, so he needs to initiate the change. Vyacheslav, 2000) demonstrates that in order to maintain the employees’ external and internal equity, there should be streamlining of the current pay structure.
(Andreas Kemper, n.d.) notes that there are signs that can be used to determine the need for organizational restructuring. Such signs include influenced performance appraisals; unpredictable organizational communications, significant staffing increases or decreases are contemplated; accountability for results are not communicated clearly and measurable resulting in subjective and retaining personnel and turnover becomes a problem that is significant; parts of the organization are substantially under or over staffed; new skills and capabilities are needed to meet current or expected operational requirements; technology and/or innovation are creating changes in workflow and production processes; fragmented, and inefficient; and stagnant workforce productivity or diminishing morale (Jarso, 2016). Organizational restructuring in a number of ways has shown to be important and that they are more important in strategies’ implementation of due to good formulation but that are not confined to reducing costs of operation.
2.3.1 A case study by Srivastava
A study conducted by (Srivastava, 2013) on the effect of restructuring on the operational issues of the public traded companies, tested whether the restructuring resulted in substantial changes. In this study, they applied profit margin, the ratio of total asset turnover after and before the restructuring as substitute for the firm’s performance, return on assets, and changes in revenues. They were able to determine through the analysis that there was substantial increase in return on assets, profit margin, and total revenue after restructuring. However, there was no proof of substantial effect on the ratio of asset turnover. The researchers were able to find existence of substantial evidences of substantial market expectations and over response to the announcements of restructuring. performed a study to explore corporate performance improvements in companies involved in acquisition and merger. The study was done using the 1997 to 2006 Egyptian firms in technology and construction industries as examples. The results obtained indicated that acquisition and mergers in the sector of technology there was no discovery of the firm’s profitability improvement while in construction, there was significant improvement. However, in both industries, acquisition and merger did not result in improvement of solvency, cash flow positions, liquidity, and efficiency.
2.3.2 A case study by Wambui
A case study by (Wambui, 2012) conducted a research on the impact of restructuring on the operation of the organization specializing in mobile phone industry in Kenya. The study agreed that, all three techniques of restructuring have positive impact on the firm’s market share and growth. The findings from their study demonstrated that organizational restructuring had the least effect on the firm’s market share, the second was portfolio restructuring, whereas, financial restructuring had the highest impact. Nonetheless, on the market growth rate, organizational restructuring had the highest impact.
3.1 Restructuring strategy:
In order to overcome the internal as well as external forces the organization like Desert River has decided to implement restructuring strategy for rendering the business success (Riany et al, 2012). However, an effective industry analysis is highly important for making the strategy. Porter’s five force analysis helps the organizational such as Desert River to get an in-depth overview about the power of supplies as well as consumers.
3.1.1 Threat of New entry:
In order to enter into the new market the organization needs to have financial strength with the help of which the organization can become a major threat to the customers. However, Desert River is possessed with few numbers of employees. Therefore, maintaining quality of products and services is challenging for the business organization (Elzinga, Gulledge & Lee, 2012). Employees fail to maintain an effective balance between the customers’ demands and supply. Therefore, as a new business process Desert River has to face innumerable threats from some of its established competitors.
3.1.2 Threat of the substitutions
Desert River has to face major threat from its substitutes. Dubai is endowed with large number of traditional furniture shops that has already created a major demand in the market of Arab Emirates. On the other hand, large number of illuminative solar light is also available in the market of Dubai. Therefore, Desert River has faced major threats from its competitors.
3.1.3 Competitive rivalry
The power of competitive rivalry is high in range. Desert River is having some of its major competitors. The shops of traditional furniture, decorative electronics parts, and solar lights are the name of its competitors (Audet & Bouvier, 2012). At the same time, large number of business organizations belonging to Dubai has established their business process by depending on the similar concept and products. Therefore, Desert River has faced innumerable challenges in order to establish their brands and products in the market of Arab Emirates.
3.1. 4 Bargaining power of the suppliers:
Bargaining power of the suppliers in order to run a hospitality industry successfully is low. Dubai is surrounded with large number of organizations based on funky beanbags, hammocks, lighting and other lifestyle products (Robichaud & Cooren, 2013). In this kind of situation, the suppliers do not get major scope to bargain their product effectively. On the other hand, buyers get large scope to consume products from different resources.
3.1.5 Bargaining power of the buyers:
As already mentioned the power of the buyers in this specific industry is high. Dubai is endowed with many business organizations which keeps lit furniture, lighting and decorative products for indoor and outdoor. In this kind of situation, consumers have the scope to change organization and bargain products in various geographical markets (Khara & Lund-Thomsen, 2012). Therefore, Desert River should form the business strategy in such a way that buyers do not show their reluctant attitudes for purchasing the products and services.
Primary focus:
Desert River being a flourishing business organization has focused to enter into the new market in order to expand the entire business process beyond going a specific regional area.
3.2 Strategic action:
After evaluating the entire industry analysis of buyers’ power as well as suppliers’ power with the help of Porter’s five force analysis, Desert River can conduct some of the most effective strategic actions. The suppliers’ and the buyers’ power are as follows:
3.2.1 Downsize:
After conducting an effective market survey it has been analyzed that business organizations should maintain a controlled structure with the help of which the performance of every single employee can be measured. In a limited organizational hierarchy the business experts have to face innumerable difficulties for keeping a constant control over the entire performance of employees (Chorev, 2013). In this kind of situation, Desert River would have to focus on controlling the number of existing staffs as the organization is based on only three managers from sales, operation and rental department. Downsize method is very much effective to motivate every individual employees towards the business process. As a result, customers do not have to show any kind of dissatisfaction while receiving the service process of Desert River.
3.2.2 New Organization chart:
As per the existing organizational charts of Desert River it has been observed this particular organization has appointed only 17 employees due to its small structure and managerial division. Hallinan (2013) stated that in order to expand the entire process of business in different geographical locations a particular business organization has to increase organizational hierarchy to control overall business process (Spagnoli, Caetano & Santos, 2012). This specific organization is only possessed with 3 departmental managers. Therefore, the number of employees is low in range. In order to hire more employees towards the business process Desert River would have to enhance managerial posts such as finance manager, supply chain manager, marketing managers and so on. In addition, under the supervision of a CEO the presence of a general manager is highly important.
3.2.3 Key performance indicator:
Key performance indicators are the necessary areas where the organization focuses to the key areas of improvement. For this specific organization like Desert River the key performance indicators are as follows:
3.2.4 Enhancing the organization communication:
It has been observed that lack of communication renders a large number of gaps between the performances of employees. Due to any kind of linguistic barriers and psychological barriers, the employees fail to communicate with each other (Recardo & Heather, 2013). Therefore, Desert River should provide a training and development course to the employees in order to develop professional as well as personal outlook. Automatically Desert River would get better service process to the organization.
3.2.5 Competency development:
In order to develop the level of competency an organizational expert has to focus on implement e-learning process, training and development process on communication skill, decision making skill, technological skill and so many (Drew & Coulson?Thomas, 2013). Desert River while providing the entire service process to the customers should gain enough skill and competency due to limited number of employees.
3.2.6 Multitasking employees:
For providing the service process to the customers of different geographical markets the employees have to show their multitasked attitudes. Good communication skill with stiff body language can demolish the entire performance. Customers may not feel comfortable in getting the services to the employees. In this kind of situation, employees should take effective training process that would enable them to maintain both communication as well as body language simultaneously.
3.2.7 Improve employee motivation:
It is undeniable the success of a business organization is highly dependent on the performance level of employees. People belonging to different geographical boundaries are associated within a business organization such as Desert River. Therefore, the business managers should motivate every individual employee by maintaining effective communication, providing necessary facilities and benefits and offering better packages (Ilic, Galiana & Fink, 2013). While using the restructuring process, this specific organization should use motivational theories and concepts. Implementation of reward ceremony is one of the most effective motivational strategies that this particular business organization can use to encourage the employees towards business process.
3.2.8 Use accelerator program:
Accelerator program helps to achieve the fixed target that an organization has set up for reaching their business goal. While implementing this specific program the business experts of Desert River would have to face on two major areas. The performance level of the existing staffs should be enhanced (Hallinan, 2013). The employees would have to maintain the service process based on KPI framework. If the business experts are flexible enough to maintain both these two factors the business organization such as Desert River would automatically face the peak of success in the realm of hospitality industry.
3.2.9 Strategic growth from 2016-2018
After evaluating the entire data it can be concluded that Desert River has developed their business process from 2016 to 2018. The strategic business growth has been represented below:
|
Category |
2016 |
2017 |
2018 |
|
Gross Profit |
1890000 |
1900000 |
2000000 |
|
Staff Cost |
9000000 |
9500000 |
1000000 |
|
Total Cost |
10890000 |
11400000 |
3000000 |
Table: strategic growth from 2016 to 2018
(Source: Created by the author)
3.3 Organization restructuring steps
Organization restructuring is possessed with some of the most significant steps that include:
4 Conclusion
The success of a business organization is highly dependent on the quality of products as well as services. In order to maintain the product and service quality the role of organizational employees are undeniable. Therefore, only seventeen employees within the service process of Desert River are not sufficient enough for providing good services to the customers. While proposing a restructuring plan the business organization such as Desert River should focus on new organizational chart that can involve sufficient number of employees for providing good services to the customers. At the same time, the restructuring strategy can enable the business managers to implement diversified products beyond restricting to the European style only. After evaluating the entire market growth scenario, it has been observed that employee motivation is one of the most significant parts for rendering the success of business. Therefore, Desert River should implement relevant theories and models for employee motivation. This specific study has highlighted a systematic strategic growth of Desert River from 2016 to 2018. In order to fulfil the needs and demands of the customers the employees have been provided professional and development training for maintaining effective communication. Desert River restructuring policy would help the organization to fulfil the customers’ needs and expectation.
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