ABC was founded in 1998 as a childcare business by Eddie Groves and his wife Le Neve. The business benefited from Eddie’s entrepreneurial skills and was further enhanced by the contribution of Le Neve in designing a quality education programs that would later be their source of competitive advantage. By 2001, ABC had been publicly listed with a market capitalization of $ 25 million with a portfolio of 43 childcare centers within Australia. Buoyed by rising demand, government support, and availability of finances through the thriving stock exchange, ABC embarked on a rapid expansion program that saw its branch network double yearly to reach 2238 childcare centers around the world by 2007 with 1084 centers in Australia alone. ABC had targeted to run 1500 childcare centers in Australia by 2010 and by 2007, it would appear they were well on their way to surpassing that target. ABC’s rise was not without challenges. Structural problems had forced running costs up and by 2008 they had accumulated debt leading to plummeting of the stock prices to unimaginable levels. ABC was suspended from the trading its stocks in August 2008 while awaiting its final statements for 2007/2008. They however opted to go under administration with the government stepping in keep it running.
Environmental factors in the market present businesses with opportunities and threats. For survival, a business must be able to make timely decisions in response to environmental factors that impact their businesses. Opportunities are those factors that present a business with chances for growth upon taking steps that positions them appropriately while threats are the factors in the business environment which, if not guarded against, could lead to the demise of a business (Kotler, et al, 1999). According to Brooks and Weatherson (1997), these factors may include government policies, demographic changes, entry of competitors, and changing technology among others. The rise and fall of ABC was influenced to a significant proportion by various environmental factors. To begin with, the population factors favored the demand for childcare services. The gender awareness in Australia and in the developed world had reached its threshold and more women were pursuing professional careers rather successfully. More women were establishing their career paths before embarking on starting their families. The impact of this is that they would not be able to stay at home to take care of their children. This factor enhanced the rising demand for childcare services. In addition, the rising cost of living in the targeted economies was forcing couples to seek active employment in order to contribute in meeting family bills. This consequently meant that no adults in most families would be around to take care of the young children.
The most convenient and affordable option for such families would be to enlist the services of childcare centers. Governments in Australia and international markets targeted by ABC were very supportive of childcare businesses. The Australian government had structured its tax rebate scheme to cover 30% of childcare expenses in 2004 and by 2008 the figure had risen to 50%. This allowed childcare centers to charge lower fees hence encouraging rising demand and higher revenues. The Australian government had also introduced a child bonus in 2004 to encourage parents to raise larger families. This could only mean one thing for ABC: higher demand for their services, and would act as an incentive for them to expand even more. Another factor that worked in favor of ABC was the booming economy. The improved performance of made it easier for ABC to acquire funds to finance their expansion program. Encouraged by the rising demand coupled with positive government policies, ABC utilized this availability of finances to roll out its expansion program. The environmental factors also posed some challenges for ABC. The government regulation related to licensing of childcare centers required that businesses to maintain certain minimum staff-to-child ratios and avail certain facilities hence driving up the running costs of the business. This could threaten a business’s profitability should there be a decline in the demand levels.
On the question as to whether ABC’s performance was driven by environmental factors or by strategy, it is the submission of this analysis that it was strategy driven. Although environmental factors may have been favorable, it took the ABC management to make the decision to respond to these environmental factors. Having observed the changing market trends, they were able to identify in good time that the expected rise in demand was an opportunity they could use to expand their business. Chisnall (1997) underscores this assertion by stating Environmental Factors cannot, by themselves, drive a business to success or demise. It must be complemented by action or inaction by a business for them to impact on the business. Moreover, through the contribution of Le Neve, ABC had distinguished itself as a provider of quality education and had gained strategic advantage over their competitors. It is this positioning that enabled them to expand more rapidly since they were able to gain customers more easily than their competitors.
ABC made various acquisitions across the world and was able to tap into the market share of the acquired businesses as well as being strategically placed to tap into rising demand. Further to this, its elaborate network in Australia left some areas clustered which (although they denied the intention), acted as a market barrier from entry by competitors. This helped stabilize their local business and enabled them to focus on international expansion. In addition, ABC took an offensive approach to marketing by going out to enter into partnership arrangements with various large corporations to provide childcare services for their children. The company would benefit from the arrangement by enhancing higher levels of staff motivation powered by perception of their employer’s care for their welfare while ABC would benefit from assured revenues which would be submitted directly to them by the companies. Further to this, the extensive branch network helped ABC secure such arrangements since they would be able to cover the staff members of companies with wide networks hence lessening the inconvenience that these corporations would face accommodating more arrangements of a similar nature. ABC’s decline was also enhanced by inaction. At the onset of cracks in their governance structure and practices, they failed to take actions to prevent the creation of negative perceptions in the minds of their clients, especially corporate clients. They had also failed to conduct timely reviews of their accounting system that had blinded them from realizing their poor financial performance and take corrective measures. ABC had also failed to foresee its falling stock prices and make corrective measures to cushion waning investor confidence. These factors contributed to their decline due to their inaction.
In the event that ABC had continued to acquire money to continue its expansion strategy through expansion, adverse effects would be faced depending on the source of financing. The poor financial performance of ABC had evidently waned and must have been shaping the perception of potential customers. It is therefore likely that this expansion wouldn’t have a great impact on its profitability. Moreover, structural issues that had led them to their knees would still persist and lead to their demise. The low prices of stock would present a new investor with a chance to cheaply acquire the company and try to revive it. Alternatively, if the money was acquired through debt, the company would face the risk of being bankrupt due to its inability to service the debt.
This analysis agrees with ABC’s decision to use its education program as a source of competitive advantage. The decision to expand was also good save for the rapid expansion that seemingly didn’t pay attention to soaring costs. The company needed to have undertaken cautious expansion with every care taken to ensure economies of scale are realized from its wide network. Sharing of certain facilities such as transport and procurement, as well as expertise would be able to reduce their costs significantly (Booms and Bitner, 1981). The company would also have needed to streamline its procurement structures to ensure they got value for their money and to help them save on unwarranted costs. In addition, the company needed to pay attention to stakeholder sentiments and counter any negative incidents with meaningful changes or where perceptions were unfounded, make swift and clear clarifications (Gonroos, 1990). The decision to cluster centers was a poor decision since the ability of each center sustaining meaningful profits was low. ABC needed to conduct meaningful research into market characteristics and only establish centers in areas of high potential. Their decision to go into administration left them at the mercy of the administrators. This laid back style of approach could cost them dearly. ABC would have done better to seek the restructuring of their debt to ease pressure to pay and embark on structural changes that would include sale of redundant centers as well as cutting operational costs to the lowest possible amounts. Investor confidence would be bound to return upon them taking steps in the right direction.
Booms, B.H. and Bitner, M.J. (1981), Marketing strategies and organisation structures for service firms, in Marketing of Services, J. Donnelly and W.R. George (eds), American Marketing Association
Brooks, I and Weatherston, J. (1997) The Business Environment. Challenges and Changes, New Jesrsey: Prentice Hall
Chisnall, P.M. (1997) Marketing Research, Fifth Edition, London: McGraw-Hill
Gonroos, C. (1990). Service Management and Marketing: Managing the moments of Truth in service competition, Lexington, Mass: Lexington Books
Kotler, P., Armstrong, G., Saunders, J. & Wong, V. (1999) Principles of Marketing, 2nd Edition, New Jersey: Prentice Hal