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
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