Causes of downfall
The business environment is extremely dynamic. It is very important for any business to consciously assess the business environment in order to figure out the changes that will take place in the business environment in order to ensure that the firm is performing well and is able to face all the barriers which the dynamic environment throws at it. In the given report, the case of Dick Smith will be discussed and the causes of its downfall will be analyzed critically.
Dick Smith Holdings Limited was an Australian retail store dealing in consumer electronics, electronic hobbyist components and the electronic project kits. The chain had a successful expansion into New Zealand; however expansion into the other countries was not as successful (Rothaermel, 2015). The company was found by Dick Smith in 1968 in Sydney and later on it sold 60% of its ownership to Woolworths Limited in 1980 and sold the remaining part of the company in 1982. However, due to mismanagement of the company, it closed down in 2016. The report will be analyzing the reasons why the company was unsuccessful due to its response and provide recommendations on the same.
The primary reason behind the company`s failure was its incapability to adapt to the changing needs of the external environment of the business. With the advancement in the technological domain, the electronic industry changed and the business processes also took a turn which the Dick Smith Company was unable to abide by. For this reason, the company collapsed and could not abide by the need of the external market. The responses which the business gave are which lead to its downfall has been discussed below:
- More discounts-
The company, in order to attract the customer segment and indulge in high end sales, invested in a scheme whereby the company offered huge discounts to the customers. This strategy was fairly acceptable as the customers actually purchased a large number of products and availed the different deals, however, this was not good for the long term benefit of the company as the clearance sales were not a viable solution for the lowered sales which the company was facing (Hill, Jones & Schilling, 2014). The company management thought that in order to attract a larger crowd, the company should successfully be able to offer a product which is unique and quality is optimum as well. However, instead of following a differentiation strategy, the company planned to adopt a cost leadership startup which was not beneficial for it because the costs of the firm were quite large in general (What killed Dick Smith? Inside the Dick Smith collapse. , 2018). They were trying to be a low cost retailer in the market, without actually operating in a low cost manner. Instead, they operated on high costs and offered more discounts than the liquidity state of the firm would allow. Due to this reason, the company was unable to achieve success and lead to its downfall (Harrison & John, 2013).
Response actions
The company had aimed to provide higher sales as a source of funds which would help to pay the creditors of the firm, but this was not the case and the funds raised from the sales was not enough to be able to pay off all its debts.
- Accounts department issue
The accounts department of the firm was not an efficient one. According to Hayes (2014), the accounts department is a strategic unit of a business enterprise which further assists the business and guides the different decision makers of the business in successfully being able to decide which factors of the business have been performing well and which factors need to be changed. The company had not being doing well since a very long time; however the accounts department was inefficient in being able to accurately forecast this downfall. Had they been more careful during their analysis and scrutinized the different assets and liabilities carefully along with the sales which are being made for the business (Doppelt, 2017). It is not easy for a business to collapse so easily. The signs are visible at an early stage. However, the only difference is that the business was unable to abide by the rules and unable to verify the signs of the downturn.
- Ignorance
When an external environment, reflects signs of downfall and betrayal it is the duty of the business to make strategies that will assist the business in combating against the factors which are present in the external environment of business. A business cannot stay ignorant towards these factors. The various factors present in the external environment of the business are factors like political, economical, socio-cultural, technological, environmental and legal (Morschett, Schramm-Klein & Zentes, 2015). Although these factors lie outside the domain of the business, these factors have a high capability of affecting the given business and it is not a good business practice to ignore such factors. However, taking the case of Dick Smith, the company completely ignored these factors and played innocent. Ignoring such factors proved to be a dangerous outcome for the company, whereby it was unable to achieve success. If Dick Smith had not been ignorant with respect to the given outcome, it would have achieved success and not collapsed in this manner (Businessinsider.in. ,2018).
- No money in electronics market
The electronic market had not been performing that well from quite some time, According to Johnson (2016), with the economic downturn and the ongoing recession phase bought about immense impact on the electronic markets with special reference to the consumer market. The customers had suffered a huge blow and because of this, they were unwilling to invest in the consumer goods. This downturn in the given market had bought about huge changes and many businesses had diverted their plans and attentions due to this (Martinsuo, 2013). The company failed to do so and instead start investing regularly into the electronics market. Dick Smith failed to analyze the technological as well as the economical factor carefully so that they were being able to invest soundly and retrench their activities ( Williams ,2013).
Excessive discounts
In the given scenario, a retrenchment strategy should have been followed by the given organization. A retrenchment strategy would have gone a long way in helping the firm to be able to achieve success (Hubbard, Rice & Galvin ,2014). Had the company successfully retrenched its operations and limited its business spheres, it would have been successfully able to achieve success and not suffered the huge collapse that it had already undergone.
- Inventory
According to Ashkenas (2013), the company had a wide source network which was more than all its competitors combined. Hence, this wide source of network and inventory management, proved to be a high cost segment for the given company. As the company wanted to achieve economy of scales, it invested in a large inventory which notched up the expenses of the firm. Furthermore, as the company was unable to make considerate sales, the inventory became stale. In the consumer goods market, the new products are launched into the market on a regular basis and if a company stocks up the products for a long time then it will not be able to become successful in its chosen domain (Kalkan &Bozkurt, 2013). This is where Dick Smith, went wrong, the company was unable to keep up with the rapid changes in the consumer demands and due to this reason, the company failed. Maintaining a large inventory base should not have been an option for the firm. The company should have maintained its goods in the Inventory on a FIFO basis. In this basis, the company generally is successful in maintaining a sound inventory (Jarzabkowski & Kaplan, 2015). Hence, the failure of the firm to maintain an acute inventory level even during the phase when the crisis began to strike induced the company to collapse completely.
- Management
The management of the company under the reign of Nick Abboud was one of the major reasons why the company collapses. The management was unable to analyze and read the series of activities which took place in the current environment of the business and it was because of this reason that the company was unable to survive and sail through the turbulent times. According to Doppelt (2017), the leader of a company should be someone who is successfully able to assist the business and sail it through their turbulent times, but the business was unable to pass through because under the management of Nick Abboud, the firm did not achieve any success. Had the management been a sounder one, they would have been quite successful and would have possessed the ability to come back with a good response and not let the firm collapse.
- Expansion Plan
Inefficient accounts department
Despite analyzing the happenings taking place in the current environment of the business, the firm continued with its expansion plans (Slack, 2015). The expansion plans of the business were not capable enough to help the company in getting them back to the track. Instead it further soaked up the resources of the firm which then led to a further blow on the company`s well being.
Conclusion
Therefore, from the given analysis it could be observed that the primary reason why the company. Dick Smith; failed was not due to the external factors which lied in the external environment of the firm, but due to the inconsistent efforts of the business organization. The given report outlined some of the reasons and the actions of the company in response to the external factors which lead to its downfall. The report begins with a brief introduction of the given scenario and the reason why the company failed. The following section describes the reason why the firm failed and also analysis the different responses by the firm that actually leads to its failure.
These response actions comprise of providing excessive discounts to the firm. Although the firm was not being able to afford providing these discounts, the company offered it more than the cost which then led to the downfall of the company. The second inactive response of the firm which contributed to the downfall was the inefficient accounts department. The accounts department of the firm was highly inefficient and this is the main reason why the firm was unable to foresee the anger it was falling in. Other reasons for its downfall included reasons like ignorance, unable to analyze the downfall in the electronic market. Inefficient management and the unnecessary expansion plan. Had the company followed the given recommendations, it would have been successful in facing the danger.
- Stock in a limited manner
The consumer demands in the consumer electronics market are highly volatile. As new products are introduced very often the consumer demands, tend to change quite rapidly. The given rapid change then causes turmoil and the firm selling such goods needs to re-stock continuously (Lasserre, 2017). Had Dick Smith been able to re-stock efficiently and maintained an optimum stock of inventory, it could have turned the tables and not been collapsed so rapidly.
- Use accountancy as an efficient tool
The role of accountancy in the business domain cannot be undermined. Accountancy goes a long way in assisting the business and helping it to forecast the future. It lays the duty of the finance and accounts department to analyze the financial statements and foresee any dangers that might take place in the business environment. Had Dick Smith`s accounting department been successful in analyzing the future of the firm, it could have saved from suffering a loss to this extent.
- Offer discounts in a limited manner, stress more on quality
The company followed a cost leadership strategy which was a wrong approach. This is because; the firm should have instead followed a differentiation strategy to become popular among the consumer market. The strategy of offering discounts to such a large extent went wrong for the company (Merat & Bo, 2013). The cost of maintaining such a high inventory affected the profitability of the firm and furthermore, as the company was unable to increase the revenue of the company, as the margin of the sales was quite low, it suffered a further loss. Hence it has been recommended that any organization should actually aim to increase the quality and service of the product provided instead of investing in a large inventory which ultimately leads to a loss.
References
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Businessinsider.in. (2018). Retrieved from https://www.businessinsider.in/the-8-causes-of-dick-smiths-collapse-2016-7?r=US&IR=T
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What killed Dick Smith? Inside the Dick Smith collapse. (2018). Retrieved from https://www.afr.com/business/retail/appliances/what-killed-dick-smith-inside-the-dick-smith-collapse-20160908-grbgw6
Williams, C., (2013). Principles of management. South-Western Cengage Learning
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