Background of Dick Smith Electronics
Over the year’s organizational failure have taken place all around the world within several organizations. The issue of organizational failure mostly aims to understand the reasons and administration of the organizational failure. However, most of the researches within the business management sphere, the notion of organizational failure has been considered to be less significant. Due to the global financial crisis there are thousands of countries have failed within a short span of time. Therefore there have a surge within the organizational failure researches and several researches have been done on the topic. However the studies have been hampered due to a serious lack of an accurate definition, but Reason (2016) have considered failure as a as a single major incident, or cumulative series of incidents, resulting from the action (or inaction) of organizational agents that threatens the legitimacy of the organization and has the potential to harm the well-being of one or more of the organization’s stakeholders”. Most of the arguments regarding the organizational failure have advocated the failure to be caused by the internal factors of the organization. Mostly the researchers have indicated organizational failure have caused due to the inadequacy of the managers in dealing with the external issues and threats. This report will discuss the recent organizational failure of the electronic retail organization ‘Dick Smith’. Having discussed the company and the case study this report will shed light on he organizational factors that have contributed to the failure along with the evaluation of the effectiveness of the means that have been taken by the organization. This report will also aim to recommend the potential solution for the organizational failure.
Dick Smith Holdings Limited or formerly known as Dick Smith Electronics was a Australian based retail chain until 2016. The company used to sell the electronic products, electronic project kits, electronic components etc. The retail chain had also expanded its base New Zealand in a successful way, yet it could not be much successful in the other countries on an international basis. The organization had been founded by Dick Smith in the year 1968 in Sydney and it was owned by both the founder and his wife (Dick Smith 2017). However the company was sold to the famous retail chain Woolworths Limited in the year 1982. In its initial days the company has promoted the brand with several publicity stunts. From the radio boom in the year 1970s, the electronics retail chain has flourished with the sales of personal computers and established the brand within the field. However in the year 1982, the founder of the company Dick Smith had sold the company to Woolworths at the cost of $25 million (Dick Smith 2017). Therefore the company had added several small stores and different outlets within the regional areas and suburbs in Australia. However by the year 2012, Woolworths Limited has announced the closure of around one hundred stores of the brand, therefore it was sold to the Anchorage Capital Partners in the year 2012.
Reasons for the Organizational Failure
In the report published by the former administrator of the company, the administrator has shown that the collapse of the company is mostly blamed on the managers. Prior to the year 2013, the company had enjoyed a continuous growth and planned a future expansion and newly lined business. In such an environment the management mostly focused on the improvement of the revenues and planned new business lines. The administrator of the brand even had published a statement regarding generating more profitability as well. However, soon the consumer preferences started changing and the expansion plans went in vain. The expansion plans required a huge surplus earning by the brand along with borrowing of a huge amount due to the huge change within the market place. However the brand was not able to achieve that and gradually it started losing more market shares. The expansion plan had also failed miserably when the reports showed that the company is carrying more overvalued stock than it can sale in the market by the middle of 2015. In addition to that at the end of 2015, the company required a clearance sale so that it could reach some margin. However the company started failing wretchedly as it did not have sufficient resources to fill up the gap and meet the commitments. Therefore the bankruptcy of the company was quite inevitable as it could not fight with the fast changing market situation and lacked the monetary resources. Furthermore on 4th January 2016 the company went into liquidation as it has also failed to secure the buyers for the stores and the CEO of the company had announced all the stores of the company across New Zealand and Australia would be closed which also led to the loss of around three thousand jobs. Dick Smith had collapsed with around $390 million debt.
From the case study it can be understood that Dick Smith Electronics has failed due to a huge mismanagement of the higher authority of the company and it could not face the changing atmosphere and failed to meet its future and current commitments (Le Mens, Hannan and Pólos 2014). The SWOT analysis of the company will provide an inner sight of the company and shed light on the primary reasons of the failure of the organization.
The fundamental strength of the country was the skilled workforce and the experience of the market as the company had been in the industry for a long time. The store network was also large, most importantly it was bigger than the other competitors of the company in the market. The business units were experienced. In addition to that the company was expanding within the domestic market therefore it did not have any barrier for entering the market.
SWOT Analysis of Dick Smith Electronics
The electronics market was extremely competitive and it was facing more changes as a result to the changing consumer requirements. Dick Smith was also losing its market shares, therefore the growth of revenues were entirely based on the commercial sales which was at the low margin. Even if the company had planned for expansion, it did not have the monetary support, therefore it had to use all the existing cash supports (Uzzi 2014). Therefore it also required a substantial support from the suppliers and the borrowings from the bank; however Dick Smith could not avail the supports due to huge debt in the market and went bankrupt. Along with this the clearance sale of the company could not generate adequate sale margin for alleviating the pressure of cash.
The growing demand of the market could act as an opportunity for the company, yet it acted as a weakness for the organization.
The increasing cost of the raw materials led to the rising cost of the making of the company products. The financial capability of the company acted as a threat as well. The internal clashes and mismanagement of the directors and the administrators also acted as threats for the organization.
The fundamental reason behind the failure of Dick Smith was negligence of the managers. Firstly there have been random changes in the managing personnel of Dick Smith. The company has been handed over to Woolworths from its founder, and then it was bought by Anchorage Capital Partners in 2012. Walsh and Cunningham (2016) shows that every manager or leader brings new ideas along with them within the organization, therefore the changes in the managing position also acted as an obstacle to the further enhancement of the organization. In addition to that the current administrators of Dick Smith were not managing the entire business in an ethical way. The models of organizational behavior can be helpful in determining the decline of the company due to negligence and politics of the administrators. The The Fishbein and Ajzen Model generally deal with the understanding and the future prediction of the intentions of the behaviors (Carboni 2015). It states that the behavior of the individual is mostly the function of the keen intention of performing the behavior. Therefore the behavioral intention of the individual can be determined by two factors, the attitude towards the performance of the act and the perception of the normative pressure that concerns the behavior. Both the factors in this model are seen as the predictors. Moreover the attitude of the administrators of Dick Smith did not seem to be ethical by the scholars. They have been involved in various unethical issues, therefore their behavioral intention indicates to the organizational failure.
The Fishbein and Ajzen Model and Organizational Failure Prevention
In this case, there was no prevention taken by the Dick Smith and this is the reason this company had to face insolvency and gets dissolved as soon as they are purchased by Anchorage Capital (White 2017). Business experts also stated that this is one of the greatest heists of all the time, where Anchorage Capital had transformed a $10m in to $520m equity in less than two years (NewsComAu 2017). It can be said that, the prevention that they can take is to evaluate the effectiveness of the business partners so that they can ensure that the collaboration will be beneficial. It is also found from the research that when Anchorage Capital bought Dick Smith, they first formulate another business section named- Dick Smith Sub-holdings (White 2017). However, poor leadership of the company results in business partnership distrust and breaches of ethical proceedings. There was no time to recover all these adversities as everything happened in the interval of short interval of time. This can be witnessed from the fact that the business approach of the leaders is not monitored properly and this the reason that Michael Potts, CEO of dick Smith along with Mr Abboud take additional of $50 million increase in Dick Smith’s loan from the financial institution Westpac Banking Corp without any approval (White 2017).
Moreover, another prevention that they could take was to monitor their business strategies for expansion is that they can gain more customers and offered them quality products. In this way they could overcome the adversity of great monetary loan. However, what happened was the leaders have taken initiative for ill-thought out and costly expansion and also had purchased massive inventory for their electronic departments that also results in a great failure after some months (NewsComAu 2017). Some on this scenario had argued that their initiatives for business expansion have resulted in previous business success, which is liable to maintain a good business performance. Though the news broadcasted showed that they have invested lot in stocking the inventories, which could be utilized in other business operations and functionalities (NewsComAu 2017). In addition to that, regular invigilation of the audit reports were also not obtained by the higher authorities of the Dick Smith and this is the reason the due money had been left outstanding. Moreover, the staffs are remained underplayed and this also resulted an amount of $2.1 million. The corruption in Audit report also illustrated through the payment shortfalls of the lenders (Ucbasaran et al. 2013).
Since the company has been dissolved in recent time, thus it can be stated that neither they have much time to take some prevention, nor the strategies have any effectiveness. However, it can be said that the step that they have taken resulted in adverse result. The lack of effective business decisions was absent during the changing of market demands. Walsh and Cunningham (2016) depict that an organization is liable to identify the changing requirements of the market. In context of Dick Smith they did not match the rapid changes in consumer demand patterns regarding consumer electronics market. Another ineffectiveness of this organization is adapting the decision of high cost store network, where Dick Smith have kept a store network much larger than its competitors. These inventories also have higher cost base that results in unused inventory, which furthermore contributes to their overall loss (NewsComAu 2017).
In addition to that, planning for business expansion and incorporation of more products lines for attracting more customer base are planned to occur within no time. Business experts also argued that considerable financial commitment is required for an effective expansion plan but taking unapproved loan from different banks, negligence of managers and ineffective business moves (Bewayo 2015). Thus, this approach not only avoids proper evaluation of supplier commitment but extra investments in inventory and constant borrowing results in outstanding bills.
This can be suggested for the organization to track all the business proceedings and focus on recent demands of the market. This will help them to align their business proceedings with the current market demands. Since, the concerned organization faces business failure in their mobile business, it is recommended them to first research about the recent mobile trends and then design a plan for formulating mobile devices that offer different facility than other companies so that more people gets attracted and buy their products.
Selecting ethical business partners
Dick Smith was formerly performing under Woolworths but later they have chosen to be under an ethical business partners. They should search for background details of the company and their effectiveness for performing business operations. This step is important as it will allow the managing authorities of a business to align their business procedures with the set organizational goals and objectives. Moreover, the concerned organization can also hire a company as a consultant rather than giving their shares completely to other organization.
Selection of effective auditors
In can be said that the main cause of adversity f0or the Dick Smith is corrupter and inaccurate calculation of the audit report which results in incorrect financial report. This results in falsification of the business details to the banks through which loan can be obtained from different banks. Thus, the managing authority of the organization should regular monitor the audit details so that any incorrect information can be highlight in initial phases.
Maintaining low inventories
It is suggested for an organization to maintain a low inventory level as it provides an effective stock control. Maintaining low inventory not only allows an organization to use less space but it will also help an organization to avoid the risk of wastage of the excess inventory. In addition to that, low inventory provides the benefits of control cost, low waste and incorporating new stock as pert as the changing demands of the market and customers. This approach helps them to focus on recent and cost effective stock management that on the other hand help them to attain a competitive advantage.
Conclusion
In conclusion it can be said that the market change or the shortage of resources can be taken care of within the organization, if the managers of the organization are capable enough to deal with the external situation. Rapid losing of the market shares and the inability of obtaining the positive credit terms have had a huge impact on the stock levels of the brand which finally resulted into the liquidation of the brand.
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