1. The Retail Failure Case
1.1. Introduction
Current report sets out to discuss and analyzes one of the greatest failures in the sector of delivery and logistic services. City Link had been a big courier company headquartered in Coventry, UK. It was founded in 1969 and after 45 years of presence in the market, it went into administration in January 2015. The company announced its intention to enter administration on the Christmas Day in 2014 after clearing all its Christmas deliveries and it was a shocking as well as bad news for its above 2500 employees working in its different departments, as they were left with no immediate solutions after that announcement due to no prior notification. The reason, as reported by the general secretary of the company was the “substantial losses” over past many years (BBC, 2014; PYMNTS, 2015).
1.2. Dilemma of City Link
Failure of a company can be based on sum of different internal or external factors; and, sometimes, any single potential factor can also cause it to lose its competitive strength. Burt, Dawson, and Sparks (2003), are of the view that a retail failure is the name of an event or a series of events, or a condition or a series of conditions that result(s) into intense erosion of market share.
The same thing happened with the company in hand, as its profit margins kept going down consistently and, in the end, fell below the expenses. Due to remaining in consistent loss, the management considered it in their best interest to opt for going into administration in 2015, because there was hardly any hope of recovery (BBC, 2014; PMNTS, 2015).
There is a general belief that the underlying company failed due to the failure of operational management to make its operational activities cost-efficient through optimization. Most of its activities involved huge operational expenses. As a result of consistent increase in expenses, they exceeded the revenue generated through sales at a stage. Subsequently, the company began suffering consistent loss that finally made it end up with closure of business (Miller, 2015)
Many critics, on the basis of their study and insight into the matter, establish that the underlying company lost its competitive strength due to lack of adaptive behavior. Consumer buying habits in the modern age are characterized by sudden and dramatic change and every business has to keep updated on changing trends to respond accordingly. However, the company met its failure due to its pursuit of old and traditional patterns of the business of parcel delivery (Miller, 2015).
It is evident that the retail failure under discussion is either the direct result of unavoidable changes in external environment, or the management’s inability to cope with them in an effective manner. Uncontrolled expenses themselves can be based on many unavoidable factors such as change in taxation policy, political restrictions, change in the labor market dynamics, etc (Paul, 1999; Osborn, 1965). On the other hand, these expenses can also be controllable and the current scenario can be the result of poor assessment shown by the management.
It shows that the writer will have to dig deep into the facts relating to the company in hand in his attempt to reaching a specific and accurate conclusion. For this purpose, he will have to adopt an approach to reach the cause of causes (root cause) behind the critical scenario encountered by City Link in 2015.
1.3. Quotes from Media Sources
Given below are some of the most critical, thought-provoking, and significant quotes relating to the failure of the company in hand:
"We're in a situation where at one stage in the last few weeks we've had a lot of media coverage going around saying people can't have delivery of parcels because there is not enough capacity - yet a going concern like this goes into administration”, stated by Mr. Cash (BBC, 2014).
“It's hard to talk about the effects of digital and social media on how businesses operate without hearing about the 'disruption' these new technologies are causing” (Abidi, 2012).
“These losses reflect a combination of intense competition in the sector, changing customer and parcel recipient preferences, and difficulties for the company in reducing its cost base” (Press Association, 2014).
“As a result, the courier company found itself being driven into Britain’s low-wage economy” (Barrett, and Shubber, 2015).
“IT costs put further pressure on the delivery companies, because internet shoppers expect to be able to track their parcels online” (Barrett, and Shubber, 2015).
“These guys add cost faster than they make profit”, stated by Mr. Braithwaite (Barrett, and Shubber, 2015).
1.4. Reasons behind the Failure of City Link
Based on the quotes provided in the preceding section, the writer is able to theorize some of the potential factors contributing (or leading) to the failure of City Link. As a matter of fact, both internal and external factors have provided base for the company’s ultimate demise. For example, on one hand, change in customer buying habits has been a big issue. Under the growing trends of technology, customers are seeking virtual solutions for their major considerations including delivery services. Nonetheless, City Link has never invested in services like “Click-and-Collect” to meet emerging requirements. In other words, it has not responded to any need for incremental change in its style and scope of business (Miller, 2015). Instead, it added “30 minutes warning” to its policies towards customers, which further reduced its popularity among them (Barrett and Shubber, 2015).
Quote of Mr. Cash is also of much critical importance, because it shows that there is no issue like lack of demand in the industry (BBC, 2014). It means that the reason for the failure of the company comes from the company’s inability to meet the consumer demands in the most appropriate way. Then, growing IT and labor costs had also put extra pressure on the company that was already suffering improper mechanism for cost management (Barrett, and Shubber, 2015). On the basis of these findings, it can be established that internal and external factors together caused company to lose the viability of its business. However, the management could have avoided the threats in the external environment through appropriate response. Certain incremental changes were required in order to respond appropriately to the emerging demands among customers.
2. Theoretical Background
Influence of external factors on organizations and the ways to respond to certain changes has always been a matter of interest for scholars, critics, and business analysts around the globe due to its criticality and scope. Some of the key ideas and theories found in the existing literature are covered in this section.
2.1. Potential External Factors
Jain, Trehan, and Trehan (2010), in their book dealing with the underlying subject matter, identify some of the most influential factors in the external environment of any business on the basis of their deep insight into organizational matter. The authors argue that a business regardless of its size, type, or nature is influenced by six variables that are uncontrollable due to being outside the organization. These six predictors or external factors include political, natural, socio-cultural, economic, technological, and international.
Hence, the authors’ approach to the identification of external factors is in close proximity with the framework of Pestle. In a Pestle analysis also, the main objective is to assess and evaluate the impact of six key external forces on business including political factors, economic factors, social trends, technological forces, legal considerations, and ecological factor s (Dransfield, 2001, Harrison, 2010). At a later stage, Jain Trehan, and Trehan (2010), also include growing completion to the list of critically influential external forces perceived by them.
2.2. Chief Characteristics of Business Environment
Every business environment is characterized by certain attributes that apply uniformly to the whole industry. For example, ‘complexity’ is one of the major characteristics of the external environment wherein a business operates. As discussed above, activities of each type of business are largely dictated by different types of independent variables. Now there is not a single definite way to assess in what way anyone of these factors in a given time may influence certain areas of a business (Li, Li *, Liu, & Wang, 2005; Jain, Trehan, and Trehan, 2010).
Furthermore, a business environment is usually dynamic, as all of external factors are susceptible to frequent changes. For instance, sudden change in government policies or legal considerations may require an organization to reshape its policies. In the same way, organizations also need to stay equipped with predefined response (or mitigation) strategies in order to tackle sudden changes in customer buying habits or growing competition due to new entrants (Rosenbusch, Rauch, & Bausch, 2011; Bao, Chen, & Zhou, 2012).
Then, it is also evident that business environment is the sum of internal and external environment where former stands for a firm’s or organizations’ internal matters i.e. capabilities, competencies, resources, strengths, and weaknesses. On the other hand, external environment (defined and explained above) is composed of uncontrollable forces lying in the business environment of any entity such as firm, organization, or corporation. Moreover, the impact of each external factor varies not only from industry to industry, but also from firm to firm in certain circumstances. It also requires much strategic insight to predict which of the external factors has a long term impact and which of them is influential in short terms in a given scenario. ‘Uncertainty’ and unpredictability also belong to the category of major characteristics of a business environment (both internal and external) (Jain, Trehan, and Trehan, 2010).
2.3. Change Theories
As discussed, a firm has total control on its internal capabilities and resources and can utilize them to reinforce its strengths and overcome its weaknesses. However, external factors are beyond the organizational control, as they stem from external sources. Therefore, every business has to cope with changes in external environment in order to survive or to sustain its competitive strength. Organizations with strategically solid response strategies are usually characterized by long term sustainability, while others (with weak response to external factors) have high probability of going into administration due to consistently losing their attractiveness (Kothari, 2010).
But, here an important theory originated from Japan and cited by Blanchard (2009), also needs to be referred. According to this particular idea, most of the businesses in retails sector or in general fail due to consistent evolution of economy. As the economy evolves, it requires businesses to evolve as a result of change in customer buying habits. Businesses look for more and more innovative solutions. And, the businesses that follow the traditional patterns of growth usually fail in this scenario due to their inability to pace with growing requirements of innovation.
Here, the author does not mean that the businesses with lack of innovation are destined to meet failure. He does not apply his idea on general level, but restrict it only to those businesses that lack adaptive behavior. It implies that firms need to change according to the emerging trends in terms of any of external forces in their business environment.
Supporting these findings, Julien & P.-A (2007), beautifully compare an organization with living beings. They argue that organizations also have to evolve in order to survive in their dynamic business environment same as living things do (with relation to their environment). They (businesses) have to adapt themselves to any new changes to ensure their survival. The authors rationally conclude that change in internal mechanism of business in response to change in external environment serves as base for the competitive strength of any business or organization.
Then, there are many types of changes that an organization can consider as also determined by different kinds of change theories. For example, evolutionary or incremental change is the name of gradual change in an organization, while revolutionary or radical change refers to transformation of the whole business structure, business style, and fundamental assumptions. By the same token, a change can also be ‘planned change’, which is based on desirable decisions of an organization. On the other hand, an unplanned change is the sudden response to any emerging threat for survival by an organization. Organizations unwillingly opt for unplanned change while considered inevitable. Similarly, an induced change is the direct response to the change in external environment of a business, while autonomous change is a change that is based on autonomous approach of the management unrelated to external environment (Burke, 2002).
3. Theories Applies to the Case
The theories discussed in the previous section are in agreement to the situation faced by City Link pertaining to its failure. For example, the business of courier and parcel delivery has been placed in evolving trends in the external environment of business. For example, it is truly assessed that City Link has been quite successful in low economy, but as the economy developed, it started losing its viability (Barrett, and Shubber, 2015). It conforms to the theoretical approach to the subject matter according to which the businesses that fail to respond to evolving economy have very low chances of survival in the long run (Julien & P.-A, 2007).
External environment of the underlying retailer was characterized by evolution and dynamism. Growing technological and economic trends have played key role in reshaping customer buying habit that challenged the old-fashioned business model of City Link. For example, the company’s idea of ’30 minutes warning’ was ironical in the background of growing popularity of ‘click and collect’. The competitors due to integration of technology had optimized their business processes and attracted large customer base, while City Link lost its competitive strength due to non-adaptive style of business (Barrett, and Shubber, 2015).
4. Future Directions
In this phase, the writer assumes himself to be a business consultant whose services are sourced by City Link the day before it went into administration. As a matter of fact, the writer as a consultant can still (the day before the company’s calling administration) identify the chances of survival for City Link. The company can be back on the road of consistent growth in profitability if it follows a strategic approach to change.
For this purpose, the consulting company will have to deviate from its conventional style of operating. It is found that it is lagging far behind the industrial benchmark of innovation and technological integration. Therefore, any incremental change at this stage cannot be seen as a viable option for City Link. In other words, it has to come up with an aggressive approach to tackle the underlying issues in the most appropriate and effective way. It can be risky; but on the verge of bankruptcy, the management can take all its chances (Ragsdell, West, Wilby, & International Conference of the United Kingdom Systems Society on Citical Issues in Systems Theory and Practice, 2002, p. 231).
Since the company has spent a long time in the market without appropriate approach to incremental changes, now it is in the need of transformation or radical change. The management should heavily invest in technological integration in order to come up with competitive delivery time. Old delivery method should be replaced with click-and-collect method. Furthermore, the customers should be allowed consistent monitoring of their orders keeping the emerging demand for all these considerations in view (Barrett, and Shubber, 2015).
Now the question arises what ensures the success of this transformation change. On one hand, the company has an established brand name and it can smoothly convey its message (relating to consumer-friendly changes) to the target audience due to high level of visibility. Soon it will go viral through word-of-the-mouth marketing that will serve as booster to the company’s sales. Then, the idea of transformation is preferred to going into administration considering that the demand is still exceeding the supply of services due to unmet needs of customers in evolved economy (BBC, 2014). Even though these initiatives require huge upfront cost, yet ensures such long term benefits that fairly exceed the underlying expenses. Hence, the company can implement the recommended strategy based on rationalized principles.
5. Conclusion
List of References
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