Situation
The president of Ganong Bros. Ltd. (GBL), David Ganong, just left a meeting with the company’s board of directors. The board instructed him to develop a plan to restore GBL’s to profitability and increase the firm’s total revenue by 50 percent. GBL is a fourth-generation business that has remained private, which is very important to Ganong. Ganong needs to take the private family business in the confectionary industry and look at the many alternative options discussed to create a plan to fix sales problems and get GBL out of the red by developing a new $10,000,000 block of business. Ganong will report back to the board with his plan to move forward in six weeks and proceed to launch his action plan.
Objective
The main objective for Ganong is to create a plan to present to the board of directors in a 6-week period that would convince them that the plan would bring GBL out of the red. Ganong needs to create a plan that can create growth to the business lines that were driven by business models and products/services that were not currently apart of the core business or eliminate the failing business lines.
Analysis
After an analysis of both the PESTLE and Porter’s five forces, it is clear that there are some challenges GBL is faced with. It is also evident that there are many emerging opportunities for GBL to capitalize on.
A major concern for GBL is their ability to create growth within their current business line structure. GBL needs to go above and beyond what they are currently doing in terms of utilizing their core business lines in order to create profitability and get GBL out of the red.
External Analysis
As seen in Appendix 1 & 2, a PESTLE and Porters analysis was constructed to analyze the external nature of the business. After analysis of these external analyzation methods, it is clear that GBL faces some threats, but also has many opportunities.
The most critical area of concern was the social problems, such as the growing trend towards healthier products. GBL needs to address this concern by creating a product line that consists of dark and organic chocolate. Also, it was a concern that there is high competition among competitors. GBL needs to create a monopolistic company in order to control the Canadian market, especially in Atlantic Canada.
There are many opportunities to capitalize on. For example, although St. Stephen is located in a small town in New Brunswick, it is very close in proximity to the U.S. border, as seen in Exhibit 1 of the case study. The direct location of the U.S border leads to GBL having access to close transportation routes to the United States, which could lead to easier transportation efforts. Also, by operating in New Brunswick GBL has lower labor cost than other places in Canada.
Internal Analysis
Management Capacity:
The governance of the GBL consists of six external members and two-family members. GBL has a board of directors that act as an advisory board. The members of the board have a proven track record of successfully owning or leading their own firms, which allows for GBL to utilize their expertise and relate it to their own challenges. The Chief Executive Officer, David Ganong has a seat at the board, but has to report to the non-executive chairman who has a role in approving business plans, financial statements, pay to employees, and management plans.
The purpose of using the board is to allow for protection against Ganong making poor decisions. Since GBL is a family business, it is important to have a proper governance structure in order for bias family opinions to dictate the direction of the company because if the board does not agree with Ganong decisions they could just leave and affect the future of GBL’s ability to attract significant board members. GBL have chosen their board members on a basis of community involvement because it is a huge part of company values to be community orientated.
Organizational Values:
GBL has a strong organizational culture. GBL values family, which is evident through their fourth-generation business. GBL is also very committed to their employees and the St. Stephen community. A large reason on why they are still currently operating in St. Stephen is the jobs that GBL provides for the citizens.
The organization has a history of innovation practices, such as their creation of the chicken bone product. GBL also has tremendous local support in the community, which is a tremendous asset to have. GBL uses a seasonal product line approach to entice consumers to purchase their products. The use of their chocolate boxes is an example of using products directed towards a time of the year (Valentine’s Day), which has been very successful.
Financial Analysis:
The 1994 financial statements in Exhibit 4 of the case study show that their most profitable business line was the chocolate bars. The second most profitable business line was their packaged chocolates. GBL performed very poorly with their cellos and staples lines, which could potentially lead to elimination of those lines. Exhibit 5 of the case study shows that from 1992-1994 total liabilities and net worth decreased.
Competitive Analysis:
GBL could be faced with problems from competitor’s due to price wars, superior product quality, and new product lines. There are currently four large companies in the confectionary industry that remain competitive. The intensification among competitors can be a result from slow growth in the industry. There was a less of a return on sales in Canada compared to the USA market. GBL needs to constantly innovate their products and continue to use their seasonality method of products to attract and retain consumers.
Alternatives
There are many alternatives for Ganong to look at when looking to turn GBL into a profitable business with increased revenues of 50%. There are six options specifically looked at with many pros and cons.
Alternative 1: Alternative Financing Option
Choosing to pursue and alternative financing option will allow GBL to overcome their limited financial flexibility that they are currently under. The past two years of losses have put GBL in a position of having their finances tapped and by exploring alternative financing options they can push the business in the direction they need to go to be successful.
Pros:
1. Increased funds
a. This would allow for GBL to build the firm
2. Access to sales channels
a. Partnership with international chocolate firm could increase channels of sales and could potentially allow for international exposure
Cons:
1. Negative community impact
a. Could drive business out of St. Stephen based on minority partners request
b. Could result in loss jobs for St. Stephen’s citizens
c. Potential detrimental results for the town of St. Stephens
2. Loss of control potential
a. Minority partner could push St. Stephen in different direction
b. Minority partner may not be satisfied in roll
3. Issues personally
a. Ganong does not want to leave St. Stephen
Alternative 2: Utilization of Contract pacts
This alternative could allow GBL to build the business by focusing on contractual business lines. GBL would use the contract pacts to create a long-term agreement with firms in order for the supplying firm to obtain financing that is needed to purchase the specialized manufacturing equipment. This alternative would utilize a common practice in the auto-industry.
Pros:
1. Provides a long-term financing plan for GBL
2. Specialized manufacturing equipment
Cons:
1. This practice is very common in an industry that is not the confectionary industry, which might not provide the same results
2. GBL personnel might be unenthusiastic on accepting this method
Alternative 3: Becoming more proactive in the private label sector
This alternative could build off of the growing trend of private labels in Canada. This alternative would allow for more product lines, which includes budget, value, and premium products. This would provide GBL with an opportunity for amplified volume and less competition.
Pros:
1. Growing trend in Canada
2. Wider line of products
3. Ability to build relationships
4. Increase volume
Cons:
1. Decrease in margins
a. Retailers retained a greater portion of the margin for private labels
Alternative 4: Move location to Ontario
This alternative would allow for GBL to have factory closer to the majority of the Canadian population and a large portion of GBL’s market. A move to a more central location would potentially allow for an increase in the firm’s presence, which could lead to the increased sales that GBL is looking to obtain.
Pros:
1. Take advantage of the large market in Ontario
2. Become closer to the largest population in Canada
Cons:
1. Lost jobs for St. Stephen’s residents
2. Company was born in St. Stephens, GBL wants to stick to its roots
3. Could lose precious time needed to get GBL out of the red
4. Could just build a new plant in St. Stephens, which would be fixed costs.
Alternative 5: Share the ownership of GBL
This alternative would consist of GBL sharing the ownership of confectionary assets that in had in common with two other firms. The two of the firms and GBL would consolidate their candy production and form an independent company that all three companies would have a stake in.
Pros:
1. Utilize the strengths of the other two firms
2. Still able to produce chocolate under the GBL name
Cons:
1. Decrease in control
2. Effect on current labor force
a. Could lead to loss of jobs St. Stephen citizens
3. Confusion of product combinations
Alternative 6: Eradicate losses from product lines
GBL should look at their current product lines and either eliminate the products completely or reduce their output based on their contribution to the sales. As seen in Exhibit 4 of the case, GBL is currently witnessing sales on multiple business lines. An elimination of products operating the lowest in terms of contribution, could lead to an increase in focus on the business lines that are driving the most success.
Pros:
1. Increased focus
2. Increase in production of most impactful business lines
3. A decrease in lower end product lines could increase sales and get out of red quicker
Cons:
1. Could push consumers away that enjoy the eliminated product lines
2. Could lead to a decrease in personnel, which could anger some employees
Strategy Competitive Strength Assessment:
The alternatives that GBL is currently looking at will be analyzed based on using a competitive strength assessment. The criteria to be met falls under the alternatives ability to meet criteria based on: organizational values, profitability, organizational capacity, and time efficiency. A balanced scorecard has been created to compare all alternatives and how they rank compared to others. The balanced scorecard can be seen in appendix 3.
Recommendations
I would recommend that GBL uses a combination of both alternative 3 and 6. By utilizing the private label business, GBL could negotiate contracts with a third-party firm to create product lines that result in long-term contracts with that firm. These long-term contracts could result in GBL to now have the ability to approach banks for financing that is currently being restricted because of their covenant with the bank where all of GBL’s assets are secured. Even though private labels tend to tend to gain a greater portion of the margins in this situation, the potential of securing long term contracts with third-party firms can have huge benefits for GBL. Through the use of private labelling, GBL will have the potential to achieve a 50% growth plan.
By utilizing alternative 6, GBL can create a situation that allows for an increased focus on their more profitable business lines. GBL can eliminate and lessen their lower product lines in order to focus more on the business lines that generate more sales. By having the ability to produce more volumes of these business lines, GBL can increase sales and get GBL out of the red. GBL currently has 400 products in seven different product lines, which has several product lines that are performing poorly. GBL performs very well with their boxed chocolates, but do not perform as well in the staples and cello markets. If GBL eliminates those business lines and focus on their more profitable lines, they have the potential to increase profits,
By performing these alternatives, GBL has the opportunity to satisfy the board’s request of getting GBL out of the red and increase the firm’s revenue by 50%, while still sticking to the company values that have been passed on to four different generations and consisted of remaining a private family firm in order to remain committed to their employees and community.
Based on the analyzation of the balanced scorecard in Appendix the new alternatives chosen were rated highly based on their profitability potential and their committed to sticking with organizational values of staying a privately ran family business in St. Stephen. All the options had the potential of being profitable, but only these two alternatives both had profitability potential with the highest rating for remaining consistent with organizational values.
Action Plan
GBL should begin with becoming more indulged in the private label sector. Due to its experience already, GBL should further their involvement in the sector to partner with a third-party firm to establish a long-term contract. The finances can then be used to approach banks in order to receiving financing to purchase the new equipment needed in the factory. GBL should then focus on cutting the lower profitable business lines, such as: cellos and staples, which had their lowest sales as seen in Exhibit 4 of the case study. By eliminating these business lines GBL can focus their efforts on the chocolate and soft pan candy, which is very profitable for them and will aid in their efforts to get out of the red.