waterford wdgwood plc 2008 case analysis -anna may del campo
DESCRIPTION
TRANSCRIPT
Anna May del CampoMBA-APEX, Strategic Management
February 25, 2012
Waterford Wedgwood PLC – 2008 Case Analysis
Introduction
Mission/Vision
Internal Assessment
Business Organization
Financial Ratio Analysis
Marketing Strategy
Map of Operations
IFE Matrix
External Assessment
CPM
EFE Matrix
Strategy Formulation
SWOT Matrix
SPACE Matrix
Grand Strategy Matrix
QSPM
Recommendations
Strategy Implementation
Conclusion
Order of Presentation
13th Centur
y
Evidence of glassmaking has been found by archeologists in Ireland
1783 Waterford Crystal was founded (over 225 years ago) on the quays of the Irish port of Waterford by two prominent developers and businessmen, brothers William and George Penrose
1851 However, the company ceased operating after falling on hard times.
1947 Following World War II, glassmaking once again commenced in Waterford
1967 Waterford became a listed company on the London Stock Exchange
1986 Waterford acquires Josiah Wedgwood and Sons, forming Waterford Wedgwood plc.Contains divisions producing products ranging from the traditional crystal to linens and home wares as well as writing instruments and ceramic flat wares
HISTORY
BACKGROUND Over the past two centuries, Waterford Crystal has
grown to be one of the world’s best known and valued crystal brands. In addition to gracing the tables of royalty, fine establishments, and families, Waterford crystal adorns the New York’s Eve Ball in Times Square, trophies for championships in almost every major sport, and the chandeliers in the Kennedy Center, Windsor Castle, and Westminster Abbey.
The beauty and refinement of the Waterford crystal reflect the creativity and skill of its artisans and craftsmen. The designs reveal a uniquely Irish influence coupled with the finest in modern design. Waterford pieces become family heirlooms cherished for generations and in style for lifetimes.
Waterford has recently diversified into other areas of household luxury products and entered into a number of collaborative and cooperative relationships with famous designers as well as internationally known chefs.
However, the company’s net income for 2007 was negative 270.8 million Euros, preceded by negative 183.9 million Euros in 2006.
Vision Mission To continue to be the
world’s leading portfolio of luxury lifestyle brands with particular emphasis on tabletop, gifting, and the home.
No vision statement
Mission Statement Evaluation
Customers P&S Markets Tech-nology
Survival, Growth
Profitability
Philosophy Self -concept
Concern for Public
image
Concern for
EmployeesNo Yes No No Yes No No No No
Proposed Vision Statement
Create the finest quality crystal and objects of beauty for the home which represents luxury, elegance, and hard work.
Proposed Mission Statement We offer our customers lavishness, innovation, and high-quality, of the world’s greatest crystals and ceramics, and developing a style that is able to transcend global fashion boundaries to bring beauty into the lives of our customers.
Business Organization
a. Waterford Crystalb. Marquis by Waterfordc. Stuart Crystald. Cash’s Mail Order
Waterford Crystal27%
Ceramics Group68%
W-C Designs and Spring
5%
2007 Revenues
Distribution of Revenues for the fiscal year ending March 2007 per operating group
a. W-C Designsb. Spring
a. Wedgwood b. Rosenthal
c. Royal Doulton
d. Hutchenreuther
e. Coalportf. Mason’sg. Johnson Brothersh. Royal Alberti. Minton
1
2
3
Financial Ratio AnalysisFINANCIAL RATIO 2007 2006 2005 2004
Liquidity RatiosCurrent Ratio 2.19 2.01 1.86 2.42Quick Ratio 0.77 0.77 0.67 0.89Leverage RatiosDebt-to-Total-Assets Ratio 1.16 1.25 1.17 0.98Debt-to-Equity Ratio -7.19 -5.07 -6.96 56.36
Activity RatiosInventory Turnover 2.97 3.31 3.15Fixed Assets Turnover 4.80 4.44 3.27Total Assets Turnover 1.11 1.13 1.00Profitability RatiosGross Profit Margin 0.48 0.41 0.40Net Profit Margin -0.10 -0.24 -0.22Return on Total Assets -0.11 -0.28 -0.22
Return on Stockholders’ Equity (ROE) 0.66 1.13 1.29
Growth RatiosSales -4.03% 10.42%Net Income -62.31% 24.85%
The drastic decline of debt-to-equity ratio was caused by the negative value of the total equity starting year 2005 to 2007
In a state of balance sheet insolvency
The net profit margin and ROA were negative because of the negative net income of the company. ROE may be positive, but both of its indicators were negative (net income and stockholders’ equity)
There was a 4 percent decrease in sales from 2006 to 2007, while a 10% increase from 2005 to 2006. Growth in net income/loss - a decrease in the negative income was observed in 2007 which was from negative 188.9M Euros to 71.2M Euros. In 2006, an increase in negative loss was seen from 151.3M Euros to 188.9M Euros
Fiscal year ended March 31
2006 2007 (euro in millions)
Revenue by segment: Waterford Crystal 206.5 199.4 Ceramics Group 527.8 501.5 W-C Designs and Spring 38.3 40.6 772.6 741.5 Expenses by segment: Waterford Crystal 224.6 188.2 Ceramics Group 626.9 520.6 W-C Designs and Spring 39.3 41.8 Unallocated costs 12.6 8.0 903.4 758.6 Operating profit/loss by segment:
Waterford Crystal (18.1) 11.2 Ceramics Group (99.1) (19.1) W-C Designs and Spring (1.0) (1.2) Unallocated costs (12.6) (8.0) (130.8) (17.1)
Financial Data by Segment
Marketing Strategy
Promotion The Group’s various brands are generally
not marketed together as complementary products. But each brand is marketed individually.
Department store displays, word of mouth, and the websites are the primary marketing tools utilized by the company.
Involved with the creation of trophies for major sporting events and with special projects such as the Times Square New Year’s Eve Ball.
Introduces special pieces to commemorate special events.
Marketing Strategy
Distribution Channels
Waterford Wedgwood distributes its products through a multi-channel distribution network:
(including wholesalers and arrangements with retail and department chains),
direct retail from company-owned establishments (including the Waterford Crystal Gallery at the Waterford, Ireland factory),
mail order, and
via regional internet retail websites.
North America
41%
Europe (except
UK)26%
United Kingdom
17%
Asia10%
Rest of the World
6%
2007 Revenues
Map of Operations
41%
26%17%
10%
6%
KEY INTERNAL FACTORS Weight Rating Wtd Score
STRENGTHS 1 Standard production procedures, high quality products being
offered 0.06 4 0.24
2 Hand-made, unique crystal pieces based on artisan processed production by trained craftsmen 0.03 3 0.09
3 Code of corporate conduct reflects the company's concern for investors, directors, and employees. Thus, fits into the criteria for being socially responsible and has made this info available to public and has established good public relations
0.03 3 0.09
4 Introduction of additional product lines to follow trends while maintaining quality and tradition 0.06 3 0.18
5 Collaborative and cooperative relationships with famous designers and internationally known chefs 0.04 3 0.12
6 Public’s ongoing positive perception of the Waterford Wedgwood brands 0.07 4 0.28
7 Has the goodwill of Waterford that has beenin the market for 225 years 0.01 4 0.04
IFE Matrix
KEY INTERNAL FACTORS Weight Rating Wtd Score
WEAKNESSES 1 Increasing trend in the negative net income from 2006 to 2007 (negative 270.8 million
euro net income for 2007) 0.1 1 0.1
2 Declining revenue from 772.6 million euro to 741.5 million euro; Struggled in maintaining sales which have declined every year since 2000 0.09 1 0.09
3 In a state of balance sheet insolvency. A deficit in their equity account due to defined benefit pension schemes in long-term liabilities 0.08 1 0.08
4 No vision statement 0.02 2 0.045 No special efforts made on advertising, in order to reinforce the image of their products
they will be needing a new advertising strategy 0.04 2 0.08
6 Significant problems with debt management 0.06 1 0.067 Centralized production for each of its products results in significant transportation costs,
given dispersion of sales around the world 0.05 2 0.1
8 Products are considered as heirloom that gives a brand perception of being old or associated with prior generations, reducing sales 0.01 2 0.02
9 Multichannel distribution network including wholesalers and arrangements with select retail and department chains 0.06 1 0.06
10 Diversified into other areas of household luxury products such as linens, flatware, cookware 0.08 1 0.08
11 Various brands are not marketed together as complementary products but being marketed individually 0.07 1 0.07
12 High labor costs which is much related to hand-crafting 0.04 1 0.04 TOTAL 1.00 1.86
IFE Matrix continuation
Competition
A division of Corning Incorporated based in Corning, New York.
Offers a full line of luxury glass products including barware, stemware, vases, and decorative pieces.
Distributes its products through its website and specialty retailers.
Sales was approximately $400 million.
A French crystal company based in Levallois Perret, France.
Offers a wide-range of luxury glass items (jewelry, tableware, stemware, lighting, and decorative crystal)
Distributes its products through high-end retailers throughout the world.
Had sales of $187 million in 2006 and net income of $10.9 million.
CPM Matrix
CRITICAL SUCCESS FACTORS Weight
WATERFORD WEDGWOOD,
PLCSTEUBEN BACCARAT
Rating Score Rating Score Rating Score
1 Product Quality 0.1 4 0.4 3 0.3 3 0.32 Financial Position 0.25 1 0.25 3 0.75 3 0.753 Global Expansion 0.05 3 0.15 3 0.15 3 0.154 Market Share 0.2 4 0.8 3 0.6 2 0.45
Effectiveness of Sales Distribution & Advertising
0.15 1 0.15 4 0.6 4 0.6
6Production Capacity and Efficiency
0.2 2 0.4 3 0.6 3 0.6
7 Technological Advantage and E-Commerse Expertise
0.05 4 0.2 4 0.2 4 0.2
TOTAL 1.00 2.35 3.20 3.00
The company’s total weighted score in the CPM is 2.35 which is not exactly satisfactory considering the high scores of Steuben and Baccarat.
EFE Matrix
KEY EXTERNAL FACTORS Weight Rating Weighted Score
OPPORTUNITIES
1Outsourcing of production to countries with lower labor costs (Europe and Asia)
0.1 2 0.2
2Opportunity exists for growth in the Asian region (especially among brand-conscious Japanese)
0.09 3 0.27
3Opportunity to innovate and expand product line to cater to highly segmented markets
0.05 3 0.15
4Collaborative branding agreements to increase product lines as well as possible increase in distribution channels
0.04 4 0.16
5 Presence of specialty markets and high-end retailers 0.04 3 0.12
EFE MatrixKEY EXTERNAL FACTORS Weight Rating Weighted
ScoreTHREATS
1 The dispersion of sales causes the company to be very sensitive to exchange rates and other economic fluctuations in each of its markets
0.35 1 0.35
2 Existing competitors have very efficient marketing and product distribution 0.1 1 0.1
3 Presence of large competitors that also provide a full line of luxury glass products 0.1 3 0.3
4 Competitors are offering a unique mix of products like inclusion of fashion accessories, jewelries, lighting, etc. with contemporary designs
0.07 3 0.21
5 Potential threat for competition from new manufacturers in lower-cost countries in eastern Europe and Asian countries
0.09 1 0.09
6 Competitors from Asia have the advantage of lower labor costs, less stringent regulation, and a more limited view of intellectual property
0.07 1 0.07
TOTAL 1.00 1.82
SWOT Matrix
SO Strategies WO Strategies
Focus on core products which are crystal and ceramics and be less diversified. Stop acquiring companies with products that do not fit with the rest of the organization – have different markets, customers, workforce, values, needs
Integrated Marketing. Brands should be marketed together as complementary products not being marketed individually
Extensive cost reduction to prevent further increase in net loss which contributed to the increase in a deficit in equity account
Efficiency in product distribution. Multi-channel distribution network is costly. Focus to 2-3 channels only such as internet, wholesaler/ department chains, and through specialty markets. Stop distribution through retail establishments.
Transfer outsourced production nearer to headquarters to reduce lead time, lower transportation costs, and improve efficiency. Ceramics and W-C Designs/Spring production in Indonesia is already very far considering the low market share in Asia. Move somewhere to North Western Asia or Europe.
ST Strategies WT Strategies
Regroup through cost and asset reduction to reverse declining sales and profits. Close marginal divisions, prune product lines, automate processes, and institute expense control systems among others.
Regroup through cost and asset reduction to reverse declining sales and profits. The organization is plagued by inefficiency and negative profitability, that major internal reorganization is needed. It failed to meet its goals and objectives over time despite its competitive advantage. It is time to close marginal divisions, prune product lines, automate processes, and institute expense control systems among others.
Divest unprofitable brands especially those that require too much capital and do not fit well with company’s core business (crystal and ceramics).
Negotiate for loan restructuring.
SPACE Matrix INTERNAL STRATEGIC POSITION EXTERNAL STRATEGIC POSITION
Competitive Advantage Industry Strength(-6 worst, -1 best) (1 worst, 6 best)
a. Market Share -3 a. Growth Potential 2b. Product Quality -1 b. Profit Potential 1c. Latest Technology -3 c. Financial Stability 1d. Brand Recognition -2 d. Resource Utilization 2e. Distribution Channels -4 e. Ease of Entry into Market 3f. CSR Programs -2 f. Productivity, Capacity Utilization 3Average Score -2.5 Average Score 2Total X axis score -0.5
Financial Strengths Environmental Stability(1 worst, 6 best) (-6 worst, -1 best)
a. ROI 1 a. Technological Changes -2b. Leverage 1 b. Rate of Inflation -4c. Liquidity 5 c. Demand Variability -1d. Working Capital 2 d. Price Range of Competing Products -3e. Cashflows 1 e. Competitive Pressure -3f. Inventory Turnover 2 f. Price Elasticity of Demand -3g. Growth Ratio 1 Average Score 1.857143 Average Score -2.66667
Total Y axis score -0.80952 Position: -0.5, -0.8
SPACE Matrix
The directional vector is located in the lower-left or defensive quadrant, which suggests that Waterford Wedgwood PLC should focus on rectifying internal weaknesses and avoiding external threats. Defensive strategies include:
Retrenchment
Divestiture
Liquidation
Related diversification
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
-1.0 -0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
-0.1
-0.2
-0.3
-0.4
-0.5
-0.6
-0.7
-0.8
-0.9
-1.0
Conservative Aggressive
Defensive Competitive
Grand Strategy Matrix
RAPID MARKET GROWTH
WEAK COMPETITIVE
POSITIONII I
STRONG COMPETITIVE
POSITION
III
Waterford Wedgwood PLC
IV
SLOW MARKET GROWTH
Organizations under this situation compete in slow-growth industries and have weak competitive positions.
The company must make some drastic changes quickly to avoid further decline and possible liquidation. Extensive cost and asset reduction or retrenchment should be pursued first.
It should also consider divesting unprofitable divisions/brands.
QSPM
KEY FACTORS Wt. Retrenchment Divestiture
AS TAS AS TASOPPORTUNITIES
1 Outsourcing of production to countries with lower labor costs (Europe and Asia) 0.1 3 0.3 3 0.3
2 Opportunity exists for growth in the Asian region (especially among brand-conscious Japanese) 0.09 1 0.09 1 0.09
3 Opportunity to innovate and expand product line to cater to highly segmented markets 0.05 1 0.05 1 0.05
4 Collaborative branding agreements to increase product lines as well as possible increase in distribution channels
0.04 -
-
-
-
5Presence of specialty markets and high-end retailers
0.04 -
-
-
-
QSPMKEY FACTORS Wt. Retrenchment Divestiture
AS TAS AS TASTHREATS
1 The dispersion of sales causes the company to be very sensitive to exchange rates and other economic fluctuations in each of its markets
0.35 4 1.4 3 1.05
2 Existing competitors have very efficient marketing and product distribution 0.1 2 0.2 2 0.2
3 Presence of large competitors that also provide a full line of luxury glass products 0.1 2 0.2 1 0.1
4 Competitors are offering a unique mix of products like inclusion of fashion accessories, jewelries, lighting, etc. with contemporary designs
0.07 2 0.14 1 0.07
5 Potential threat for competition from new manufacturers in lower-cost countries in eastern Europe and Asian countries
0.09 3 0.27 2 0.18
6 Competitors from Asia have the advantage of lower labor costs, less stringent regulation, and a more limited view of intellectual property
0.07 3 0.21 3 0.21
1.00
QSPMKEY FACTORS Wt. Retrenchment Divestiture
AS TAS AS TASSTRENGTHS
1Standard production procedures, high quality products being offered
0.06 -
-
-
-
2 Hand-made, unique crystal pieces based on artisan processed production by trained craftsmen
0.03 2 0.06 2 0.06
3 Code of corporate conduct reflects the company's concern for investors, directors, and employees. Thus, fits into the criteria for being socially responsible and has made this info available to public and has established good public relations
0.03 1 0.03 2 0.06
4 Introduction of additional product lines to follow trends while maintaining quality and tradition 0.06 1 0.06 1 0.06
5Collaborative and cooperative relationships with famous designers and internationally known chefs
0.04 -
-
-
-
6Public’s ongoing positive perception of the Waterford Wedgwood brands
0.07 -
-
-
-
7Has the goodwill of Waterford that has beenin the market for 225 years
0.01 -
-
-
-
KEY FACTORS Wt.Retrenchment DivestitureAS TAS AS TAS
WEAKNESSES 1 Increasing trend in the negative net income from 2006 to 2007 (negative 270.8
million euro net income for 2007) 0.1 4 0.4 4 0.4
2 Declining revenue from 772.6 million euro to 741.5 million euro; Struggled in maintaining sales which have declined every year since 2000 0.09 4 0.36 4 0.36
3 In a state of balance sheet insolvency. A deficit in their equity account due to defined benefit pension schemes in long-term liabilities 0.08 4 0.32 4 0.32
4
No vision statement0.02
-
-
-
-
5No special efforts made on advertising, in order to reinforce the image of their products they will be needing a new advertising strategy
0.04
-
-
-
-
6 Significant problems with debt management 0.06 4 0.24 4 0.247 Centralized production for each of its products results in significant transportation
costs, given dispersion of sales around the world 0.05 3 0.15 4 0.2
8Products are considered as heirloom that gives a brand perception of being old or associated with prior generations, reducing sales
0.01
-
-
-
-
9 Multichannel distribution network including wholesalers and arrangements with select retail and department chains 0.06 3 0.18 4 0.24
10 Diversified into other areas of household luxury products such as linens, flatware, cookware 0.08 3 0.24 4 0.32
11Various brands are not marketed together as complementary products but being marketed individually
0.07
-
-
-
-
12
High labor costs which is much related to hand-crafting0.04
-
-
-
-
TOTAL 1.00 4.9 4.51
Recommendations
1. The first thing that Waterford Wedgwood has to do is to extensive cost reduction program in order to stabilize its financial situation: prevent further increase in net loss which contributed to the increase in a deficit in equity account
2. Pursue retrenchment or regrouping through cost and asset reduction to reverse declining sales and profits. Transfer outsourced production nearer to headquarters to reduce lead time, lower transportation costs, and improve efficiency. Ceramics and W-C Designs/Spring production in Indonesia is already very far considering the low market share in Asia. Move somewhere to North Western Asia or Europe.
3. Integrate Marketing. Brands should be marketed together as complementary products not being marketed individually.
Recommendations
4. Make product distribution efficient. Multi-channel distribution network is costly. Focus to 2-3 channels only such as internet, wholesaler/ department chains, and through specialty markets. Stop distribution through retail establishments.
5. Focus on core products which are crystal and ceramics and be less diversified. Stop acquiring companies with products that do not fit with the rest of the organization – have different markets, customers, workforce, values, needs
6. Divest unprofitable brands especially those that require too much capital and do not fit well with company’s core business (crystal and ceramics).
7. Negotiate for loan restructuring.
Recommended scope of operation
Implementation Plan
STRATEGIES ACTIVITIES YR 1 YR 2 YR 31. Have debts
restructuredNegotiate for loan restructuring
2. Retrenchment Transfer outsourced production nearer to headquarters to reduce lead time, lower transportation costs, and improve efficiency. Ceramics and W-C Designs/Spring production in Indonesia is already very far considering the low market share in Asia. Move somewhere to North Western Asia or Europe.
Pursue major internal reorganization – close unprofitable divisions/brands and prune product lines, automate processes, and institute expense control systems among others
3. Make product distribution efficient
Multi-channel distribution network is costly. Focus to 2-3 channels only such as internet, wholesaler/ department chains, and through specialty markets. Stop distribution through retail establishments.
4. Integrated Marketing
Brands should be marketed together as complementary products not being marketed individually
5. Focus on core products (crystal and ceramics) and be less diversified
Stop acquiring companies with products that do not fit with the rest of the organization – have different markets, customers, workforce, values, needs
5. Divestiture Divest unprofitable brands especially those that require too much capital and do not fit well with company’s core business (crystal and ceramics)
Conclusion Waterford Wedgwood PLC has grown so large through a
number of company acquisitions and mergers.
Unfortunately, strategic managers of the company have failed to capitalize on external opportunities, minimize external threats, take advantage of internal strengths, and overcome internal weaknesses overtime.
Thus, the organization is now afflicted with inefficiencies resulting to negative profitability, deficit in equity account, and declining sales.
It failed to meet its goals and objectives over time despite of its competitive advantage. Thus, major internal reorganization must be implemented.
It is time to close unprofitable divisions/brands and prune product lines, automate processes, and institute expense control systems among others.
Conclusion
The recommended strategies based on the facts of the case are very different from the company’s plan for the future which includes:
Attempt to more effectively mange labor costs, as well as continue to introduce new and contemporary product lines to complement its existing offerings.
Continue to introduce additional product lines to follow trends while maintaining quality and tradition.
Increase the number of distribution channels through which their products are sold.
Expand into additional markets (like Asia).
Conclusion
Further, based on the 2007 financial report, only the group of Waterford Crystal (27% of revenue) had positive net income. The ceramics group which has the biggest operation together with D-C Designs & Spring were responsible for the organization’s poor performance.
The company had too much diversification and expansion of line items which are misfit with its core business like linens and cookware.
The company has to refocus to its core products and consider divesting divisions which require more resources to be competitive than the company can provide.
Furthermore, the company has to work on a more efficient product distribution to provide better service at a lower cost and integrated marketing.
Thank you.