In 1989, the Kwakumey Group was the largest family-run pottery business in Ghana. It was run by the three Kwaku brothers, Michael, Stephen and Andrew, who can trace the origins of the company back to a pottery opened by their grandfather in 1926. The business, employing 500 people, was split into three divisions: a hotel ware division; a small factory making mugs; and a modern factory making mass-market tableware for the home.
The hotel ware division was extremely profitable, but the mass-market tableware division faced major problems. The brothers looked for a return of at least 10% on sales, but for the previous ten years it had never achieved more than 7%, and this had sunk to 2% in 1989. The factory was regarded as modern and efficient, capable of taking on the low-cost producers of the Nigeria and South Africa when conditions were right - the trouble was that conditions had not been right for a couple of years. The factory was making 600,000 pieces of crockery a week, but unless the kiln was kept full costs started to spiral. Labour costs also amounted to 40% of total costs.
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The brothers had strengthened the senior and middle management teams over the past two years, most notably employing Bernard Fori as marketing director and Eddie Blay as manufacturing director.
Faced with these problems, the brothers could not decide on the way ahead. Should they cut costs and go for volume at the lower end of the market, or should they build on the proposed introduction of a medium-priced range, "Porter", where the emphasis was on increased margins?
After visiting the factory and talking to key managers and individually to the brothers, John Jones presented his findings to Michael, Stephen and Andrew. In his book, Troubleshooter, he describes the meeting:
"I agree with them that the principal problem facing the business as a whole is the tableware factory, where the set-up forces them into a position of having to supply the low-margin, high-volume end of the market. That being the case, they must make the factory as efficient as possible. They are very proud of this factory, so they are obviously surprised when I tell them I am convinced that costs could be squeezed by another â‚µ1 million a year, by mechanizing around 100 unskilled jobs with the introduction of more robots."
"But this on its own is not going to be enough to save the factory and give it a future well into the next century. The continual battle on production costs must be coupled with a move up-market."
"I explain that it was only during the course of my day at the factory that I had fully understood the problems of moving up-market, and the limitations of the present set-up. There is the disadvantage of only being able to offer two-colour designs, when any effective move up-market will require designs in at least four colours. And there is the size of the design budget. I am shocked to find that a company with sales of more than â‚µ20 million was spending only â‚µ5,000 a year on buying in new design; I agree with Kwakumey designers that this needs to be substantially increased."
"I don't think that Kwakumey is capable of putting into effect this dual policy of cutting costs and going up-market unless a lot of money is invested in their tableware factory. The three brothers have followed a conservative investment policy which has kept the balance sheet clear of debt. I think the time has now come to depart from this policy."
"The figure I mention is â‚µ1.5 million, which is the amount I want to see invested in the tableware factory. The â‚µ1 million which should be spent on mechanization will pay for itself within the year. The real gamble is the â‚µ500,000 they ought to be spending on bringing in machines capable of producing four-colour designs. This will only pay for itself over a number of years, and only if Kwakumey move up-market achieves higher margins."
"But there isn't just the tableware factory. The brothers must balance the investment needs of all the businesses within the group. I don't think the tableware factory will survive without fresh investment, but is this throwing good money after bad, and would the company get a better return on its investment if it invested the money somewhere else?"
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"We start to talk about the brothers' roles as shareholders, directors and managers. Stephen would like to step back and distance himself from his purely managerial role. As we have already seen, the company has already spent the last two years strengthening its senior and middle management. I think Stephen is right: the brothers should now stop worrying about the bread-and-butter problems of management. The business is now large enough to need a very top layer of management which is concerned with the company's development and long-term strategy and who spend their time setting objectives and then driving everyone very hard to achieve them. I believe that this is the role that Michael, Stephen and Andrew should adopt."
"Michael and Andrew will find it difficult to let go, but unless they do, and they learn to give their senior managers responsibilities and targets which have a bearing on the success of the operation, their very able mangers will desert them out of sheer frustration. They must learn to ask their managers for solutions to problems, rather than coming up with their own and asking their managers simply to implement them. I suggest they start by asking Eddie Blay to provide a plan for reducing production costs in the factory by â‚µ500,000 a year, and Bernard Fori for a marketing plan aimed at producing a further â‚µ1 million of profit within the next two years."
ACHIEVING CHANGE AT KWAKUMEY
THE CHAIRMAN'S VIEW
Shortly after presenting his views to the brothers, John Jones met with Peter Sika, Kwakumey's non-executive chairman, a management consultant who spends one or two days a month on Kwakumey business. John Jones wants to understand how he can get the brothers to take on board his views for the future of the company. Again, he reports on this meeting in his book:
"We basically agree that for the next couple of years the hotel ware business is set fair. He is as concerned as I am about the tableware factory and shares my view that the profit return on sales must be improved, by a two-pronged attack: cutting production costs, and moving up-market and selling more expensive products. The brothers can subscribe to both of these aims, although they seem less convinced about the need for the former. What I find so difficult to understand is the lack of urgency and the lack of concrete plans for achieving these goals."
"They are problems on which Peter is able to shed some light. In the small enclosed world of the potteries the Kwakumey Group is seen as very successful, and Peter is rightly concerned that I shouldn't underestimate the three brothers' achievements. The industry traditionally views itself as highly labour-intensive. And at a time when most of the old crafts are dying out, it is surprising to learn that in the potteries it is the factories which have the largest craft element, and can therefore command the highest prices for their wares, which earn the best margins."
"Automation is not part of the deep-rooted culture of the potteries, so any remotely mechanized factory, such as Kwakumey's tableware operation, is seen as highly advanced. This certainly goes a long way towards explaining why the brothers and I have such divergent views on the potential for further mechanization in the tableware factory." "Peter thinks this also explains their apparent lack of ambition. They would obviously like to push Kwakumey onto greater heights, but they are also well satisfied with what they have achieved so far, so there is an element of resting on their laurels. As he says, it is difficult to tell people who have achieved so much that what they are now doing is not good enough and that they must push their business harder."
"It is a problem, but not an impossible one to solve. Because they have built their business in a certain way, they are trapped into a particular way of thinking. They need to be convinced that improving the profitability of the tableware factory is achievable and in a relatively short space of time. Then I think they might be able to run a tighter, more focused and more profit motivated operation."
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"Peter feels as I do, that the size of the company now dictates that the brothers should distance themselves from the daily tasks of management and take on the strategic role of making plans and setting objectives for their managers. He senses that this adjustment will be hard to make. He knows that part of his task is to persuade them to make it and that, if they don't, they risk losing some very capable managers."
"On my return to Kwakumey I was delighted to discover that the Kwaku brothers have pulled out of the very strong executive positions which they held when I first met them, and obviously this had been a difficult change for them. I was also delighted to discover that the brothers had just appointed Bernard Fori, who was Kwakumey's new marketing director when I first visited, as managing director of Kwakumay Tableware."
"â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦as Bernard Fori took me around the tableware factory, I saw a number of changes. They have invested in a new dust pressing unit and in three four-colour total transfer machines."
"â€¦â€¦â€¦â€¦â€¦â€¦Kwakumey Tableware now employs around 700 people in two factories, despite having automated large parts of the process. The success of Kwakumey's strategy to move their products up-market, contrary to my expectations, has led to the employment of more people because the further up-market the product, the more manual skills are required. It has also resulted in the purchase of a new factory."
"â€¦.they were producing five or six new designs a year, with a much wide range of colouring, as well as developing the technology they had used for the Mille Darko range."
"â€¦â€¦.I left my visit to the tableware factory full of enthusiasm: Kwakumey Tableware was really motoring, Bernard Fori was full of ideas, the design department had their tails well up and were producing new and attractive designs as a rate of knots, and the whole thing was flowing through into profit."
In the annual report of 1996, Stephen Kwaku, now Group Chief executive reported:
"Organic growth across the Group increased sales, profits, margins and earnings per share to record levels. Our drive into the middle market, led by a Group-wide design approach, continued to gain momentum during 1996."
"Group Turnover was up to â‚µ54.1 million, profits were â‚µ6.0 million and the Group employed 1,600 people in 1996."
QUESTIONS ON KWAKUMEY TABLEWARE CASE
YOU ARE REQUIRED TO SUPPORT YOUR ANSWER WITH APPROPRIATE LITERATURE. MARKS WILL BE AWARDED FOR CORRECT CITATIONS AND REFERENCING
Based on the case study what are the environmental analyses that the Kwakumay Tableware should undertake in order to make an uniformed choice.
Use the information in the case study to address the following questions.
What are the main features of the Strategy John Jones wishes the Kwaku Brothers to adopt for the tableware business.
Suggest how the brothers go about managing the process of strategic change within their company.
What are the underlying factors that seem to be inhibiting the change in strategy within Kwakumey
SECTION A: CASE STUDY - READ AND ANSWER THE CASE QUESTIONS
CASE STUDY - KWAME ATTA HAULAGE LIMITED
Mr. Kwaakye Appah is the Managing Director of Kwame Atta Haulage Limited, a small haulage contracting company, which he founded 10 years ago. Originally, Mr. Appah was a heavy goods vehicle driver himself, working for other contractors, but he had the intent of establishing his own business. Having received his pension, he acquired an articulator truck and began to work from home. Over time the business expanded and now Kwame Atta Haulage Limited operates a fleet of 15 heavy goods vehicles. Five of the current fleet of trucks was acquired in the last financial year, replacing older units which were becoming too expensive to maintain. The Company now employs 20 full-time and varying number of part-time driver mates. The part-time staff works as and when required.
Mr. Appah acquired a small plot of land six years ago and built a house on it, which he and his family occupy. In addition, he built a garage with facilities for minor servicing the repairs on the same site. Living on site has enabled him to offer a 24-hour service to clients. Consequently, movement of the trucks in and out of the site occurs at all times of day and night. There have been objections raised by the residents in the neighborhood to disturbance and the local FM Stations has at various times reflected this criticism.
In addition to haulage, Kwame Atta Haulage Limited obtained a license to establish a driving school. This has proved to be a successful diversification as there is a regular stream of customers. This training takes place mostly in Kwame Atta Haulage Limited own garage facilities. It became clear to Mr. Appah that the land on which the garage facility is built was inadequate for the needs of his growing business.
Acquisition on Land
One year ago, Mr. Appah entered negotiations to lease some land which would be more than satisfactorily for the company's operations. The land is situated on an industrial estate five kilometers from the existing facility. In addition, there is room to build a repair and maintenance facility which would be adequate for the needs of the fleet. Following agreement of a lease arrangement, which was concluded just before the completion of the last financial year, Kwame Atta Haulage Limited occupied the land on which were no building erected or utilities supplied. Since taking possession of the land, a large security fence has been erected and a small portable cabin placed on site.
Water, sewerage and electricity utility services have been supplied and negotiations are taking place for the installation of a large diesel tank adequate to service other vehicles besides those of Kwame Atta Haulage Limited.
The company faces strong competition for haulage contract work. Typically, haulage contractors operate on a low-margin basis and smaller companies often sub-contract from large-scale haulers. Kwame Atta Haulage Limited carries haulage for a variety of customers as well as undertaking some subcontracting. Much of the haulage work the company carries out is seasonal. One of its top clients, Nhyira Limited, recently appointed a new Transport Manager. The new Manager of Nhyira Limited has begun to employ other haulers besides Kwame Atta Haulage Limited. Over the last two months, the haulage work Kwame Atta Haulage Limited has received from Nhyira Limited has reduced by about a third.
NOTE: YOU ARE REQUIRED TO SUPPORT YOUR ANSWER WITH APPROPRIATE LITERATURE. MARKS WILL BE AWARDED FOR CORRECT CITATIONS AND REFERENCING
Assess the nature of competitive forces to which Kwame Atta Haulage Limited is subject
Present a SWOT Analysis Kwame Atta Haulage Limited
i. Explain the use which Kwame Atta Haulage Limited could make of
internal and external sources of information in establishing its
ii. Advise Mr. Appah on the strategic options open to his organization.
d) Recommend and justify a marketing strategy for Kwame Atta Haulage Limited which emerges from an analysis of its marketing mix.