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Waterford wdgwood plc   2008 case analysis -anna may del campo Waterford wdgwood plc 2008 case analysis -anna may del campo Presentation Transcript

  • Waterford Wedgwood PLC – 2008 Case Analysis Anna May del Campo MBA-APEX, Strategic Management February 25, 2012
  •  Introduction  Strategy Formulation Mission/Vision  SWOT Matrix Internal Assessment  SPACE Matrix  Business Organization  Grand Strategy Matrix  Financial Ratio Analysis  QSPM  Marketing Strategy  Recommendations  Map of Operations  Strategy Implementation  IFE Matrix  Conclusion External Assessment  CPM  EFE Matrix
  • 13th Evidence of glassmaking has been found by Century 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 waresHISTORY
  • BACKGROUND
  • Vision Mission To continue to be the world’s leading portfolio No vision statement of luxury lifestyle brands with particular emphasis on tabletop, gifting, and the home. Mission Statement EvaluationCustomers P&S Markets Tech- Survival, Philosophy Self - Concern Concern nology Growth concept for Public for Profitability image Employees No Yes No No Yes No No No No
  • Proposed Vision StatementCreate the finest quality crystal and objects of beauty for the home whichrepresents luxury, elegance, and hard work. Proposed Mission Statement We offer our customers lavishness, innovation, and high-quality, of theworld’s greatest crystals and ceramics, and developing a style that is ableto transcend global fashion boundaries to bring beauty into the lives ofour customers.
  • Business Organization Distribution of Revenues for the fiscal year ending March 2007 per operating group 1 2007 Revenues Ceramicsa. Waterford Crystal Group 68%b. Marquis by Waterfordc. Stuart Crystal Waterfordd. Cash’s Mail Order Crystal 27% W-C Designs and Spring 5% 2a. Wedgwoodb. Rosenthalc.d. Royal Doulton Hutchenreuther 3e. Coalport a. W-C Designsf. Mason’s b. Springg. Johnson Brothersh. Royal Alberti. Minton
  • Financial Ratio Analysis FINANCIAL RATIO 2007 2006 2005 2004Liquidity 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 56.36Activity 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 -0.22Return on Stockholders’ Equity (ROE) 0.66 1.13 1.29Growth RatiosSales -4.03% 10.42%Net Income -62.31% 24.85%
  • In a state of balance sheetinsolvencyThe drastic decline of debt-to-equity ratio was caused by thenegative value of the total equitystarting year 2005 to 2007
  • 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 salesfrom 2006 to 2007, while a 10% increasefrom 2005 to 2006.Growth in net income/loss - a decrease inthe negative income was observed in2007 which was from negative 188.9MEuros to 71.2M Euros. In 2006, anincrease in negative loss was seen from151.3M Euros to 188.9M Euros
  • Financial Data by Segment 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)
  • 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 StrategyDistribution ChannelsWaterford Wedgwood distributesits products through a multi-channel distribution network:  (including wholesalers and arrangements with retail and department chains),  direct retail from company-owned establishments (including the 2007 Revenues Waterford Crystal Gallery at the Europe United Waterford, Ireland factory), (except UK) Kingdom 26% 17%  mail order, and  via regional internet retail websites. Asia 10% North America Rest of the 41% World 6%
  • Map of Operations 17% 26%41% 10% 6%
  • IFE Matrix KEY INTERNAL FACTORS Weight Rating Wtd Score STRENGTHS1 Standard production procedures, high quality products being 0.06 4 0.24 offered2 Hand-made, unique crystal pieces based on artisan processed 0.03 3 0.09 production by trained craftsmen3 Code of corporate conduct reflects the companys concern for investors, directors, and employees. Thus, fits into the criteria 0.03 3 0.09 for being socially responsible and has made this info available to public and has established good public relations4 Introduction of additional product lines to follow trends while 0.06 3 0.18 maintaining quality and tradition5 Collaborative and cooperative relationships with famous 0.04 3 0.12 designers and internationally known chefs6 Public’s ongoing positive perception of the Waterford 0.07 4 0.28 Wedgwood brands7 Has the goodwill of Waterford that has beenin the market for 0.01 4 0.04 225 years
  • IFE Matrix continuation Wtd KEY INTERNAL FACTORS Weight Rating Score WEAKNESSES 1 Increasing trend in the negative net income from 2006 to 2007 (negative 270.8 million 0.1 1 0.1 euro net income for 2007) 2 Declining revenue from 772.6 million euro to 741.5 million euro; Struggled in maintaining 0.09 1 0.09 sales which have declined every year since 2000 3 In a state of balance sheet insolvency. A deficit in their equity account due to defined 0.08 1 0.08 benefit pension schemes in long-term liabilities 4 No vision statement 0.02 2 0.04 5 No special efforts made on advertising, in order to reinforce the image of their products 0.04 2 0.08 they will be needing a new advertising strategy 6 Significant problems with debt management 0.06 1 0.06 7 Centralized production for each of its products results in significant transportation costs, 0.05 2 0.1 given dispersion of sales around the world 8 Products are considered as heirloom that gives a brand perception of being old or 0.01 2 0.02 associated with prior generations, reducing sales 9 Multichannel distribution network including wholesalers and arrangements with select 0.06 1 0.06 retail and department chains10 Diversified into other areas of household luxury products such as linens, flatware, 0.08 1 0.08 cookware11 Various brands are not marketed together as complementary products but being 0.07 1 0.07 marketed individually12 High labor costs which is much related to hand-crafting 0.04 1 0.04 TOTAL 1.00 1.86
  • Competition A division of Corning Incorporated  A French crystal company based in based in Corning, New York. Levallois Perret, France. Offers a full line of luxury glass  Offers a wide-range of luxury glass products including barware, stemware, items vases, and decorative pieces. (jewelry, tableware, stemware, lightin g, and decorative crystal) Distributes its products through its website and specialty retailers.  Distributes its products through high- end retailers throughout the world. Sales was approximately $400 million.  Had sales of $187 million in 2006 and net income of $10.9 million.
  • CPM Matrix WATERFORD WEDGWOOD, STEUBEN BACCARAT CRITICAL SUCCESS FACTORS Weight PLC Rating Score Rating Score Rating Score 1 Product Quality 0.1 4 0.4 3 0.3 3 0.3 2 Financial Position 0.25 1 0.25 3 0.75 3 0.75 3 Global Expansion 0.05 3 0.15 3 0.15 3 0.15 4 Market Share 0.2 4 0.8 3 0.6 2 0.4 5 Effectiveness of Sales 0.15 1 0.15 4 0.6 4 0.6 Distribution & Advertising 6 Production Capacity and 0.2 2 0.4 3 0.6 3 0.6 Efficiency 7 Technological Advantage and 0.05 4 0.2 4 0.2 4 0.2 E-Commerse Expertise TOTAL 1.00 2.35 3.20 3.00The company’s total weighted score in the CPM is 2.35 which is not exactlysatisfactory considering the high scores of Steuben and Baccarat.
  • EFE Matrix Weighted KEY EXTERNAL FACTORS Weight Rating Score OPPORTUNITIES1 Outsourcing of production to countries with lower labor 0.1 2 0.2 costs (Europe and Asia)2 Opportunity exists for growth in the Asian region 0.09 3 0.27 (especially among brand-conscious Japanese)3 Opportunity to innovate and expand product line to 0.05 3 0.15 cater to highly segmented markets4 Collaborative branding agreements to increase product lines as well as possible increase in distribution 0.04 4 0.16 channels5 Presence of specialty markets and high-end retailers 0.04 3 0.12
  • EFE Matrix Weighted KEY EXTERNAL FACTORS Weight Rating Score THREATS1 The dispersion of sales causes the company to be very sensitive to exchange rates and other economic 0.35 1 0.35 fluctuations in each of its markets2 Existing competitors have very efficient marketing and 0.1 1 0.1 product distribution3 Presence of large competitors that also provide a full line 0.1 3 0.3 of luxury glass products4 Competitors are offering a unique mix of products like inclusion of fashion accessories, jewelries, lighting, etc. 0.07 3 0.21 with contemporary designs5 Potential threat for competition from new manufacturers in lower-cost countries in eastern Europe 0.09 1 0.09 and Asian countries6 Competitors from Asia have the advantage of lower labor costs, less stringent regulation, and a more limited 0.07 1 0.07 view of intellectual property TOTAL 1.00 1.82
  • SWOT Matrix SO Strategies WO StrategiesFocus on core products which are Extensive cost reduction to prevent further increase in net loss whichcrystal and ceramics and be less contributed to the increase in a deficit in equity accountdiversified. Stop acquiring companies Efficiency in product distribution. Multi-channel distribution network iswith products that do not fit with the costly. Focus to 2-3 channels only such as internet, wholesaler/ departmentrest of the organization – have chains, and through specialty markets. Stop distribution through retaildifferent markets, customers, establishments.workforce, values, needs Transfer outsourced production nearer to headquarters to reduce leadIntegrated Marketing. Brands should time, lower transportation costs, and improve efficiency. Ceramics and W-Cbe marketed together as Designs/Spring production in Indonesia is already very far considering thecomplementary products not being low market share in Asia. Move somewhere to North Western Asia ormarketed individually Europe. ST Strategies WT StrategiesRegroup through cost and asset Regroup through cost and asset reduction to reverse declining sales andreduction to reverse declining sales profits. The organization is plagued by inefficiency and negative profitability,and profits. Close marginal divisions, that major internal reorganization is needed. It failed to meet its goals andprune product lines, automate objectives over time despite its competitive advantage. It is time to closeprocesses, and institute expense marginal divisions, prune product lines, automate processes, and institutecontrol systems among others. 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 1Average Score 1.857143 Average Score -2.66667Total Y axis score -0.80952Position: -0.5, -0.8
  • SPACE Matrix The directional vector is located in the lower-left or 0.9 0.8 defensive quadrant, which Conservative 0.7 Aggressive suggests that Waterford 0.6 0.5 Wedgwood PLC should focus 0.4 0.3 on rectifying internal 0.2 0.1 weaknesses and avoiding -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 external threats. Defensive -0.2 strategies include: -0.3 Defensive -0.4 Competitive -0.5  Retrenchment -0.6 -0.7 -0.8  Divestiture -0.9 -1.0  Liquidation  Related diversification
  • Grand Strategy Matrix Organizations under this situation compete in slow- growth industries RAPID MARKET GROWTH and have weak competitive positions. WEAK STRONGCOMPETITIVE II I COMPETITIVE The company must make some drastic POSITION POSITION changes quickly to avoid further decline and possible III IV liquidation. Extensive cost and asset reduction or Waterford retrenchment Wedgwood PLC should be pursued first. SLOW MARKET GROWTH It should also consider divesting unprofitable divisions/brands.
  • QSPM Retrenchment Divestiture KEY FACTORS Wt. AS TAS AS TAS OPPORTUNITIES1 Outsourcing of production to countries with 0.1 3 0.3 3 0.3 lower labor costs (Europe and Asia)2 Opportunity exists for growth in the Asian region 0.09 1 0.09 1 0.09 (especially among brand-conscious Japanese)3 Opportunity to innovate and expand product line 0.05 1 0.05 1 0.05 to cater to highly segmented markets4 Collaborative branding agreements to increase product lines as well as possible increase in 0.04 - - - - distribution channels5 Presence of specialty markets and high-end 0.04 retailers - - - -
  • QSPM Retrenchment Divestiture KEY FACTORS Wt. AS TAS AS TAS THREATS1 The dispersion of sales causes the company to be very sensitive to exchange rates and other economic 0.35 4 1.4 3 1.05 fluctuations in each of its markets2 Existing competitors have very efficient marketing 0.1 2 0.2 2 0.2 and product distribution3 Presence of large competitors that also provide a full 0.1 2 0.2 1 0.1 line of luxury glass products4 Competitors are offering a unique mix of products like inclusion of fashion accessories, jewelries, 0.07 2 0.14 1 0.07 lighting, etc. with contemporary designs5 Potential threat for competition from new manufacturers in lower-cost countries in eastern 0.09 3 0.27 2 0.18 Europe and Asian countries6 Competitors from Asia have the advantage of lower labor costs, less stringent regulation, and a more 0.07 3 0.21 3 0.21 limited view of intellectual property 1.00
  • QSPM Retrenchment Divestiture KEY FACTORS Wt. AS TAS AS TAS STRENGTHS1 Standard production procedures, high quality products 0.06 being offered - - - -2 Hand-made, unique crystal pieces based on artisan 0.03 2 0.06 2 0.06 processed production by trained craftsmen3 Code of corporate conduct reflects the companys concern for investors, directors, and employees. Thus, fits into the criteria for being socially responsible and has 0.03 1 0.03 2 0.06 made this info available to public and has established good public relations4 Introduction of additional product lines to follow trends 0.06 1 0.06 1 0.06 while maintaining quality and tradition5 Collaborative and cooperative relationships with famous 0.04 designers and internationally known chefs - - - -6 Public’s ongoing positive perception of the Waterford 0.07 Wedgwood brands - - - -7 Has the goodwill of Waterford that has beenin the 0.01 market for 225 years - - - -
  • Retrenchment Divestiture KEY FACTORS Wt. AS TAS AS TAS WEAKNESSES 1 Increasing trend in the negative net income from 2006 to 2007 (negative 270.8 0.1 4 0.4 4 0.4 million euro net income for 2007) 2 Declining revenue from 772.6 million euro to 741.5 million euro; Struggled in 0.09 4 0.36 4 0.36 maintaining sales which have declined every year since 2000 3 In a state of balance sheet insolvency. A deficit in their equity account due to 0.08 4 0.32 4 0.32 defined benefit pension schemes in long-term liabilities 4 0.02 No vision statement - - - - 5 No special efforts made on advertising, in order to reinforce the image of their 0.04 products they will be needing a new advertising strategy - - - - 6 Significant problems with debt management 0.06 4 0.24 4 0.24 7 Centralized production for each of its products results in significant transportation 0.05 3 0.15 4 0.2 costs, given dispersion of sales around the world 8 Products are considered as heirloom that gives a brand perception of being old or 0.01 associated with prior generations, reducing sales - - - - 9 Multichannel distribution network including wholesalers and arrangements with 0.06 3 0.18 4 0.24 select retail and department chains10 Diversified into other areas of household luxury products such as linens, flatware, 0.08 3 0.24 4 0.32 cookware11 Various brands are not marketed together as complementary products but being 0.07 marketed individually - - - -12 0.04 High labor costs which is much related to hand-crafting - - - - TOTAL 1.00 4.9 4.51
  • Recommendations1. 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 account2. 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.
  • Recommendations4. 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, needs6. 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 PlanSTRATEGIES ACTIVITIES YR 1 YR 2 YR 31. Have debts Negotiate for loan restructuring restructured2. 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 others3. Make product Multi-channel distribution network is costly. Focus to 2-3 channels distribution only such as internet, wholesaler/ department chains, and through efficient specialty markets. Stop distribution through retail establishments.4. Integrated Brands should be marketed together as complementary products not Marketing being marketed individually5. Focus on core Stop acquiring companies with products that do not fit with the rest of products (crystal the organization – have different markets, customers, workforce, and ceramics) values, needs and be less diversified5. 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.