The case study explains Mr. Arthur Keller’s rise to power as Hedblom’s managing director and the subsequent steps and processes that he undertook to alleviate Hedblom from troubled waters. His actions have been described in light of his personal achievements, characteristics, and professional development. Additionally, a review of the textile industry in terms of suppliers, retailers, and all the middle players in light of industrial evolution and the changing practices provides a holistic perspective to analyze the decisions of Wientex. Wientex was a textile yarn producer with approximately 50% shareholding in Hedblom, which in the aftermath of bitter negotiations, led to complete ownership by March 10, 1967.
- Wientex A. G. is one of the leading yarn producers in Europe, whereby it has manufacturing facilities belonging to the EEC or the European Economic Community comprising of West Germany, France, Italy, and the three Benelux countries. This allows a good supply of texturized yarn to Hedblom front-end business of dress manufacturing.
- Hedblom was a pioneer of making dresses from the new synthetic fabric in Scandinavia, and thus has expertise in fabric and dress manufacturing.
- Hedblom has been accommodated with an automatic material handling system and IBM punch card system.
- Skilled knitting machine operators are proud resources of Hedblom’sBoxholm plant.
- High level of exports (almost 20%), especially to Norway and Denmark.
- 75% decline in revenue during 1964-1967.
- Accounts receivables kept increasing during 1965-67 (by approximately 42%), yet cash failed to increase and accounts payable rose by 49%. This depicts worsening liquidity conditions.
- A highly centralized organizational structure, whereby each decision must pass through the managing director’s pipeline to be accepted or rejected.
- Obsolete machinery and plant were laying idle.
- A very narrow target market of 25-30 age range.
- Selective distribution policy, low commissions, and premium pricing led to limited sales exposure.
- Loss of key human resource such as directresses in the aftermath of total ownership.
- Due to no information system, it was tedious to identify copies of pertinent letters, memos, and key list of current events. Additionally, previous data identification was tough due to hand written reports.
- Unbranded clothing was not given importance, even in light of a huge market potential.
- Headblom had no data with regards to the size of neither Swedish dress market nor a price and channel breakdown.
- Lack of employee development and training programs.
- Unbranded clothing lines are a huge segment, entailing remarkable growth trends in the light of low prices.
- Department stores provide a great opportunity to sell products of average quality.
- Technological development has led to numerous success stories, whereby businesses have been able to streamline their operational capacities, as well as increase effectiveness of corporate strategies.
- A huge market in the US and the UK, which can be tapped by fabric and dress manufacturers to raise profitability and market share.
- Political and economic fluctuations with impact on Swedish textile industry.
- Exchange rate fluctuations have an impact on imports and exports profitability.
- The nature of competition is oligopolistic on extremes of the vertical textile product market i.e. the suppliers and retailers.
- The industry is not considered high-end leading to less new talent interest development within the field.
The key aspect pertaining to the financial perspective is the way shareholders tend to perceive the operational capacity of the entity. Certain key ratios and figures would be analyzed to find out the weak spots of Hedblom. The profit margin as calculated by dividing sales by profit is -2.35 during 1966-1967, which improved from -5 during the period 1965-1966. This depicts that for every Skr in sales, Hedblom lost 2.35 Skr in earnings. From a more general perspective, Hedblom spent more than it earned, which was an inefficient step, unless expenditure measures were being taken, which could have justified the negative trend. The liquidity ratio i.e. current ratio has been calculated by dividing current assets by current liabilities, whereby cash, receivables and inventories depict current assets, and payables depict current liabilities. The current ratio was 1.79 in 1965 and dropped to 1.59 in 1966 and to 1.02 in 1967. This simply depicts the deteriorating liquidity position of Hedblom. To analyze the efficiency of Hedblom, the accounts receivables turnover ratio has been calculated by dividing sales by average accounts receivables. The result of this calculation is 0.003864 in 1966, which further deteriorates to being 0.001133. The lower this ratio goes, it depicts that Hedblom is either being too generous in dispersing grants or is having a tough time collecting payments. Similarly, the cost of sales divided by average inventory depicts the efficiency of inventory cycles. The inventory turnover is 1.75 in 1966, whereas it falls to 1.447 in 1967. This trend also depicts a deteriorating position as it implies that Hedblom is either overbuilding or overstocking inventory or it might be seen as facing difficulty in selling products. The accounts payable ratio was 1.788 in 1966 and 0.927 in 1967, which is a better trend as it depicts that Hedblom is receiving favorable terms from its suppliers.
The pertinent aspect to discuss here is the customer’s perspective. The customers identify Hedblom as being a high end dress manufacturer that is sold at a premium price. The target market of Hedblom is 25-30 years old individuals, whereby to maintain engagement with its customers, Hedblom participated in various fashion shows including but not limited to Scandinavian Fashion Week in Copenhagen. Hedblom managed to maintain its customers in export markets as well, especially Norway and Denmark, which accounted for more than 20% of total export sales. Hedblom currently held two products i.e. branded and unbranded. The branded product has been discussed; the unbranded products were sold on end-of-season closeouts, which implies that they were cheaper and managed to cover some aspect of product costs, as opposed to no sales. These were customers who wait for the end-of-season to get slashed prices for products that they wished to wear because care must be taken to understand that the lifestyle trends were also changing in terms of being more wash-and-wear type.
This aspect of considering internal business processes begs the question, what are the areas of opportunity or weaknesses that may require advancement. Cycle time is one key aspect that Hedblom lacks in, due to the fact that the organizational structure is centralized; numerous decisions tend to go unanswered by the managing director, which results in the buildup of idle capacity and bottlenecks. Therefore, cycle time and contingency planning can better intercept such issues. Additionally, asset utilization is becoming extremely redundant, whereby the Sandvik plants remains idle, as well as the various machinery equipments that have been out of use, and they must be put to better use or be sold in order to raise efficiency. The workforce for knitting is limited in supply and yet Hedblom only makes an effort to retain the existing people, rather than training and developing addition workforce as an incentive for professional development and also as a means of personal achievement realization. New blood has been limited within the entity and within the industry because of the limited growth perspective being perpetuated towards the new workforce. The operation system linking all departments and the list of pertinent information sharing is non-existent, leading to inefficient and time crunching corporate framework.
This is an important aspect to consider going forward, because it tends to ask about value creation, improvement, and innovation. Value creation can be fostered within Hedblom by allowing it to be streamlined with the functions of Weintex, whereby as a supplier, value can be created by producing high quality texturized yarn and creating a competitive advantage in lines with the technological abilities of Hedblom. In essence, Weintex, in the aftermath of total ownership does not need to acquire dress and fabric manufacturing expertise, rather to spread it across the vertical product chain to streamline the entire process. Additionally, Hedblom must also consider improving its operations management practices and procedures, whereby the high probability of defected products must be reduced through various management practices including six sigma and other TQM techniques. Furthermore, Hedblom should also consider acquiring new technology for textile development and textile process system development, which may entail implementing ERP solutions. Also, increasingly fickle trends must be followed as it would allow Hedblom to initiate dress manufacturing with adequate time cushion to strategically place its products in the market.
The organizational structure of Hedblom prior to total ownership from Weintex was essentially functional. It is pertinent to note that the type or organizational structure does not identify it is good or bad, because it is the nature of the entity and the organizational culture that also makes a difference, amongst many other factors.
Figure 1: Functional Structure
Figure 1 above depicts the functional organizational structure, whereby the five managers i.e. in-charge of control, purchasing, production, fabric design, and commercial have to report to the previous owner manager and the two directresses. As the name suggests, each functional segment continued a separate task, which involved vertical communication lines, as opposed to horizontal ones across various departments or functional segments. This is an aspect of centralized communication system, whereby the rigidity of information transfers creates inflexibility, a high degree of formalization, and also standardization of operations. The advantage of this structure is the high level of efficiency within departments, yet it is fair to state that Hedblom had failed to retain efficiency as depicted through the financial ratios under the balance scorecard analysis.
On the other hand, the organizational structure that can be identified as most appropriate in the aftermath of total ownership from Weintex and under the new managing director Keeler is a matrix structure. The reason for this is the scale of the organization. As a small entity, the functional structure is considered appropriate, yet for a larger entity, such as the one created after acquisition of Hedblom by Weintex requires more information sharing within departments and across the structure i.e. vertically and horizontally.
Mr. Keller’s predecessor’s management style was extremely authoritative or autarkic, which implies that he was adamant at undertaking responsibility for every decision. He was a rather brilliant negotiator, and his approval was required for even the smallest detail. This management style can also be observed by the functional organizational structure, which focuses on vertical communication channels. Additionally, expenses were never a concern for the owner manager, whereby his efforts were at being the number one wherever he went. His working hours were unconventional, whereby managers stated that they had to stay in the office for long hours, sometimes doing work, sometimes not. Managers were treated as just another employee, whereby even they had to punch their own time-clock cards, which was observed by the owner manager. Furthermore, the owner manager required the company’s mail on his desk and then distributed it himself; he would sign the company checkbook; he would analyze all incoming orders; he would receive daily tabulations, and so on.
Mr. Keller, on the other hand, had a rather democratic management style, whereby his previous experience had fostered a sense of accountability, effort, and a can-do attitude. His degree in engineering and an MBA, allowed him to view technical aspects with a profitability structure in mind. His reaction to managers punching their own time-clock cards, and also towards the arrival of company mail at his desk depicts his resistance to such autarkic management style that may impact employee performance and subsequently disrupt the organizational structure.
Employee treatment at Hedblom was rather stringent in terms of inconvenient working hours that were not limited to any specific time, but rather dependent on the wishes of the former owner manager. Additionally, consulting engineers were hired for more than Skr 400,000, implementing IBM’s punch-card system and development of the automatic materials handling system. This was basically cash drain as can also be seen from the balance sheet, whereas it is fair to state that there was no effective or real usage of this system. The ones close to the owner manager were given profound benefits, for instance Mr. Jansson was given a 50% raise in the after math of Weintex taking 50% of Hedblom’s share. The only people on the top were those with close ties to the owner manager.
According to Hedblom’s financials, there was an estimated 65% decline in sales within 6 months during 1966-1967, whereas profitability remained negative throughout the period of 1964-1967. The corporate strategy moving forward must be that of focusing on the mainstream market, as opposed to high-end retail channels, whereby the costs are high, distribution system is congested, and commissions are low, leading to lack of incentive to perform better. Therefore, rather than ranging their price between Skr 98 and Skr 395, Hedblom must manage an average of Skr 100, as opposed to Skr150. Additionally, Hedblom’s management does think that they would lose sales if they sell in department sales (at their cheaper pricing levels), yet they are unaware that the revenues are already dropping significantly. One strategy that would allow Hedbolm to reach its targets would be a flank attack strategy, which although used in competitive environments, can be used to gain market share. To implement this strategy, Hedbolm must divide its products as high-end, mediocre, and unbranded. Two of these brands exist i.e. high-end and unbranded, yet mediocre brand is missing. Hedbolm can brand these three separately with completely different strategies. Furthermore, the Sandvik plant should be sold, and the cash generated should be utilized for abating accounts payable and promoting sales through commissions and adding machinery to raise production levels. Also, an HR manager must be hired, who shall directly report to Keller. Delegation must be done to streamline the decision making process, whereby MrJansson can prove to be an important asset because he knows the areas of liability and should be utilized, not in terms of providing advice, but rather in terms of providing key data that can maximize Keller’s focus on the right areas. If possible, in light of cost estimates, Hedbolm must implement an enterprise resource planning solution to aid the company in keeping track of pertinent documents and reducing decision times.
Conclusively, the key recommendations shall be brought to light. Foreign market expansions, expansions into other industries are acts of desperation in the current situation of Hedblom and so must not be pursued. The key aspect that should be undertaken is organizational restructuring, which would allow Hedblom to improve its operations. However, as a fact this is a time taking process, hence, lean management practices must be undertaken, which entail cutting slack i.e. assets that are non-performing and fail to have future value. A HRM department holds imperative importance in this scenario, whereby skills are limited in numerous departments. The HRM manager must be directly reporting to Mr. Keller, whereby key aspect of focus must be training and development. The Sandvik plant must be sold and the balance sheet position must be improved in order to continue as a going concern.