Heblon – the Organisation Under Scanner

HEBLON – THE ORGANISATION UNDER SCANNER

Heblon PLC, a family-owned business was established in the 1950s with relatively small-scale production. It has a high reputation for manufacturing high-quality wooden furniture. With 250 employees, Heblon could generate 10 million pounds as revenue (Vaughan, 1997)was able to maintain steady sales revenue in previous year even after having a small market share. Because of its high-reputation for quality, Heblon’s production highly relied on individual craftsmanship (Vaughan 1997) making the business labor intensive. Although the technology development in furniture industry had already taken place, the new techniques and skills were still not very practical for Heblon’s production process. Therefore, the company did not have much development in its manufacturing technology. Furthermore, Vaughan (1997) found that Heblon’s market was not very sensitive to its product prices. Even if the prices were driven up by the costs, the sales revenue would not be affected significantly. Thus, the company did not have too much pressure on improving its productivity. Since Heblon is operated by a family, management’s operating style is quite conservative. They only choose to resolve the risks and uncertainties that they were familiar with. Because of the management only focused on their own profit and did not prefer to make any risky changes or investment to improve their manufacturing system, the business generally developed at only a modest rate (Vaughan, 1997).    

IDENTIFYING KEY RISKS

The risks that exited in the Heblon caused by external factors can be classified into two categories, which are strategic risks and regulatory risks (Vaughan, 1997).

• Strategic Risks

Strategic risks result from a failed business plan or business decision in terms of market strategy (lecture, 2016). In the Heblon’s case, strategic risks arise from four changes in terms of consumer behavior, competition in the market, an increase in distribution channels and technology development.

There was a trend that consumers’ perception of value concentrated on the fashion and designs when they purchase furniture products. At that time although there was no impact on the craftsmanship of Heblon, there would be a potential risk of losing market share. In addition, competition in the market disadvantaged the profit margin of Heblon. A large number of importers entered the markets and the price was affected and therefore decreased. Due to this reason, many firms improved their service to gain more market shares. Furthermore, increasing distribution channels enabled retailers to dominate the manufacturer in negotiation, resulting in decreased profits in Heblon. In addition, the development of technology in the whole industry had a big impact on the supply chain of Heblon and prevented its production from being effective. Moreover, Heblon’s internal control was affected by the technology development as they need to update or improve their system to keep up with the communication about information within the industry.

• Regulatory Risks

The policy of restriction on deforestation was implemented to mitigate the global warming. However, this regulation was not a good new to wooden industry because it affected the production in manufacture as this limited the supply of raw material, hardwood. And reduction in the hardwood slowed down the process of production and this made the lead time longer. As the wood was scarce, the price rose and the costs also increased. These are all the regulatory risks faced by Heblon.

Although the management of Heblon was aware of the problem of their internal control and structure, they chose not to take any actions, which created operating risks and financial risks.

• Operating Risks

Heblon applied functional structure as their internal structure. Under this structure, employees can specialize in their field and enhance the productivity. However, this type of structure only works well in a stable environment. When there was a change in market, functional structure would slow down the decision making because each division had no motivation to coordinate with each other. Therefore, it is difficult for Heblon to response to and meet the needs of market. Furthermore, if the strategy is more market-oriented, it would affect the manufacturing division as their traditional skills were threaten, which can create additional risks before the strategy is carried out.

• Financial Risks

As explained in the background, Heblon was owned by the family. According to their policy, parts of profits need to be withdrawn as owners’ investment return. Therefore, the capital structure was not set by the need of the company, which may create financial risks, shortage of working capital (Vaughan, 1997).

HEBLON’S VERSION OF RISK MANAGEMENT

In responding to those changes discussed earlier, the management of Heblon has taken several measures. First, the company conducted more intensive marketing and sales campaign which was directed to multiple and independent retailers as a means to cope up with the concentrated distribution channel. This step has resulted in costs increment due to increase in number of personnel and enhancement of the associated overheads. Also, the company has to obtain consultancy service which indicates that there is a need for capital injection. Second, Heblon recruited product designer and product development engineer in order to enhance its product development and design function. Heblon took such measure in response to changing customers’ behavior that has become more selective in choosing the best furniture. Next, Heblon has attempted to improve its productivity and control of costs as its response towards technological development. Heblon utilized the information system and procedures to ensure more effective and efficient planning and control. Also, Heblon has taken a series of tactical decisions that the management deemed as integrated but apparently they are not. Based on those measures, it can be observed that Heblon did apply value creation in responding to the dynamic market. The company’s strategy in enhancing its product development and design function is executed for creating value from customers’ perspective. From perspective of the management, Heblon concentrates in improving the productivity and costs control.

HEBLON V/S COMPETITION

One of Heblon’s competitors is Décor, a public limited company that is operating worldwide. Both companies, Heblon and Décor have similar core business line which is manufacturing and selling of furniture. The companies were established around the same period which was in 1950s but Décor seems to surpass Heblon’s performance in the market. It is believed that the management style and the ways Décor dealt with those issues that they are facing have contributed to the superior performance of the company.