Contemporary Management Issues Report

Introduction

Every business firm around the globe has the expectation of making profit and growth. Such aspirations get achieved by adopting well-calculated measures with all relevant stakeholders. Notably, despite including stakeholders in decision making and running the organizations, there are other dynamic forces within and outside the business that enhance success or failure. This report focuses on the House of Fraser, a British department store. It will discuss the two key dynamic forces impacting society and business decision making, namely, ethical and social responsibility as well as globalization and the changing world order. Besides, it will describe the nature of pressure brought out by the dynamic forces in addition to providing a critical evaluation of House of Fraser’s current response. Lastly, it will offer recommendations that the organization should follow in enhancing its response moving forward, probably, the next decade.

House of Fraser is a department store in the United Kingdom, established approximately 170 years ago (BBC News, 2018). The firm deals with products such as fashion clothing, accessories, homeware, shoes, electricals, furniture, toys, and gifts, among others. House of Fraser has been operating in excess of 100 department stores, which makes the company earn annual sales to a tune of £1.2 billion. In the over 100 stores, there are 5000 direct employees and 12500 concession staff (BBC News, 2018). However, despite the long period of operation, the company faced low sales leading to losses. As a result, the management decided to close down 31 out of 59 shops (BBC News, 2018). The effects of this decision are dire as it causes approximately 6,000 jobs loss. It includes 2000 direct jobs and 4000 concessions and brand roles. House of Fraser problems required a brutal decision that would save the firm from further losses, notwithstanding the effect it caused to the employees. Besides stores’ closure, House of Fraser needed to have the right experience and products to drive the remaining stores to profitability.

An organization operates in a business context that must also consider their environment. Both external and internal environment exerts significant pressure in any organization as experienced in the case of House of Fraser. This section discusses the nature of pressure for change initiated by two specific drivers.

Globalization and the Changing World Order

The concept of globalization is one that has been growing over the last two decades. Globalization leads to not only an increase in business activities but also creates some pressure in the business and society. Globalization is responsible for changing the world’s order. Globalization has undeniably integrated nations, governments, individuals, and businesses through trade, immigration, communication, as well as transportation. Through globalization, society, businesses, and the overall environment has changed significantly as information, capital, and human resource flows freely like in a global village (Wetherly, 2014). Globalization is an ongoing process that intertwines countries, businesses, and individuals (Crane et al., 2019). Similarly, the world order is changing rapidly. Over the last century, industrialization has taken the world to surprisingly new levels in areas like technology, raw materials, and production, to name a few. The change in world order also brings some pressure in businesses and society as both try to catch up with the change.

Globalization and changing world order affect the level of strategic decision making that occurs in any organization. Leadership and management decision making in the realm of globalization determines the success or failure of a business. Notably, managerial decision making is a continuous process where individuals forge the best alternative solution to certain problems facing the firm. A strategic decision should consider various prevailing conditions as a base of future results. In a contemporary business environment, strategic decision making follows business ethics decision making model, which states that there are three primary stages of business decision making (Ferrell and Fraedrich, 2015). The steps include first defining the immediate or future problem and secondly, collecting enough information about the problem. Lastly, the manager must choose the best alternative to the problems. Globalization and changing world order offer a platform where organization acquires readymade and tested solutions. Similarly, globalization opens a floor of consultation with experts in different disciplines. From the changing world order and globalization, effective strategic decision making is easier and with wide alternatives (Crane et al., 2019).

Some of the pressures initiated by globalization and a changing world order include creating increased competition in business (Iancu, 2014). House of Fraser is becoming unprofitable as a result of pressures from competitors. Notably, globalization opens up countries to both internal and external competition. Competition occurs in the form of technology, materials, target market, and other adaptation to make competitive products and services. As a result of competition, businesses get compelled to improve their brands and quality, which comes with high financial investment. In addition, there is pressure for quick response in quality change as individual firm aspires to acquire more market share (Iancu, 2014). Similarly, a changing world order also brings about competition. The consumers are demanding specific standards, and consumers benefit from the product and services they consume. There is a high alternative created and affect buying behavior. Businesses, in return, invest more in research and development to meet the customers’ expectations and demands. It comes with pressures from competitors and the changing needs of society.

Technology is a necessary pressure for change as a result of globalization and changing world order. It is among the most striking factor afforded by globalization. Businesses are using technology as a competitive advantage to edge out other companies in the same industry. Currently, businesses and society have embraced technology in businesses more so in online retail, internet advertisements, as well as e-commerce. Technology is a necessity that every society and business look forward to adopting (Ying, Chang, and Lee, 2014). Globalization has been increasing the rate of technology transfer where individuals outsource upgraded software and hardware form producers frequently. The changing world order has been a critical ingredient in facilitating the business adoption of new and upgraded technology. The business world is facing unending problems that need new methods and solutions. Technology is providing the required solution shifting society and business reliance from the traditional method of business transaction to novel and creative ideas (Ying, Chang, and Lee, 2014). As the world shift toward a new paradigm, it pressures businesses to take similar shifts.

Information and knowledge transfer is another change emanating from globalization and changing world order. Technology has been a crucial tool in knowledge and information transfer. New gadgets and software allow a real-time exchange of data over long distances. It gave rise to a new market that requires a quick and efficient transfer of information. The world also requires efficiency in information shared. Most customers in the business setting rely on shared information in decision making before making any purchases. It creates the need to share information pressuring business and society to create a reliable platform for information sharing. Most companies around the world are using websites and social media platforms to propagate information easily to customers and other stakeholders.

Globalization has also led to fluctuating products’ and services’ prices. The opening up of the market forces companies to outsource materials from countries with lower production prices. As manufacturing firms outsource raw materials from other countries, those suppliers from native countries give in to pressure hence lower their prices. Businesses that lower prices do so to maintain customer prices as well as loyalty. The world is becoming reluctant to equating price to quality. As a result, the world order shift to seeking ways to minimize production costs. Outsourcing for low priced material has been a common occurrence (Globerman and Vining, 2017). It pressures firms with high production costs to find alternative ways to cut on the cost, which results in factors like cutting down employees like House of Fraser case.

Among the negative consequences and pressure brought by globalization and changing world order is a risk of job security (Stiglitz, 2017). There are high levels of outsourcing, where businesses in developed countries outsource cheap and readily available labor from underdeveloped countries. It may be an advantage as businesses can reduce the pressure of increased administration and production costs. However, it is a disadvantage to skilled labor in native countries. Individuals who skills and competencies come with a high salary are at a high risk of losing their job. Cheap labor is now a common norm in the changing world. Technology is also pressuring job security. Improved technology such as computer programs is making operation easier hence requiring fewer individuals to administer business operations. The nature of pressure for change includes a requirement for society and businesses to relinquish more expensive human capital to embracing new technology and cheap labor.

Ethical and Social Change

Ethics and social change are two intertwined concept that crates pressure into a business, causing some significant change. Business ethics refers to various moral principles that an organization instills in its employees so that it guides the employees to act in an acceptable manner while executing organizational operations (Chell et al., 2016). Ethics forms the basic standards through which a firm incorporates good workmanship in employees. On the other hand, social change describes the social progress or societal evolution where individuals move forward from one set of ideology or socio-economic structure to another (Bendell, 2017). These two concepts sometimes work hand in hand in a business setting.

Ethics and social change critically affect strategic decision making. The concept sets out a principle that any firm must abide by in the form of business ethics. In the current world, the government and society have a high code of conduct they expect from a business (Chell et al., 2016). Any variance from the expectation affects the firm by loss of customers to competitors. Therefore, a company must ensure that its strategic vision and objective align with ethical considerations. Furthermore, ethics must change and conform to social change. The societal expectation is gradually changing, and so does the firm does need to change its strategic decision towards similar change.

Ethics and social change bring about pressure in the business and society as what is morally right or wrong changes from time to time besides depending on circumstance. In House of Fraser case, closing down of 31 shops is a right move by the firm but wrong in public perspective. There will be a large population and families left without a livelihood after the closure of the store. Notably, such an ethical dilemma pressures the organization as in deciding which the best alternative while solving the increased loss is; it must have the right choice without affecting the society. Individuals employed in the firm belong to a society that expects job security from the House of Fraser. However, some conditions do not allow the firm to continue offering employment opportunities.

The society experiences changes in preferences as a result of competing organization and product quality. Customers’ expectations are volatile as what customer needs today may change within weeks or days (Anderson and Zheglov, 2018). For example, technology in production and materials included in manufacturing different fashion desire is ever-changing. House of Fraser experiences the changing customer expectation, which in turn creates pressure. For the House of Fraser, the pressure may include maintaining the quality without increasing prices or increase prices to meet up with the competition. Either way, House of Fraser has to make a suitable decision that will maintain the company’s customer base and profitability with a view of quality and competition in mind. Needless to say, trying to balance changing needs and company needs creates unnecessary pressure.

Lack of business ethics affects not only the whole company but also employees and society around them (Carroll and Buchholtz, 2014). Ethics sets out standards that each person should follow while conducting business. In a firm where the business ethic is minimally emphasized, there rise conflicts between individuals and organizations with society (Crane et al., 2019). Notably, a society expects any company to maintain some standard in which a normal person should expect others to offer them in an alternate position. With that in mind, a business work gets forced to find ways to maintain such expectations, which comes with notable pressure in resources and personnel. In the House of Fraser, society expects continued business without retrenchment, which is impractical in an uncertain market. There is an ethical dilemma on which factors in maintaining at the expense of which party, the company, or individuals.

Social change and ethics create pressure in business while a business tries to maintain credibility and favorable public image. House of Fraser wished to retrench about 6000 people. The repercussion is attracting unfavorable public images. There is also a consequence of losing the customer base and market share. As indicated in the case study, some customers complain about the closure of the London Oxford store, where they shopped most of their products (BBC News, 2018). Social change where societal social-economic factors and expectations occur forces a firm to conform to changes which are costly to maintain.

House of Fraser reacted to the drivers of change discussed above. Globalization and changing world order exerted the highest pressure. As mentioned above, globalization brings significant competition into any business. In the apparel distribution industry where the House of Fraser operates, there are an increasing number of stores. The emerging competitors compete for market share, customer loyalty, and available disposable income. As a result of intense competition, House of Fraser was forced to close down some of the stores to cut on cost. Notably, without the pressure of competition afforded by globalization, House of Fraser would still be profitable, that is, if it enjoyed a monopoly of supply.

A changing world order plays a role in House of Fraser’s response to closing 31 shops. Customer expectations are highly growing as the consumer expects better quality, different colors, and product materials. The House of Fraser shows a slow adaptation to changing world order. Frank Slevin, House of Fraser chairman, indicated that without undertaking necessary restructuring, the business was facing an existential threat (BBC News, 2018). It proves the non-conformance to changing world order in terms of delivery and product availability besides the increased competition. The current response to close down store as a way of restructuring is a suitable move, although it affects customers and 6000 employees about to lose their source of livelihood.

Reports indicate that the House of Fraser has under-invested, which leads to a loss of relevance in the industry. It is despite making an annual sale of £1.2 billion (BBC News, 2018). It is evident that lack of investment in research and development and new technology comes with dire significances like reduced competitiveness like in the case of hose of Fraser. Competitors in the industry have invested in upgraded technology, R&D, and distribution channels. Notably, an investment in R&D provides a platform through which companies understand stakeholders’ and customers’ demands and expectations. High investment helps a firm respond to the changing needs of society (Meyer and Peng, 2016). In House of Fraser case, low investment is attributed to low performance and response to changing world order. In the end, House of Fraser has only one alternative of restructuring by closing down stores to avoiding upward spiraling of business rates as well as rents.

Closing down the store is a response to globalization pressure that causes high job insecurity. As stated above, globalization leads to high technology development; companies adopt technology at the expense of the human workforce. Similarly, there is high outsourcing leaving the experienced and expensive workforce at risk of losing a job. House of Fraser is responding to this pressure. In most of their stores, they pay significant rent, which reduces their profitability. It caused the financial ups and downs over the last few decades. There is a possibility where the House of Fraser may undo their previous mistake of not investing in technology. After restructuring, there may be a bigger investment, which might cause more job losses a response to world-changing order pressure.

Ethics and social change are also at play in the House of Fraser’s response. The firm has a moral duty of doing the best to support the community by providing jobs. However, its current state of business does not allow it to continue supporting the high workforce forcing it to retrench. Business ethics forms a standard where House of Fraser has to conduct it retrenchment morally. However, no matter how morally the closure may seem in the firm’s perspective, the society finds the move wrong due to affected livelihoods. There is a social change where companies have to consider their business operations more as compared to community benefits. Closing down the stores is a justifiable response since the business cannot continue making losses and keep a large number of employees. Restructuring is a necessary evil for the company to gradually gain relevance and get back to profitability regardless of the effect on employees and society.

Conclusion

From the report above, House of Fraser, a company that has been in operation for more than 170 years, is facing pressures from dynamic forces in globalization and changing world order and ethics and social change. The pressures are intense to the point that the firm is forced to close down a significant percentage of stores to restructure without which it faces imminent danger of extinction. Ethics and social change present the pressure of conformance to specific standards that guides whether the business is taking the morally right decision or not. As reported above, the decision to close down numerous stores is justifiable from a business perspective but morally wrong from a societal view. The high loss of job opportunity is likely to mess up retrenched employees. On the globalization and changing world order, the pressure emanates from intense competition, technology, information transfer, and job insecurity risks. Competition forces firms like House of Fraser to undertake vital decision making to maintain relevance and competitiveness in the market. The two drivers are necessary for strategic decision making. Notably, any strategic decision making must conform to the ethical standard and become dynamic in conformance to social change in addition to undertaking the advantages afforded by globalization. The success or failures of a business rely on the influence of the drivers like the case of House of Fraser.

Recommendations

House of Fraser can undertake different decision-making tools to enhance their success in the next decade. The decision-making tools will help the company make the correct decision based on company capabilities driving it back to its legacy and profitability.

House of Fraser should conduct a SWOT analysis, a strategic planning approach where an organization identifies its strengths, weaknesses, opportunities, and threats relating to the business. A SWOT helps an organization to scan their environment for both projects planning and evaluating the competition (Gürel and Tat, 2017). A SWOT analysis incorporates internal and external factors in decision making. Strengths and weaknesses represent internal companies’ competencies as well as factors, while opportunities and threats represent external factors beyond the control of the organization as shown in figure 1 (Bogdanova et al., 2016). The House of Fraser is facing intense competition from the pressures of a changing world and globalization. Below are specific ways based on SWOT analysis that the House of Fraser can utilize.

The House of Fraser has a financial capacity that can steer it to profitability and growth. After closing down the store, the company should invest the extra finance in technology and research and development. As stated in the case study, House of Fraser has an annual sale of £1.2 billion, a considerable strength that can facilitate future growth (BBC News, 2018). The House of Fraser brand name is another key strength. The experience of operation in more than 170 years comes with goodwill and customer loyalty. Some customers feel that closing down some stores will hurt their purchase preference. In the future, the House of Fraser should use its good public image to reopen and expand its business.

The company should relook at some of the weaknesses that caused it to result in closing down the 31 shops. Lack of investment into better technology and R&D is a substantial weakness. It reduced the company competitiveness, thereby reducing the customer base. There was little profitability as the company’s product became less preferred. House of Fraser products are expensive as compared to surrounding stores. It brings about competition from low-priced stores. In as much as the firm intends to make a profit, it should consider the prices of the items as it is within their power to control their price to attract more clients. House of Fraser also distributes other brands in their store. It is a weakness in that customers may purchase other competitors leaving the House of Fraser products on the shelves. The firm creates brand competition within their store. The firm should minimize other brands or specialize in their brand only.

There is a growing demand for clothing globally and in the UK (Bruce and Daly, 2011). House of Fraser can use this as an opportunity to get back to business. The firms can supply customer’s products based on their demand and expectation. It creates consumer confidence, which is critical to growth. House of Fraser can use the opportunity provided by globalization to outsource raw material used in the production of clothing and other apparel vended in the stores. Similarly, they can develop low-cost stores closer to customers to increase the availability of items. Globalization also affords the use of technology. House of Fraser has a chance to utilize the growing online market to vend its item. Technology helps reach customers faster and provide feedback and clarification whenever needed. There is a possibility of regaining the market share hence reopening more stores once the firm gets back to profitability.

The biggest threat to House of Fraser growth in the next decade is increasing competition. There is a growing consumer taste variation and competitors in the apparel industry. After closing down some of the stores, the customer base will move to competitors. Chances of regaining back the lost customers are challenging. The competitors are using better technology and invest highly in research and development, one of House of Fraser’s weaknesses. Similarly, House of Fraser is likely to face a threat of counterfeit products sold through online platforms. The firm faces a threat of losing customer confidence if the counterfeit product does not meet customer expectations. House of Fraser must revisit these threats as they affect their business significantly.

Understanding the competitors and evaluating the business environment is a strong factor for the House of Fraser. The importance of understanding the business environment is emphasized in Porter’s Five Forces Model. The tool evaluates the external elements that affect a company seeking to understand how such factors negatively affect the business. According to Porter, the first factor is to understand the competitive rivalry. House of Fraser operates in an industry with companies like John Lewis Partnership PLC, Marks and Spencer Group, Laura Ashley Holding, and Debenhams. Understanding the operations of such key players is imperative to shape a strategic response (Dobbs, 2014).

Potential entrance to the industry is a factor that the House of Fraser should not ignore. Globalization and changing world order give all firms a fair chance of existence. As many clothing industries enter the UK’s market, it will affect the House of Fraser’s overall market share. Substitute threat is another factor (Meyer and Cohen, 2018). The online platform becomes a substitute for retailing in the store. Therefore, the House of Fraser should also invest in online publicity and advertisement to maintain brand awareness. The stores should create customer intimacy making clients more comfortable in the store, encouraging revisits.

Understanding the effect of buyers and suppliers are the last two factors in Porter’s model. The House of Fraser has no big issue with supplies. Currently, the firm wishes to create their brand names; hence those supplying different items to the store have no great bargaining power. The suppliers are not a threat to the business unless when one considers raw materials. However, buyers are becoming more rates sensitive. House of Fraser should consider their prices to keep clients coming back for more. High prices may give the client a reason to look up online for substitute products of a lower price, a disadvantage to the organization.

References

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