The case Illustrates how competitive advantage may be eroded as the management problems of coping with organic and acquisitive growth, expanding international operations, and environmental change of various kinds, all increase in complexity. As a result, mismatches arise between the organization's strategic capability and Its competitive environment that are difficult to correct. I I I INTRODUCTION In the spring of 1996 Laura Ashley shareholders began to believe, at long last, that better times really were on the way.
The group had paid only nominal demands since 1989 and had survived a cash crisis in 1990 and several years of indifferent performance and recovery attempts since then. Shareholders looked back on the company's heady successes of the asses and wondered what had gone wrong. How was It that the distinctive strengths on which the group's fortunes had been built were unable to sustain It In the asses? Now, however, there were encouraging signs.
Since Ann Aversion's appointment as chief executive in June 1995 the share price had doubled, and when results for the year to January 1 996 were released in April it was clear that the turnaround she had Instituted was already bearing fruit. The group announced a return to profit and the first dividend payment for six years. Pre-tax profit of Ell. Mm was the highest since 1989 and a strong turnaround from the EWE. Mm loss in the previous year. EARLY HISTORY In 1953 Bernard and Laura Ashley started printing tea towels and scarves to their own design in their flat in Pimping, London.
The success of these designs led the Ashley to form their first company, Ashley, Monotone Ltd in 1954. In 1960 the Ashley decided to move their expanding business to Wales, where Laura Ashley was born and where in 1966 Laura Ashley designed her first clothing items, two apron dresses. These were This case was prepared by John L. Heath as a basis for class discussion rather than to illustrate either effective or ineffective handling of management issues. CO. L. Heath, 1996.
Exploring Corporate Strategy by Johnson, Schools & Whetting not originally intended as fashion items but proved to be of profound significance to the subsequent development of the group. Encouraged by their success the Ashley opened the first Laura Ashley retail shop in London, in 1968, and the subsequent growth and development of the group stems from this move into direct retailing. Within two years the group was concentrating primarily on producing goods for sale in its own shops.
The basic structure of Laura Ashley as a vertically integrated business embracing design, fabric printing, clothing manufacture and retailing was hush established. Laura Ashley design philosophy, deeply rooted in traditional English country values, was the foundation for the group's designs. She created and trained teams of designers to develop her work. Laura Ashley died following an accident in September 1985, and although her death was a severe blow to the company, her design concepts had been thoroughly absorbed and understood throughout the group.
By 1985 the group's product range embraced both clothing and home furnishings, and as a vertically integrated group Laura Ashley manufactured around 85 per cent by value of these products itself. Clothing and home furnishing products were supplied directly to each shop in the United Kingdom, principally by the group's own vehicles, supplemented in Continental Europe by arrangements with local carriers. Clothing for North America was dispatched weekly by airfreight to each shop. A vital element in the group's organization was its major commitment to information technology in all areas of its operations.
By 1985 its three main computer centers - in Carne (Wales), Helloed (Netherlands) and Amah (New Jersey, USA) - were all linked through a communications network. Its IT capability was regarded by management as a crucial element in the effectiveness of the group's vertically integrated structure. Laura Ashley shops were designed to create the same look and atmosphere throughout the world and played an important part in projecting the image of Laura Ashley. In its shops the group was an early adopter of electronic point of sale (EPOSES) systems, whereby sales fugues from each shop were analyses daily by product line.
The complementary talents of the Ashley - Laurel's design flair and Barnyard's business acumen and interest in fabrics printing - had by 1985 transformed a cottage industry onto an international group with 219 shops in Europe, the United States and the Pacific Basin, and worldwide sales exceeded Loom. Laura Ashley became a public company in November 1985. It was floated on the stock market to a rapturous City, and such was the enthusiasm for the company that the offer was oversubscribed 34 times. The flotation valued the Ashley family 70 per cent stake at Emma.
Although the share offer was widely endorsed by the business press as an attractive investment, there were some notes of caution amid the general euphoria: Although storming ahead in the USA, European performance is at best Luke-warm. Mrs. Ashley death will be a severe loss. Expansion in Europe, notably France, has not been a success. Does a mish-mash of designing, manufacturing and retailing warrant a INTERNATIONAL DEVELOPMENT Acquisitions In 1986 the group began a series of acquisitions with the purchase of Sandbagging Leather Goods Ltd of Landladies and Bryant of Scotland Ltd, a high-quality knitwear company.
In August 1987, Willis and Geiger, a traditional outdoor clothing specialist with both wholesale and retail businesses in the USA, was acquired for $Mm. In November, Pentathlons Ltd, an old established perfumery business offering an exclusive range of gentleman's fragrances from five distinctive shops in London, was acquired for Elm. It was intended to develop the Pentathlon range of products and extend its business Exploring Corporate Strategy by Johnson, Schools & Whetting 2 internationally. Since 1979 the group had also produced its own unique range of women's fragrances through its Swiss-based subsidiary, Paramus Laura Ashley.
The group intended to extend the product ranges and shop openings of its acquisitions in their base countries and later internationally. In March 1989 the purchase of Revere Industries Inc. A US home furnishings marketing company, was announced. The company was established as an important source of quality designer bedridden selling to major department stores, specialist chains and catalogue houses across the United States. Manufacturing Investment In August 1985 work commenced on a new 135,000 sq. Ft textile factory in Wales.
The following year work began on a new vinyl wallpaper plant on an adjacent site. These facilities represented an investment of some EH. Mm, a significant part of the cost of which was offset by a grant from the Development Board of Rural Wales. In 1987 a El. M computer-aided design system was installed in the textile design studios at Newton, and in the following year a computerized garment-cutting room was opened at Carne at a cost of El . Mm. Other investments in manufacturing included a IEEE,OHO computerized handling system for the Newton garment factory.
This was designed to reduce garment throughput times from several days to a few hours, and thereby allow more rapid response to retail demand. 1988 Reorganization Early in 1988 the group was restructured into seven divisions in order to facilitate its growth over the next five years. Each division had a managing director separately accountable to the main board for his division's profit performance. The reorganization was reported to reflect, in part, the group's decision to break away from the vertically integrated structure that had been a distinctive feature of the Laura Ashley organization almost since its inception.
The new divisions were as follows: I Laura Ashley Group Services, responsible for finance, legal work, informatics and sourcing, image protection and licensing. Laura Ashley Industries, responsible for textile, wallpaper, and garment manufacture and distribution, together with leather odds and knitwear subsidiaries. Laura Ashley I-J Retail, responsible for retail operations in the I-J. Laura Ashley BE, responsible for retail operations in Continental Europe. Laura Ashley Inc. , responsible for retail operations in the USA and Canada.
Laura Ashley Pacific Basin, responsible for retail operations in Australia and Japan. Major cost-cutting, restructuring and quality improvement initiatives were introduced within Industries Division as the group gradually reduced its dependence on its own manufacturing activities. Whereas around 85 per cent of products sold in 1985 were manufactured in-house, by 1988 this was down to 60 per cent and falling. Retail Developments In 1987 the group took a 'major step towards segmentation' with the opening of six Laura Ashley Mother & Child shops in the ASSAI.
These sold a co-ordinate range of clothes and bedroom furnishing Exploring Corporate Strategy by Johnson, Schools & Whetting 3 products for babies and children up to 12, and dresses for their mothers. Mother & Child collections were also launched in the UK and Continental Europe the following year. In 1989, 'Laura Ashley Home' shops were launched to sell a wider range of home ironings than was available in existing Laura Ashley outlets. The range featured Laura Ashley designed furniture carrying the Laura Ashley brand name, but manufactured outside the group.
This, together with the home furnishing range, offered customers a complete Laura Ashley lifestyle package. Also in 1989 Laura Ashley opened the first of 50 'Units' shops it planned to open in the I-J by 1992. These stores were operated under license from a subsidiary of the J. C. Penny retailing group, and offered a range of unsophisticated women's knitted clothing items which could be co-ordinate into several different garments. In the I-J and Ireland, the number of Laura Ashley outlets increased from 87 in 1986 to 182 by early 1991. I-J turnover over this period rose from EWE. Mm to IEEE. Mm.
An enlarged Mail Order Centre was opened in Newton in December 1987. Mail order sales grew steadily over the period, increasing by 50 per cent in 1988, 45 per cent in 1989 and 40 per cent in 1990 to overtake the turnover performance of Laura Ashley most successful I-J store. Laura Ashley international expansion continued and by early 1991 there were over 500 outlets worldwide. Expansion in Continental Europe, of the period. In North America, garments and home furnishing sales accounted for 70 and 30 per cent respectively of 1990/1 turnover of El 36. Mm. In the Pacific Basin, Laura Ashley principal markets were Australia and Japan.
The number of outlets in Japan doubled from 12 to 24 in the year to January 1990, a further 13 were opened by January 1991 and 12 more were planned for the following year. RETRENCHMENT By the end of the asses, Britain's economy was causing increasing concern in government and business circles alike. British business was bracing itself for a difficult start to the asses. High interest rates, combined with new restrictions on Ortega interest tax relief, brought a virtual standstill in the housing market. There were serious knock-on effects in the construction industry, and in home furnishing and home improvements markets.
Sterling was under almost constant attack on foreign exchanges. Among the casualties of the recession were a number of well- known competitors of Laura Ashley. At Next, the retail group that George Davies had made a high street star, many of the group's acquisitions were sold to reduce its debts and in December 1988 Davies was ousted. At Colorful profits slumped and in March 1990 chairman John Ashcroft resigned. November saw Sir Ralph Helper's departure from the Burton Group after a 39 per cent fall in profits. Difficult Times at Laura Ashley In the year to January 1989, Laura Ashley reported its first fall in profits, down to EWE. Mm from the previous year's figure of EWE. Mom. This was blamed on a mm start- up loss at Willis & Geiger, higher interest charges, and the strength of sterling. Chief executive John James said that, in spite of the exchange rate problems, the company had adopted an expansionist policy in the USA, which it saw as its biggest potential market. For the year to January 1990, the group reported a net loss of EH. M before tax, despite sales increases across all divisions. Sir Bernard Ashley acknowledged the need to reduce the group's high borrowing levels and in response a major rationalization programmer was set in motion.
This, he warned, might include disposals of businesses and restrictions on new shop openings. Among the exceptional costs for the year were management consultants' fees of El . Mm. Press comment on the group's losses highlighted a series of problems: in particular, severe production difficulties, especially over supplies to Exploring Corporate Strategy by Johnson, Schools & Whetting 4 the USA. The 1989 autumn range arrived three months late in the shops long after everyone's thoughts had turned to spring. 'l Some commentators wondered whether Laura Ashley was becoming dated.
What has happened is that the typical buyer has simply grown up. Laura Ashley has failed to provide for the more discerning sophisticated 30-plus consumers - who don't want their homes or their clothes to evoke the design team of a chain store. '2 In June 1990 difficult refinancing executive directors and strengthen its top management. John James acknowledged that the company had been overstretching its executive talent. For more than a year, o May 1990, the group had been without a finance director, and Mr. James had covered this responsibility in addition to his role as chief executive.
His long association with the group ended with his resignation on 1 September 1990. Press reports suggested that John Sesame's attempts to reorganize the group had been hindered by the company's somewhat insular family culture and a very conservative board. The Ashley family 70 per cent stake in the company led one writer to comment, the upheavals at Laura Ashley must make investors wonder whether companies should ever be floated with such dominant shareholdings'. At the end of August 1990 the Neon Group, Laura Ashley partner in Japan, acquired a 15 per cent stake in the group in return for a cash injection of Meme.
As part of the deal, Neon secured exclusive rights to both sales and manufacture of Laura Ashley goods throughout Asia. The Neon deal reduced Laura Ashley gearing from 100 per cent plus to 30 per cent and Ashley family holdings fell to 59. 2 per cent. Sir Bernard said he would allow his stake to fall below 50 per cent in the future as the company expanded. In September closure of seven I-J factories was announced. 'It is no longer able to source current levels of garments worldwide from our British factories when products of a similar quality can be bought at significantly lower cost from suppliers abroad,' said Sir Bernard.
The 1991 Report and Accounts highlighted actions taken to strengthen the group's financial position. Central controls over profit and cash management were implemented and new policies were introduced on capital expenditure and investment appraisal. A stringent stock control programmer was implemented to reduce lead times, eliminate buffer stock and dispose of slow-selling lines. During the year net borrowings were reduced from Meme to Meme, and stocks from Emma to Meme. Businesses that were not core to the Laura Ashley brand were closed or divested, including Pentathlon's, Bryant of Scotland and Sandbagging Leather Goods.
A programmer to improve relations with the City, investors and the financial press was instigated to develop a better understanding of the company's plans and actions. 1991 Reorganization In his 1991 report, Sir Bernard highlighted the international brand name 'Laura Ashley as the company's most valuable asset, and in order to develop and exploit the rand more effectively worldwide, a new corporate structure was put into place with effect from February 1991. The Group Marketing Division is responsible for all aspects of marketing the brand, and for designing and sourcing products to satisfy consumer expectations.
The I-J and Continental Europe Retail Divisions have been amalgamated with the objective of obtaining synergies from shared marketing and a reduction of overheads. The intention is to retain regional marketing focus. The retail divisions use their knowledge and experience of their own markets to maximize opportunities for Laura Ashley branded products. The Group Operations Division is responsible for co-ordination the logistical aspects of the business, moving product from the suppliers into retail and other distribution outlets. It 1 2 Independent, 25 August 1990. Accommodates the in-house manufacturing facilities which now comprise the print factories in Newton, the Welsh-based garment operation (4 factories) and one home furnishing factory. New Leadership In July 1991 the company announced the appointment of a new group chief executive, DRP Jim Maxima aged 48, to take effect from 16 September 1991. Jim Maxima was born in the United States and lived in the UK from 1964 to 1988. After completing a PhD in Philosophy at Kings College, London, he Joined Milliner Pl, working primarily in marketing roles.
In 1971 he Joined Leg Service Group Pl, rising to chief executive and Joint chairman of Volvo Concessionaires I-J by 1979. In 1983 he moved to Thorn-MI as chief executive of television rentals. In 1988 he moved to Boston to oversee the acquisition of Rent-a-Center Inc. And was also appointed president of Thorn-MI Inc. Taking Stock The new Coo's first few weeks were spent visiting Laura Ashley stores, manufacturing units and offices around the world. This confirmed to Jim Maxima that the question f Laura Ashley core identity had not been resolved.
No one seemed to know whether its key strengths were in design, manufacturing or retailing, or resided primarily in the brand. The result was a lack of coherent strategy and operational and organizational confusion. In Jim Main's discussions with staff a common theme emerged - one of complexity, bureaucracy and people feeling impotent to act. They felt trapped within the group's 22 strategic business units, which forced them to think parochially rather than in global terms. Business units were managed vertically as profit centers with no integration of such key functions as warehousing, striation, stock management and financial control.
Simplify, Focus and Act Under the heading 'Simplify, Focus and Act', Jim Maxima announced a major management reorganization programmer designed to refocus group activities. The changes would remove 100 management Jobs and cost more than Meme. This included capital spending of Meme to upgrade and unify computer systems. Jim Maxima said the group would be run as a single international business. 'Laura Ashley has suffered from a fragmented management structure that has prevented a clear global brand Executive (GOES) which would meet monthly 'around the world'.
On the marketing rant, Global Collection Development (GOD) replaced Group Marketing. Its mission was 'single global image marketing, rather than five or six separate campaigns. Prior to Jim Main's appointment, Glenn Gibson, senior retail consultant with Coopers Library & Dolomite, had been recruited to develop Laura Ashley marketing strategy. She set up a programmer of quantitative and qualitative market research, the first comprehensive survey of its customers that Laura Ashley had undertaken. This elicited a huge response from some 57,000 customers in the I-J and USA.
The overriding message of the research was the very strong customer loyalty that the rand continued to enjoy. Other aspects of the research were fed back into the design process and the marketing of goods in shops. Commented Jim Maxima: To my way of thinking Laura Ashley is a brand. It is not a retailing company. It is not a fashion company. It is not a production or manufacturing company. I see the management task as simply unleashing the intrinsic strength of that fantastic brand. Financial Times, 31 July 1991. One of the chief executive's main aims was to implement and explain the change programmer to staff quickly, in order to avoid as much speculation and worry as possible. He ran a week of arrowheads for senior managers throughout the world, making presentations in the UK and at the group's overseas locations in Holland, the USA and Japan. Senior managers then briefed staff using a video of the roads to support the communication process. The message was further reinforced by a special edition of the staff newspaper, LA News, distributed to every Laura Ashley employee around the world.
Jim Maxima said: This isn't a one-off thing. Our business is all about communication - talking with each other, talking to our customers and listening to what people have to say. All staff will be kept fully in touch with the cessions being made which will affect the operations and future of the company. Described variously as an effusive, highly active manager with a ready line in marketing Jargon and an obsessive concentration on target customers, and a man guided by market research, financial disciplines and management consistency, Jim Main's management style came as something of a shock to Laura Ashley staff.
Maxima was an 'enabling manager' who believed in empowering employees in order to enhance customer service. Incentive schemes were introduced to encourage employee suggestions for improving customer service. To encourage corporate staff o make contact with customers and better understand the demands on shop staff, Maxima asked all managers to spend at least one day each month working in a Laura new five-year, Meme finance facility agreed with Laura Ashley banks. This would replace the shorter three-year arrangement signed in November 1990 and was seen as 'a strong vote of confidence from our banks ... ND reflects our success in putting the business on a sound financial footing. Later that month Laura Ashley announced the appointment of Denies Lincoln as global human resources director. Recruited from Grand Metropolitan Pl, where she had been group management development erector, she was the first woman to Join Laura Ashley main board and her appointment reflected the importance attached by Jim Maxima to the development of people in building a world class business'. A management development programmer was put in place, designed to improve integration and understanding among the senior team.
Significant changes were also made in the way in which the company recruited, trained and managed its shop staff. Older store managers were recruited to better match the age profile of Laura Ashley customers. Logistics: A Strategic Alliance On 19 March 1992 Laura Ashley and Federal Express Business Logistics announced a lobar alliance - reported as the first of its kind. The accompanying press release acknowledged that Laura Ashley existing logistics were 'complex, costly and inefficient'. The agreement was seen as a critical step in Laura Ashley 'Simplify, Focus and Act' programmer.
The benefits to Laura Ashley of the alliance were listed as Savings from the simplification of the existing supply chain amounting to 10-12 per cent of total distribution costs (based on like-for-like service levels) as well as substantial reductions in working capital. Access to the global systems of Federal Express. This will provide Laura Ashley with leadings distribution systems within a short timeshare. At a minimum this will save Laura Ashley Mm in planned system development costs.
The ability to improve customer service, with the objective of being able to deliver anywhere in the world within 24 to 48 hours if required, by September 1993. Enable Laura Ashley management to focus on areas of core competence. The key systems infrastructure to enable flexible response and the opportunity for new initiatives such as worldwide mail order. 7 The alliance was intended to be of indefinite duration, but had a minimum contract El mom. Commenting on the alliance, Jim Maxima said: This alliance gives us access to management systems and logistics capacity that we could not dream of developing ourselves.
It represents a quantum leap in our strategy of simplifying and focusing operations. We now have a unique opportunity to break new ground in developing a global mail order business with the objective of 48-hour delivery anywhere in the world. The alliance opens the door to lower costs, enhanced delivery performance, higher stock turn and improved customer service. It also enables us to focus our own resources where we can add value to the core business. Back from the Brink Results for the year to 25 January 1992, released in April, showed a recovery from a EH. Mm loss to a profit of EH. M before exceptional items. 'The extraordinary thing about Laura Ashley is not that it has been dragged back from the financial brink, commented the Daily Telegraph, 'it is that it was ever pushed there in the first place. It took a rare combination of management failure, over-ambition and bad luck to bring such a business to its knees. '5 Pre-tax profits for the year to 30 January 1993 were El . Mm, but the group continued to suffer badly in the USA where stock problems produced a EH. M loss. We are rebuilding the business, but that takes time,' said Jim Maxima.
In February 1993 it was announced that the Ashley family had reduced its stake in the business with the sale of 10 million shares. This reduced the family holding to about 50 per cent and followed the sale of a similar amount fourteen months earlier, when Sir Bernard had relinquished his executive duties. A further 30 million shares were sold in May and Sir Bernard retired as chairman of the company. Headaches in the USA Laura Ashley difficulties in the USA had been hidden to some extent by the rapid growth of sales through new shop openings.
However, analysis showed that no store had produced year-on-year growth after the second year. The group's problems in the USA had persisted for more than two years despite the efforts of Jim Maxima and others to turn the operation around. He found that there were no standard shop operating systems, and that the managers of US shops were not as capable as their I-J counterparts. In the fiscal year 1993/4, 53 per cent of US shop managers were replaced. To add to the US problems, heavy snowstorms in March 1993 led to a loss of 800 store days as the spring and summer collection was being introduced, which De to yet more discounting.