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Handling crisis by making sound decisions

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Iulia Apostu

on 22 May 2012

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Transcript of Handling crisis by making sound decisions

Abstract The first section approaches the meaning of the decision-making process, describing its structure, sequence and situations. The next section explores five types of crisis faced by a company and their outcomes on the decision-making process. The last section emphasizes the way an economic crisis should be perceived within a company and also, it gives an insight of the leaders' ability to make quick and ethical decisions for effectively managing a crisis. Part 1 Part 2 Presents an in-depth case study on Burberry Company, reflecting the way in which the actual financial crisis has affected the Company's profitability and which were the Group's decisions following the economic recession. Decision-making
process The solution to each decisional problem is the decision. A decision is the act of choice between alternative courses of actions designed to produce a specified result and one made on review of relevant information guided by explicit criteria. The decision-making process elements: Decision-maker Decisional environment Internal/
external
elements Decisional situation Direct influence Manager Board Power Competence Responsibilities Stating the
problem Identifyng
alternatives Evaluating the
alternatives Implementing
the decision Evaluating
the outcomes by Iulia Apostu "A crisis is an event that brings, or has the potential for bringing an organization into disrepute and imperils its future profitability, growth and possibly its very survival" (Lerbinger). The most frequent crisis faced by decision-makers The owner crisis:
incomplete possession, incompetent decision-makers, an irresponsible
use of assets, an
incomplete control. The cultural crisis:
contradictions between people's mentality and the needs of the market
economy. The legal crisis:
an incomplete legislative framework, bureacracy and high corruption. The economic crisis:
GDP decrease and rising prices, inflation, a decrease of the living standard. When a crisis is occuring within an organization, the most important thing is the way it is perceived by its leaders and managers, and not the least, by its personnel.
Therefore, the executives must aquire during their position skills for leading during a crisis. An organization has to expend not only financial resources, but also human capital to contain the crisis, rebuild the organization's reputation and for business recovery. Thus, some of these expenses are associated with the "crisis after the crisis" and used for managing the aftermath. In order to effectively handle a crisis, managers may have the ability to make sound and rapid decisions under pressure. Yet, the characteristics of the crisis contribute to the difficulty of the decision-making process. Last, but not the least, managers have to think about rebuilding the company's trust during and after a crisis strikes. Therefore, companies must take into consideration rebuilding their image that has been damaged by crisis, considering its integrity, positive intent and clear capabilities. (Erika Hayes James) The managerial crisis: weak professional training of the managers. Crisis and rebuilding the image of the company through an effective investment policy The crisis outcomes on the company's decision-making system Burberry is known as a leading luxury brand with a global business.
The Burberry brand is defined by its:
•Authentic British heritage
•Unique democratic positioning within the luxury arena
•Founding principles of quality, function and modern classic style, rooted in the integrity of its outerwear
•Globally recognised icon portfolio: the trench coat, trademark check and Prorsum horse logo The company's decision-maker is the Board, whose structure is: According to Angela Ahrentds, the Group's CEO, management and the Board began the financial year in April 2009 planning to stay to the strategic course in a highly uncertain consumer spending environment.
However, at the begining of February 2010, the Board announced the decision of restructuring the business in Spain. The decision was taken under a detailed analyses of the Group’s environment, which proofed that it was no longer viable for the company to produce and sell collections exclusively for the Spanish market and also by analysing many alternatives. Burberry agreed a redundancy plan with the Works Council and unions, with the resultant loss of just under 300 jobs. All employees leaving the Company are being offered outplacement support, as Burberry is struggling to rebuild its image through trust. As indicated in the Annual report, in the year to 31 March 2010, the cost of the restructuring decision was £103.7m. In the transition year to 31 March 2011, Burberry estimates that this revenue will decline by about half and trading losses will increase to around £10m, as both retail and wholesale move from the domestic to global collection, as the number of points of sale decreases and the local cost base is phased out. In the year to 31 March 2012, a further contraction in revenue is expected, but the business is supposed to generate a modest profit as it becomes part of the Europe region, supported by global product and back office teams. Figure 1: Retail/wholesale revenue by destination 2008/09 Figure 2: Retail/wholesale revenue by region 2009/10 Figure 4: Income statement Figure 5: Retail/wholesale revenue by origin - Spain Improving the decision-making system:
supply chain investment and speedind deliveries
real estate transactions
inevesting in under-penetrated markets
improving the digital system
implementing the Cost-efficency programme
amendament of the largest licence agreement in Japan Crisis after the crisis and how was the company's profitability affected by the natural and nuclear catastrophe happened in Japan The Japanese market generates 7% of Burberry's sales and almost 20% of the operational profit comes from this market.
Although Burberry took into consideration the risks of a possible natural catastrophe, global pandemic or a terrorist attack, it was seriously affected by the catastrophic earthquake and tsunami in Japan, followed by the nuclear disaster.
Shares in the fashion house were down 5.5%, or by 65p, at £11.09, at 9:15 on March 14, and as a result it was the largest faller among FTSE 100 stocks, reports The Guardian.
The Telegraph reports on 28th April 2011 that Burberry Group is the third most affected company on the Japanese market by the disaster. Its share price fell since quake by 9.2pc, the company being hit by concerns that demand for luxury products is likely to fall in the wake of the Japan earthquake.
There were many luxurious products in the Burberry Factory Outlet and it is estimated that 6 million dollars’ products were submerged in the tsunami.
On the other hand, Burberry’s revenue from Japan was not seriously affected by the tragedy, since unlike many other luxury brands, most of Burberry’s Japanese business is done through licensees, which involve a guaranteed payment to the company, whether or not there’s a natural disaster. References: 1.Butler, R.; Davis, L.; Pike, R.; Sharp, J. (1993) Strategic investment decisions, London, Routledge Press.
2.James, E. H.; Wooten, L.P. (2010) Crisis Leadership and Why it Matters, The European Financial Review. Available at: http://www.europeanfinancialreview.com/?p=2237.
3.James, E. H. (2009) In the wake of the financial crisis: rebuilding the image of the finance industry through trust. Available at: http://erikahayesjames.com/2009/12/in-the-wake-of-the-financial-crisis-rebuilding-the-image-of-the-finance-industry-through-trust/.
4.James, E. H.; Wooten, L.P. (2009) Linking Crisis Management and Leadership Competencies: The Role of Human Resource Development. Available at: http://erikahayesjames.com/2009/04/ linking-crisis-management-and-leadership-competencies-the-role-of-human-resource- development/.
5.Mărăcine, V. (1998) Decizii manageriale: Îmbunătăţirea performanţelor decizionale ale firmei, Bucureşti, Economic Press.
6.Moga, T.; Rădulescu, C.V. (2004) Fundamentele managementului, Bucureşti, ASE Press.
7.Nicolescu, O. (1998) Sistemul decizional al organizaţiei, Bucureşti, Economic Press.
8.Reid, J.N. (2000) Crisis Management: Planning and Media Relations for the Design and Construction Industry, John Wiley & Sons Inc. Press.
9.Teale, M. (2003) Management decision making: towards an integrated approach, Pearson Education Press.
10.http://www.crisisexperts.com/memo1_main.html
11.www.burberryplc.com
12.http://www.telegraph.co.uk/finance/markets/8380774/Burberry-Hermes-LVMH-Richemont-hit-as-earthquake-devastates-third-largest-luxury-goods-market.html
13.www.telegraph.co.uk/quote/?epic=BRBY
14.http://www.articlesbase.com/clothing-articles/burberry-outlet-survived-the-japanese-tsunami-4508154.htm
15.http://www.guardian.co.uk/business/feedarticle/9544788
16.http://designershandbagreview.com/burberry-and-lvmh-sales-reports-shed-little-light-on-japan/ The role of the decision making system on the company's investment policy or how Burberry recovered after the crisis Underpinned on the real and actual market situation, Burberry decided to improve the investment policy in order to capitalize the potential that lies both in front and back-of-house operations. In this way, Burberry's investment policy focused on:

1. Marketing innovation 2. Product excellence Spring-Summer 11 collection saw the launch of the first fully in-house global menswear collection.

Building childrenswear remains a key focus for the Group. 3. Licensing Burberry has three global licensing agreements: fragrance (Interparfumes), timepieces (Fossil) and eyewear (Luxottica). 4. Accelerating retail-led growth

A net 26 mainline stores were opened during the year, including a new flagship in Beijing, while a net 34 concessions were added. 5. Investing in under-penetrated markets In September 2011 Burberry aquired 50 stores across 30 cities in China, which had previously been operated by its Hong Kong based franchise. Capital expenditure Burberry’s capital expenditure focuses on flagship markets. Capital expenditure remains at 180-200 million pounds in 2011/2012 and includes store openings in Canton Road (London), Hong Kong, rebuilding of Chicago store and relocation and expansion in Regent Street (London).
In the financial year 2011/2012 Burberry planned to invest 30% of the capital in retail flagship stores, 30% in IT and marketing and 40% in retail stores and other.
For the six months ended September 2011 Report, Burberry has delivered a strong first half, reflecting their continued investment in innovative design, digital marketing and retail strategies. Measuring Burberry's progress Conclusion Burberry is a fine example of a company that not only managed to survive the financial crisis, but also managed to improve its financial position on the luxury market in time of recession. Burberry is a living proof that the investment decision is one of the most importnat in a company. Without the investment in infrastructure and expertise, growth on this scale would not have been possible.
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