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Report on Plant & Gardens NZ Ltd 1.

0 Introduction

This report is written for CEO and the board of directors of Plant & Gardens NZ Ltd (referred to hereafter as PNG). It is aimed to reflect the companys current status and give the management of PNG recommendations based on the external and internal analysis in an attempt to maximize profitability on investment. The landscaping industry has been a dynamic and growing component of the Auckland region for the last two decades particularly due to population growth and housing fuelled by immigration. The PNG clearly makes multiple contributions to the economy and quality of life in Auckland by developing and maintaining attractive urban landscapes. However, the growth of landscaping industry began to slow down due to decrease in immigration quotas and housing. Although PNGs reputations and backgrounds would place them in the competitive position in the landscaping market, it is estimated that profits would decrease in the business. The company are looking for growth opportunities of moving into more profitable areas of business with 3 new enthusiastic equity investors who are unafraid to take risks and believe in PNGs potential. This report is can be used to attain an understanding and to guide PNG in the process of formulating its competitive strategy for future growth.

2.0 Fundamentals of PNG

The core business of PNG is landscaping and garden maintenance concentrating on large scale projects for the commercial and government organisations. Competition is fierce and we have even seen a number of large landscaping projects were being awarded to small industry players. This clearly shows that small companies can easily compete with the major market leaders, such as PNG, in providing services to large customers. Experience, reputation for our quality work and professionalism can no longer be our sustainable competitive advantage under the current economic climate. Small companies operate with significantly reduced overheads; therefore tend to be highly competitive on price.

2.1 Desirability and feasibility PNG faces a number of challenges and issues that need to be addressed and resolved. GAP analysis has been used in an attempt to identify the issues and to determine gaps between the desirability and feasibility of each operation.

Operations management is concerned with the flow between operations, processes, and resources where the external and internal supply networks are formed and become each others customer and suppliers. Therefore, the two primary objectives of operations management are the provision of customer satisfaction and the efficient resource utilization. Customer satisfaction has to be sustainable and balanced with efficient use of resources and reduce costs. However, management and equipment costs are mainly fixed; the profitability of PNG is dependent on the operational efficiency and the demand volume of services.

The Voice of the Customer

The Voice of the Business

Operation

CS v/s Spec RU

Timing

Cost

Machinery Systems

Prework Raw Materials

Labour Type

Soft landscaping External maintenance

CS

Finish on time ***** and budget

*****

*****

*****

*****

CS

Scheduling

*****

*****

*****

*****

*****

Suitable plants Interior maintenance CS Keep ***** Plants alive and healthy ***** ***** ** ***

Yard Operation

CS

*****

*****

**

***

Nursery

CS & *** Plant supply to RU SL,EM,IM, Special event

Long growing

term * * ** *

Composting Delivery Operation Special Events

RU On-time delivery On-time delivery Suitable plants

CS

*****

*****

*****

**

CS

*****

*****

***

****

****

2.2 Competitive Advantage

Operations Large supply yards

Competitive Advantages Our own four large supply yards with a nursery, composting and inventory yards to support each of our operations. PNG retain safety soil stock as soil delivery time is crucial. Well trained and experienced crew providing ongoing maintenance services after the completion of the projects. Customers see this PNG offer value added services. All plants for our projects are insourced from the nursery. This reduces cost significantly.

External maintenance

Large nursery

3.0 What happens if we do nothing?

PESTLE analysis is a useful method for understanding the external and internal factors affecting the companys current position and potential, and developing future plans for the progress of the business.

3.1 PESTLE Analysis

PESTLE analysis for PNG Political


Economic

change in the NZ immigration policies ecological/environmental issues current legislation home market future legislation regulatory bodies and processes trading policies

Reduction in immigration quotas and housing impact on the economy on the business Current NZ competition economy increasing

overseas economies and trends seasonality/weather issues customer/end-user drivers High NZ dollar

Social

Technological

Angelas garden show is a success Medium to large landscapers is the buying population which is divided into small and large segments Lifestyle trends Changing population demographics Strong brand image

Just-In-Time for exotic plants delivery of top soil on time Nursery maturity and capacity Information and communications

3.2 Porters five forces Michael Porter's Five Forces Model has seen as the most analytical and influential method for assessing the competition in an industry, which is described as follows:

Source: Porter, M.P., The Five Competitive Forces (Harvard Business Review, 2008)

Porter identifies five forces that determine industry attractiveness and long-term profitability. The five competitive forces in the landscaping industry are; Threat of New Entrants The threat of new entrants to the landscaping industry is high as the entry barriers are low. Consequently, the level of competition is very high and it reduces its business attractiveness. It is relatively inexpensive to start a new company. A new company can advertise locally and service a relatively small geographic region and incur minimal operating and capital costs. Those companies can establish significant customer loyalty and more likely to be successful with the solid customer base. Intensity of rivalry between existing competitors The rivalry between existing competitors in the landscaping industry is intense where there are many equally sized or small players. PNG being a market leader has 20percent of market share but there are no companies with a dominant market share in this industry. High fixed costs encourage competitors to fill excess capacity by price cutting. Little product differentiation and low switching costs creates greater rivalry in the landscaping industry. Small companies are

pursuing cost-cutting strategies aggressively under the current economic crisis, rivalry became even more intense. Threat of Substitutes There are no significant substitute services or emerging trends that would diminish the industry attractiveness or established industrial methods for commercial, industrial and residential landscaping services. Therefore, threat of substitutes is low. Competition with occasional do-it-yourself (DIY) homeowners cannot be a threat to the industry. Bargaining power of suppliers Suppliers bargaining power is medium high. Volume, time and the cost of materials such as top soil and exotic plants bought from suppliers can have a significant impact on PNGs profitability. There are many landscaping buyers but few dominant top soil suppliers and are highly valued products. We cannot threaten to integrate backwards into supply such as top soil and exotic plants Bargaining power of buyers The bargaining power of buyers is greater as many sellers in the industry and competitions are fierce. Landscaping services are undifferentiated and standardized, and buyers are price sensitive. Landscaping is to be cut easily during economic downturn as it is often a discretionary spending. It is expected the decrease in the sale growth and the pressure on margins.

3.3 Key success factors and Key limiting factors Key Success Factors Service Range Quality of Service Experience Personnel Value Brand Image Customer Intimacy
GAP GAP

High VP
GAP P

Medium VP

Low VP

Design On-site Nursery

Key Limiting Factors High Threat Cyclical revenue fluctuation


Game Changer

Medium Threat

Low Threat

Loss of momentum Competition Yard rental Top soil supply

Game Changer

3.4 Key success factors for PNG Experience PNG has been able to leverage its experience and knowledge of the market to become successful in the industry. PNG doesnt necessarily receive benefit from being the largest operator in the industry and be more price competitive. Quality PNG has established a reputation as a market leader in the high-quality landscape design and maintenance industry, and developed a strong customer base with a proven track record of successful projects for commercial and government organizations. Design Our international award-winning designers work with the customers from the initial planning to the completion of the project. They are on site to ensure the project fulfill the goal. Value The client chooses PNG based on a combination of their budget and our reputation. We have to

give the best we can and be paid appropriately. Through excellent planning, quality products and most efficient landscaping and maintenance services, we provide the value to our customers. Personnel A strong management team is critical in the landscaping business. Rachel is the most respected and highly sought after landscape designer and Rod is a renowned landscaper and builder in NZ. Our professional team also includes plant material experts, well-experienced construction and maintenance crews. Each member of our team contributes valuable skills and knowledge necessary throughout all the phases of design, installation and maintenance to achieve a successful outcome. On-site Nursery All plant materials for our project are insourced through our on-site nursery. The nursery has been successful and has undertaken a number of value adding activities Customer Service The critical component to business success is customer retention and referral. The success of PNG has been a direct result of our ability to provide excellent personal service creating a strong customer satisfaction and customer loyalty.

3.5 Key limiting factors for PNG Seasonal income The success and profitability of the PNGs landscape business is directly affected by seasonal changes. Revenue drop significantly once winter transition into the summer and spring months giving a financial hard time for the company. The bad weather could have resulted in a significant loss as momentum lost. Staff turnover is also high and unavoidable due to the seasonal nature of the landscape business. Yard rental expense Our profit has been eaten up by the rental expenses for our 4 supply yards. Soil delivery Soil delivery timing is critical for the project success. Safety stock in case of bad weather emergency or a delay in the soil delivery results in high rental expense and high inventory costs.

4.0 Opportunities

According to the PESTLE analysis and Porters Five Forces analysis, the industry is in a mature stage of its life cycle and is estimated to maintain a stable share of the Auckland regional economy over the long term. The industry demand fundamentally determined by the cyclical fluctuations in population growth, housing and construction investment. We need to critically analyse whether it is feasible to change the business for future growth or retain the current operations. Current economic crisis and decrease of immigration causes the increase in competition among existing players. It is estimated this will lead to a decrease in profitability of PNG. Therefore, maintaining the status quo seems not a safe option. We also needs to strategize about the tough competition that we will face from competitors including small players. However, no other landscaping company in New Zealand can match PNGs ability to provide the full range of integrated services on large scale projects or commercial development.

4.1 Core Competencies Core Competencies should be flexible in responding to changes in the business environment. As Hamel and Prahalad emphasize PNG must not lose the sight on the future to come while more focusing on current situation. As a business evolves, develop growth strategies for adding new businesses to the portfolio, whilst deciding what businesses should no longer be retained to lead PNG into the future.

4.2 New operation policy Business Objective Market to be Served Profit maximization High-end home owners Public-private sector large organization Landscape design Exterior maintenance Interior maintenance Plant materials Composting

Type of Products

Manner of Serving the Market Quality Policy Demand Volume of Services

Effective customer service combined with efficient resource utilization High quality, technically oriented landscape services Small quantity to a large number of end customers

4.3 PNG New organization chart PNG split into 3 main divisions namely; B2B, Yard Operations, B2C based on 4 main assumptions adding high-end home garden services outsourcing soft landscaping installment purchasing land for nursery closing 3 yards and keep Mt Wellington

5.0 What are the opportunities?- Strategy and implementation summary

5.1 B2C Division 5.1.1 Home garden services Giving up big landscape installation provides us to explore new business opportunity for creating residential landscapes. We will have a modest profit initially but to be expanded over the next three years. Switching to smaller private customer may represent a high-risk opportunity but I am confident about our ability to grow the business in the residential sector. According to Maslows hierarchy of human needs model, aesthetic need and satisfaction of cognitive need are important. Successful landscape design can be directly associated with this principle and individuals quality of life. The competition in this market segment is overwhelming but often lacks professionalism and quality of service. We will deal with predominantly an upscale market that may not be as affected by the unsteady economic swings. The projects can cost 10 to 20 percent of the value of their property and the margins are larger as we can charge more for the higher-skilled work. There is also seasonality of demand with higher demand for home gardening services in spring and autumn as opposed to lower demand for large projects during theses months. This will support the business through the leaner months as a business with highly seasonal profits.

5.1.2 Future home garden business strategy Take a fresh approach to the landscape business and create a niche that competitors are not offering. Oriental garden design landscaping: This unique and premium service can create a larger profit margin. Organic garden: The popularity of eco-friendly and health-aware organic gardening continues to increase. Manipulating demand The landscape demand is seasonal and fluctuates according to the weather. Manipulate demand in the off peak season by introducing gift cards and loyalty cards. This can also lock in customers creating a constant demand. Buy out smaller landscapers

PNG should buy out smaller landscapers in the residential sector in order to increase market share.

5.2 Yard operations 5.2.1 Nursery Nursery operations have been successful generating the highest revenue. PNG grows most of the plants we use in our landscapes and purchases some trees for some specific applications. We should expand nursery business because of its lucrative profits. We should grow plants not only for our own projects but also sell wholesale to other landscapers. We should grow expensive trees and exotic plants and be knowledgeable and flexible to be aware of new trends in plant materials. 5.2.2 Composting Composting is seen as a good business opportunity with money coming in both from saving material tipping fees and use of the end product further reduces grounds maintenance costs. It also has been catering to our nursery. 5.2.3 Purchasing supply yard The company currently leases 4 large supply hubs and pays high rental fees. We will close 3 supply yards except Mt Wellington site. With an additional equity investment the company will have sufficient funds to purchase land for future expansion. PNG should purchase either currently leased Mt Wellington supply and nursery yard or affordable land within the proximity to greater Auckland area. Property maintains a cash reserve, and by owning the yard will enable PNG to divert the current rental expense into equity growth. Therefore, we will be able to maintain good cash flow and increase profitability.

5.3 B2B Division 5. 3.1 Public and commercial division Demand for urban area landscaping in the greater Auckland region are expected to continue to grow even though the fear of public sector spending cuts and weak economic condition. However, business will get tougher and more competitive as small landscapers have fiercely pursuing price-cutting strategy into this market. Public and commercial component has been the key to PNGs growth. At present, about 35% of business is from public and commercial landscape services. Despite its high level of business share this division generates a low profit but operational cost is very high to sustain its growth.

Large landscaping business is seasonal, with the high season being late autumn through winter. There is very little activity in the spring through autumn period. Managing employees is a challenging task as we need to keep an eye on staffing requirements and be prepared to fill in when necessary while driving overhead cost down. Nevertheless, PNG will continue working in the public and commercial projects on a larger scale bbecause most of the maintenance and special event jobs from our soft landscaping clients. PNG's established brand reputation and our impressive credentials enable PNG to win the projects. We should retain landscape design but outsource landscape installation. The design phase is typically the most important in developing any new landscape installation or renovation. Landscape design is core strength as PNG has award-winning in-house landscape architects generating profitable revenues by charge the highest fees. 5.3.2 Exterior maintenance Exterior maintenance is very profitable with a low overhead cost. At the completion of each project, customers often wants ongoing, professional maintenance programme which is essential in protecting their landscape investment. PNGs professional maintenance service aims for the highest possible standards and ensures the viability of the plant materials many years after the initial installation.

PNG Share of Business & Margin Ratios


40% 35%

Share of Business

30% 25% 20% 15% 10% 5% 0% Cost Profit

6.0 Recommendations and conclusion This paper has provided a strategic and holistic view of the landscape industry. Within the landscape services industry in Auckland revenue has fluctuated significantly recent years due to the continuation of economic downturn. Decrease in outsourcing levels among private and government business sector resulted in increase in competition and the decrease in the industry revenue. PNG continues to gain market share in the public and commercial market, however, the soft landscaping business in this sector is no longer sustainable as its operational cost is very high given its low profit margin. The high level of competition also reduces its business attractiveness. Therefore, PNG must explore market penetration opportunity into home garden segment targeting exclusively the high-end homeowners who have high level of discretionary income and aesthetic taste. Switching to smaller private customer may represent a high-risk opportunity but I am confident about our ability to grow the business in the residential sector.

In conclusion, my main recommendations are; Close the three of our supply yards and retain only one in Mt Wellington. Our profits are being eaten up by a high rental expenses. Outsource delivery using 3PL trucking company. Soil delivery timing is critical for the business success but the safety stock in case of bad weather emergency or a delay in the soil delivery results in high rental and high inventory costs. Continue composting operation. This creates synergies with other business such as nursery and external maintenance. Purchase the land and expand nursery business. Nursery operations have been successful generating the highest revenue. It creates a competitive advantage that ultimately results in superior value creation for the company. Retain Landscape design and maintenance for large organizations but outsource installation. Exterior maintenance is a value-added service. It has been very profitable with a low overhead cost. Develop high-end home garden service market. PNG has established a reputation as a market leader in the high-quality landscape design and maintenance industry, and developed a strong

customer base with a proven track record of successful projects for commercial and government organizations. This will create a competitive edge in penetrating the market.

Bibliography Hamel, G., & Prahalad, C. (1994). Competing for the Future. Harvard Business Review, 72(4), 122-129.

Kinicki, A., & Kreinter, R. (2009). Organizational Behavior: Key concepts, skills & best practices, (4th ed.). New York, NY: McGraw-Hill/Irwin.

Porter, M.E. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business Review, 86 (1), 78-93. Retrieved from http://www.exed.hbs.edu/assets/Documents/hbr-shapestrategy.pdf

Wright, J. N., & Race, P. (2004). The Management of Service Operations, (2nd ed.). London: Thomson Learning.contracted out as needed.