The problem faced by ROA is not a new one and is completely solvable. The company needs to however, achieve a greater level of economic efficiency and cost-cutting in order to turn the tables in terms of revenues and profits. The financial statements analysis in previous sections presents a dire dilemma for ROA that can be overcome by strategies implemented with care and vigil. This section will be describing some of the most important strategies in detail. A bold and effective step that would enable ROA to cut a sufficient amount of cost is to reorganize senior management.
It should be remembered that the senior management is one of the most highly paid section of the workforce. Reducing the number of senior managers will reduce costs effectively. ROA could restructure their organization and convert it to a more vertical layout consolidate responsibilities with fewer Senior Management. This will simplify management and reduce corporate overhead costs and infrastructure. However, there is a certain tradeoff here. Reducing the number of senior managers will reduce the expertise and knowledge in organizational decision-making.
This however, can be offset to a great extent by having their presence in the company as Board of Directors. Passive participation means that their ownership in the company will boost their will and desire to think positively about the company and at the same time relieve the expenses on the payroll. Labor and capital efficiency are two aspects which ROA needs to tap in with an iron hand. There are several books and strategies available that explain how labor efficiency can be achieved. However, at ROA it should be understood that there are various categories of laborers, each with different requirements and compensations.
The craftsmen and the loading/unloading are two instances of the laborers within ROA. Examining the skills and capabilities of the laborers at ROA and accordingly rotating their jobs will bring about greater labor efficiency and employee satisfaction. Though it may not be felt in the short-run, this will lead to significantly cheaper labor in the long run owing to improved productivity. Several production companies in the world are now focusing on ways to make the production process as streamlined as possible.
Reducing delays and improving the mechanism used to move intermediate products from one output to another input are processes that can cost companies significantly, if overlooked. ROA should carry out a screening of its production and post-production process. Historically when firms deal with such heavy-weight products, there are bound to be significant transportation and labor costs. ROA could reduce these labor and transportation costs by buying newer, larger vehicles to transport these products. More capacity means a greater number of stones transported at the same time.
Although larger vehicles have greater fuel demands, the efficiency of the transportation costs will be definitely higher in this way. In an era of rising fuel prices ROA should give more priority to this strategy since transportation costs are a significant portion of the company’s expenses. The importance of marketing research cannot be undermined nor refuted. ROA should conduct internal marketing researchers to understand the demands of the existing consumers and potential consumers. The fact that only 5% of the total consumers are customers of ROA is itself a statistic that raises eyebrows.
Sales staff cannot be expected to sell two memorials at one service; however, if they are given access to a greater proportion of the market, they would certainly be able to do better. Since the statistics pertaining to the profitability of retail stores suggests that there have to be a considerable amount in sales necessary to break-even, increasing the consumer base is the strategy that ROA can look forward to ensuring a profitable venture in the near future. (Cost reduction – Get cost saving by reducing manufacturing cost … )
We would suggest after studying the history of the business ROA has been conducting that quarrying and mining are perhaps the most important and by-far the most profitable sectors of ROA. ROA should immediately diversify its funds so that investments in the quarrying sector continue as they would have had had the company not stepped into the retail business. Since the retail business overheads are significantly draining the company profits, ROA should adequately divide its funds amongst the two businesses so that it can minimize its risks.
Risk minimization is an important characteristic of large businesses where there is huge uncertainty in the market. Since the dollar is weakening in the international market, ROA should minimize its risk by providing advance shipment of its finished products. This can only be done if the production capacity is increased. In the short-term, this is neither feasible nor recommended. However, labor productivity can be stressed upon and improved by improving wages and intrinsic compensations. (Robbins, 2004) Selling, general and Administrative costs are astronomical and should be outsourced completely.
Although there is a downward trend in this expense from the recent years, it still is costing way too much and the company can save funds in this department and re-invest them in the quarrying sector. “Companies often overlook SG&A expenses or allow then to remain in a secondary or possibly tertiary position because selling expenses are a necessity in terms of operating a business”. (Wilbur F. Creighton, 1974) The failure to manage and control operating costs and overheads badly damages the company’s bottom-line profitability.
These costs refer to the administrative and miscellaneous expenses apart from the routine that are incurred by ROA. Although it is true that these expenses generally are for the motivation of the employees, these have begun to form a high dollar value on the balance sheet. If these expenses can be successfully curtailed, employees would soon find themselves with better pay rather than with office-based compensations. Some hardliners however argue that reducing the funds on SG&A could lead to declining sales and thus lesser revenues.
“However, as F. L. Mintz of Arthur Andersen LLP, stated in a magazine article, `reduction in sales is generally more than offset by a far greater percentage reduction in SG&A and accordingly an increase in the bottom line. ` The key is to be efficient”. (Mintz, 2002) Small expenses also are a significant portion on ROA’s balance sheet. Even though their dollar value is lower than the rest of the expenses, the amount of managerial time and effort required to manage and draft those expenses is significantly high. ROA manages employee retirement pensions of its workers itself.
Just like outsourcing SG&A costs, ROA should consider outsourcing these costs as well. There are several Wall Street firms specializing in this business. Currently Wall Street firms are discussing how they could invest into and buy frozen defined-benefit plans from employers. Theses firms would be in charge of managing them. “The concept would benefit employers by allowing them to get pension liabilities off their books. It would benefit employees by keeping the plan funded and would benefit financial institutions by giving them another source of revenue, proponents say.
It would also help to protect the Pension Benefit Guaranty Corp. rom taking on additional troubled plans”. Not only will it relieve the management at ROA of the tedious process of maintaining records and filings for this job, it will enable their skills to be re-directed towards other profitable tasks such as supervising quarrying. Currently this concept is being tried by Citigroup Global Markets Ltd. in the U. K. Citigroup has recently gotten permission to purchase frozen defined-benefit plan of Thomson Regional Newspapers. (Daily Times, August 11, 2008) Operation Costs are just way to high and labor costs plays a big factor in that.
Further negotiations have to be worked out with the Unions on cutting salaries. These negotiations should have a two-fold package: immediate wage cuts with promises f higher bonuses in the long-run. If negotiations fail, ROA needs to look at other alternatives such as selling quarries and then leasing them. By doing this they can free themselves from high labor union costs. Although these are really big decisions to make, if ROA has to improve its profitability and save itself from filing bankruptcy in a few years’ times, these are some of the best alternatives it has to consider at the given time.
It should be understood that laying off employees is not an avid solution since it demoralizes the employee morale. ROA need to continue to invest in and improve technology and production equipment. Recently ROA has invested into Saw Wiring technology. `We expect cost savings and improved productivity from the new wire saw technology that is now up and running in all of our quarries and in our Barre manufacturing plant to support solid growth in the second half of the year, driven by continued strong demand for our granite blocks and mausoleums,` said Donald Labonte, Chief Executive Officer.
Another important strategy that ROA could be experimenting with is the decision to market its products. Although the brand of ROA is firmly established and has a quality perception associated with it, ROA can reach out to a greater segment of the population through various techniques of marketing: societal marketing, viral marketing, etc… The decision to market its products can be a bane or a boon for ROA. It all depends on the technique employed. ROA should not be looking throw advertisements at a rapid frequency.
Instead limited advertisements in selected media should be projected to inform the prospective customers about their existence and their product. There is no identifiable problem in the quality of the memorials produced by ROA. It is needless to say that ROA does not require any quality assurance consultancy and thus can save upon this contingent cost if sales start to grow once the afore-mentioned strategies are implemented with care and understanding.